Bermuda International Business Association

Known as being the world’s premier offshore financial centre, Bermuda has a long established reputation for stability and security. It is situated in the North Atlantic between the United States and Europe, approximately 750 miles southeast of New York. With direct flights arriving from and departing to gateway cities along the US East Coast, Toronto and London, Bermuda is relatively easy to get to.
Bermuda is a 22 square mile British Overseas Territory with a population of roughly 62,000, having a literacy rate of 99%. It has the oldest parliamentary system in the Commonwealth and its legal system is based on the English model. The currency is the Bermuda dollar which is on par with the US dollar. Though Bermuda has an effective consumption-based tax system, there is no income tax, capital gains tax or corporate taxation in Bermuda affecting non-residents.
Reinsurance, tourism and financial services are the pillars that support Bermuda’s economy. Financial service business began to take root in the late 1940’s and has flourished ever since. Bermuda has become one of the world’s largest and most recognized reinsurance markets.
Bermuda is home to over 13,000 international companies, 1,500 investment funds and an electronic stock exchange having a market capitalization in excess of $60 billion. Approximately 75 of the Fortune 100 companies have operations in Bermuda. Bermuda's "blue chip" business environment gives companies the flexibility to react to market challenges without sacrificing quality and integrity. It lends itself as a genuine one-stop-shop international business centre where a company can:
Incorporate
Incubate
List on a world-class, and first of its kind, stock exchange
Secure venture capital, and
Take advantage of a sophisticated network of support services.
Taxation and Regulatory Framework
Bermuda has garnered much attention for its taxation and company incorporation policies. As an international business jurisdiction with competitive tax policies, Bermuda has a long history of cooperation with the United States on regulatory and tax issues. It has a well-enforced set of rules and regulations regarding its tax practices compared to some offshore jurisdictions that have little or no tax systems in place at all. Bermuda's tax structure is a consumption-based one that benefits the needs of its population. Approximately 23 percent of GDP is collected via the Government's primary sources of revenue, Customs Duties and Payroll Tax.
Many international regulatory bodies including the OECD, FATF and the UK Foreign Office have closely reviewed Bermuda's system of regulation and taxation and have praised it for being long-standing, well-established, fair, effective and sensible. The OECD report in June 2000 pointedly excluded Bermuda from a list of 35 other nations considered as having uncooperative and harmful tax practices. That same month, the US Department of Treasury excluded Bermuda from its advisory listing 15 countries as ones failing to cooperate in the international fight against money laundering.
In October 2000, the KPMG Report on Financial Regulation in the Caribbean Overseas Territories and Bermuda, prepared for the Foreign and Commonwealth Office of the UK government, credited the Island for the conservative approach that it has always taken with regard to the establishment of companies. This is evident in the modest number of international companies on its register (approximately 13,000) when compared with many other business jurisdictions and U.S. states. A key element of this conservative approach to company incorporations is the rigorous " Know Your Customer" review that Bermuda authorities use to carefully scrutinise the underlying activities of businesses applying to operate within its shores.
This approach, long standing in Bermuda, but only now being implemented in many other countries, has helped to ensure that Bermuda-based companies are well known to, and readily accepted by, the world’s major stock exchanges and investigative organisations.
All companies that elect to incorporate in Bermuda must have a presence on the Island. Its office there must satisfy numerous, substantive obligations set forth in the Companies Act. The KPMG report further suggested that aspects of Bermuda’s company formation practices put the Island "at the highest level of compliance with good practice in this area".
Bermuda has committed itself to offering experience, stability and accessibility to many of the world’s leading insurance, financial, technology, legal and consultancy firms. It has not only secured its role as the world's premier and largest captive insurance, reinsurance and financial line insurance market, realizing nearly $13 billion worth of new capital in the months following 9-11, but also as a recognized and growing financial and e-business centre.
Trust Administration
As an innovator in trust administration, Bermuda features a supportive regulatory environment and a sophisticated financial infrastructure, with standards comparable to those of the United States and the United Kingdom. All financial institutions in Bermuda are supervised and regulated by, an independent body, The Bermuda Monetary Authority.
It is becoming quite popular to form a trust in Bermuda, in order to manage a pension fund that will be able to act as a savings scheme, a severance package or enable corporate employees to purchase shares in their employer.
A pension trust can offer a variety of different plans attached to and governed by one agreement. By having multiple plans attached to the lone agreement, the pension plans are able to be flexible and accommodate the various nationalities of the expatriate workers, which any company is likely to employ.
It is noteworthy that under Bermuda law, a group of trustees are permitted to act together and divide their responsibilities between one another. Therefore, a situation can occur, whereby each trustee is only liable for its duties, as they relate to their responsibilities, and only those duties. For example, a custodian trustee can hold assets and a managing trustee can take care of investments.
A typical structure would involve a multi-national company creating a pension trust where the assets are transferred to the trustee by the employing company and/or its employees. The trust would be able to hold the various investments, which finance the plans. The trust could even hold assets of insurance related benefits, such as life insurance, workers compensation and health insurance. The trustee would act as the custodian of the assets and ensure that the pension plan is administered in accordance with the trust deed and the rules governing the pension plan.
In Bermuda, it is important to ensure that the ownership of the assets be registered in the name of the Bermuda-based trustee. The main reasons for this are so that the pension trust funds are tax exempt and the title to all pension funds (provided that they are not Bermuda dollar denominated investments) can be moved freely without any regulatory control.
The advantages of a Bermuda international pension trust are, as follows:
the ability to invest freely and create different types of benefits under the pension plan;
the ability to pay benefits to workers tax-free and in any currency they so choose;
there is less regulation of a Bermuda pension plan, as compared to the regulations of the expatriate’s domicile;
only one plan is needed to cover the expatriate worker, instead of transferring them each time they have to relocate;
lower administration costs;
assets held in trust are legally separated from company assets and, as a result, are not available to any creditors of the company; and
registration of an international pension trust in Bermuda is voluntary.
When thinking of setting up an international pension plan, one should consider additional factors relating to Bermuda, not solely because it offers the aforementioned advantages to structuring the pension trust, but because Bermuda also has generally accepted money laundering legislation in place.
Funds Market
Bermuda has been host to a flourishing mutual fund industry, and this includes hedge funds, for many years. That industry continues to grow strongly. Between the first quarters of 2001 and 2002, the total number of Bermuda collective investment schemes (mutual and hedge funds) increased by 12%, while the corresponding growth in net asset value jumped to 25%. This follows similar increases of 13% and 22% between the years ending 2000 and 2001 respectively. Currently, Bermuda regulates over 1,400 schemes with aggregate values in excess of $68 billion.
Bermuda aims to regulate pooled funds, both those directed at the public and those, such as hedge funds, that target only sophisticated and high net worth investor and institutions. But, the Island's regulations provide for three different types of regulated Schemes: Recognised, Standard and Institutional, with differentiated regulatory requirements applying to each. From the outset, Bermuda concluded that hedge funds have to be subject to a certain degree of regulation that is appropriate and effective.
The jurisdiction has always prided itself on applying regulation that is appropriate as well as effective, taking into account the relevant risks within the various sectors and entities. With regard to investment vehicles, Bermuda quite properly seeks to apply tougher standards and requirements where the general public is investing, and relies much more on full transparency and disclosure in relation to investors who can reasonably be expected to understand and tolerate the underlying risks, (the sophisticated investor). Clearly, in the case of Institutional Schemes, which category includes hedge funds, the primary focus is on proper disclosure and market discipline.
Bermuda will be continuing to differentiate itself in this industry in the same way it does in other areas of financial services by in part, aiming not to do marginal business.
E-business Centre
Competition has produced a highly developed communications infrastructure. International telecommunication providers such as Cable & Wireless and 360Networks have made significant investments to ensure a fault tolerant and quality infrastructure that far exceeds international standards.
Bermuda is served by ample bandwidth, available through multiple routes of fibre optic and satellite networks to cover at least 15 million simultaneous voice and data connections.
The Government of Bermuda recently published a Green Paper entitled "E-Business: the Second Wave" (Available on-line at www.mtec.bm). This paper details the future development of e-business in Bermuda and builds upon the substantial achievements made to date.
Bermuda was one of the first countries in the World to introduce an Electronic Transactions Act recognizing the validity of electronic communications and data. The Government continues its investment in this area with a commitment to further developments that will support electronic business. These include:
Intellectual Property legislation
Data protection
Consumer protection
Child protection
Bermuda in addition, hosts a selection of ISPs, web design companies, computer hardware and software vendors, and a dynamic group of certified Internet payment solutions companies.
Bermuda's reputation as the leading offshore business jurisdiction has bred an entrepreneurial spirit and aptitude to provide business solutions in many areas of international business including; financial services, insurance and reinsurance and e-business. With a sound regulatory approach and a well-developed infrastructure, Bermuda has effectively differentiated itself from other offshore jurisdictions and has secured its favourable standing in the eyes of the international business community and the world's regulatory oversight organizations.
Contributing to this article were; Aaron Adderley, Bermuda International Business Association; Andrew Whaley, Capital G Trust Limited; and The Bermuda Monetary Authority.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Specific Questions relating to this article should be addressed directly to the author.
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