Unpopular proposal to tax expatriates in the Cayman Islands has been dropped.

The Cayman Islands has axed a plan to tax foreign workers that sparked widespread outrage.

Residents of the British Caribbean territory, which famously imposes no direct taxes, were shocked when the government announced the introduction of a 10 per cent community enhancement fee on the income of foreign workers earning over 15,300 (later lifted to 27,600).

Premier McKeeva Bush said the tax was imperative to help Cayman tackle its financial problems. But both expats and locals expressed concern that it was not only unfair, but could damage the Islands' status as one the of the worlds leading offshore financial centres.

After nearly two weeks of vigorous campaigning by islanders, a statement was issued by Mr Bush confirming the tax was off the table and will not be implemented.

In a meeting on Wednesday, he identified other sources of revenue which were likely to be brought in to replace the expat tax, including raised work permit fees and property stamp duties.

Robyn Larkin, an American expat living on the Islands, was one of many expats celebrating the demise of the plan. I am glad to hear that the expat tax is off the table, she said. "Cayman is my home, no matter where I was born, and I want to see this community prosper, not suffer as it has since this tax was announced.

In 2009, official statistics showed that there were nearly 23,000 foreigners living in the Cayman islands, comprising 41 per cent of the population. A significant number work in the two pillars of the Islands economy, finance and tourism.

The Cayman Islands Real Estate Brokers Association said that the tax would have meant giving up "the single-most important value proposition that the Cayman Islands has to offer our investors no direct taxation" and would see the territory lose out to its competitors.

The Cayman Islands has long been the worlds most important hedge fund location, and is the fifth biggest banking centre. A combination of the financial crisis and alleged government overspending however has seen it struggle to balance the books in recent years.

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Cayman Islands scraps expat tax plan