The Cayman Islands and Britain sealed an agreement Tuesday allowing the two sides to share British nationals' account information, said reports from George Town, capital of the islands.
It makes the Cayman Islands the first British overseas territory to sign such an agreement for the automatic exchange of information with Britain for tax purposes.
Financial institutions in the Cayman Islands will pass on information on financial accounts that are substantially owned by persons with British tax-reporting obligations to the Cayman government, which will then forward that information to Britain, according to Cayman's Minister of Financial Services Wayne Panton.
This decision follows Cayman's participation in the G5 pilot on multilateral automatic exchange of information in April, and the publishing of a new action plan to fight tax evasion after the June G8 Summit.
Premier Alden McLaughlin, representing the Cayman Islands authorities, called the agreement "FATCA-type", which stands for the United States' Foreign Account Tax Compliance Act, dealing with tax reporting for U.S. residents living overseas.
McLaughlin indicated that the acceptance of the automatic exchange of information is "the result of decades of global discussion regarding tax transparency".
British Chancellor of the Exchequer George Osborne also welcomed the signing, saying, "The UK has led the way in creating a new global standard for tax transparency and automatic tax information sharing."
"Our message is very clear: it is only fair that people pay the tax they owe. If you are trying to evade tax, we are coming after you," he said.
The Cayman Islands, dubbed a "tax haven" among other British overseas territories, has been under increased pressure in recent years to make financial information more transparent to combat tax avoidance and evasion.