Bermuda Companies and Bermuda Trusts

General Introductory and Offshore Tax Information

In September 2008, the Monetary and Capital Markets Department of the International Monetary Fund (IMF) assessed Bermuda’s supervision and regulation of the financial sector. The study highlighted areas which required improvement and updating as well as sectors such as insurance and reinsurance which were described as having "a high level of observance of the IAIS Core Principles". The Bermuda Monetary Authority’s Department for Banking Supervision was reported to have been "restructured to support the introduction of a formal risk-based supervisory system".

After the United States of America, Bermuda’s captive insurance sector is the second largest in the world, while as a reinsurance centre its global importance is significant. Adequate supervisory and regulatory frameworks for Bermuda’s financial system are therefore essential due to its transnational influence.

As a tax haven, Bermuda levies no income tax, capital gains tax, estate duty, tax on profits and does not tax dividends. Bermuda exempted or offshore companies are, however, subject to an annual fee which is payable to the government in January for license renewal. Annual fees are applied to offshore companies and entities according to assessable capital at the time of incorporation for the incorporation year and assessable capital on August 31 in the year before for the other years. So, for example, the annual fee of a mutual company is based on reserve funds and a joint stock company’s annual fee is based in its share premium and authorized capital. If an offshore company is incorporated after August 31, the incorporation fee for that company is lowered by half. To calculate assessable income, a conversion is done into Bermuda dollars. Annual fees according to assessable capital are shown below:

Bermuda Offshore Business Entities:

• Bermuda Exempted & Permit Overseas Partnerships
• Bermuda Non-Resident Trusts
• Bermuda Insurance
• Bermuda Segregated Accounts Companies
• Bermuda Exempted Company

Bermuda Exempted & Permit Overseas Partnerships

Main Features:

Types of Partnerships

• Exempted Partnerships
• Overseas Partnerships

Exempted Partnerships

• Formed through incorporation and subsequent issuing of Certificate of Exempted Partnership
• The Certificate contains the partnership’s name of business and partners, registration date, name of registered agent and address, nature of business
• The By-laws are presented in the Articles of Partnership in which the specific nature of the business is discussed
• A partnership may acquire exempt status if one or more of the partners is not Bermudan, the company is not local or considered in any other way Bermudan based on provisions of the law (Companies Act 1981)
• Must keep record of accounts at the registered office or at whichever location decided upon by the partners and records are subject to scrutiny by the registered agent
• May not hold or acquire land in Bermuda
• Lease agreements may not be for more than fifty years

Permit Overseas Partnerships

Main Features:

• Must have a registered office in Bermuda at which mail and other forms of communication can be received
• Must keep the necessary financial records at registered office in Bermuda
• Must appoint a resident representative
• The resident representative must be able to attend, participate in and be informed of all meetings held by the partnership
• May not hold or acquire land in Bermuda
• Agreements of lease must not be for over fifty years
• May only acquire debentures or bonds on land issued by a public authority or government
• May only conduct effective business with persons who are not residents of Bermuda
• May buy, sell or deal in securities and investments issued by an exempted entity or local company
• May perform bank transactions in Bermuda through any bank licensed under the Banks and Deposit Companies Act 1999

Bermuda Non-Resident Trusts

Main Features:

• Governed by the Trust (Regulation of Trust Business) Act 2001
• The trust’s assets are a separate legal entity from the trustee’s estate
• Prohibited from carrying out trust business from within Bermuda unless the trustee is licensed or exempt
• Classified as non-resident under the Exchange Control Regulations 1973
• Trust undertakings are required to file audited financial statements as well as a Certificate of Compliance to the Authority within four months of the end of the financial year
• Refers to the legal relationship established either inter vivos or on death by a person
• Has a specific objective and used for the benefit of the beneficiary of the assets placed under the trust
• The assets of a trust are controlled by the trustee
• Title to the trust is kept either in the name of the trustee or of someone’s on the trustee’s behalf
• The trustee is given the power to use or dispose or manage the trust’s assets in compliance with the terms established in the trust and by law
• Anti-money laundering compliance testing and visits are regularly made on-site by the Authority’s staff

Bermuda Insurance

Main Features:

• The Bermuda Insurance Act 1978 was consolidated in 2009. The 2009 consolidated Insurance Act establishes the same structural and capital requirements and regulations for domestic and offshore insurance companies.
• An insurance company formed for offshore purposes must not provide its services to the residents of Bermuda
• An offshore insurance may conduct general, long-term, both general and long-term and special purpose insurance business
• Must maintain a principal office in Bermuda
• Must appoint and maintain a principal representative in Bermuda
• Must maintain in its principal office an accurate list of all its insurance agents in Bermuda and if required in writing at any time by the Authority so to do, shall provide him with a copy of that list
• Must prepare statutory financial statements (accounts)
• Must appoint an auditor approved by the Authority

Classes of Bermuda Offshore Insurance:

• Class 1 insurer — Fully owned by a single person insuring his or her individual risks or an affiliate group which undertakes to insure its own risks.
• Paid up share capital of $120,000
• Class 2 insurer — Fully owned by two or more people who are unrelated and undertake to insure no less than 80% of the net premiums written for risks belonging to themselves, their affiliates, their business or operations, or the business or operations of their affiliates.
• Paid up share capital of $120,000
• Class 3A insurer — An offshore insurance company where 50% or more of the net premiums written or 50% or more set aside of loss and loss expense are related to insurance business
• Paid up share capital of $120,000
• Must hold total net premiums of 50,000,000 written from insurance related business
• Class 3B insurer — An offshore insurance company where 50% or more of its net premiums written or 50% or more set aside of loss and loss expense are unrelated to insurance
• Must hold total net premiums of 50,000,000 written from insurance related business
• Paid up share capital of $120,000
• Class 4 insurer — has a minimum capital of $100,000,000 at the time of submitting offshore insurance registration application and plans to conduct insurance and property catastrophe reinsurance or excess liability insurance. An insurance that qualifies as a Class 1 or 2 will not be registered as Class 4.
• Paid up share capital of $1,000,000 or 1,250,000 as a Class 4 and long-term offshore insurance
• Special Purpose offshore insurers must have a paid up share capital of $1

Taxation and Fees:

• The registration fee payable by a Class 3A, Class 3B or Class 4 insurer shall be remitted by 50% where an insurer is registered after 31 August in any year; by 75% where an insurer is registered after 30th November in any year
• Annual fee
• The Authority shall not grant an exemption unless it is satisfied that it is appropriate to do so having regard to the obligations of the applicant insurer towards its policyholders

Bermuda Segregated Accounts Companies

Main Features:

• Governed by the Segregated Accounts Companies Act 2000
• Also often identified as a Segregated Portfolio Company or Protected Cell Company in other jurisdictions
• Ideal for undertakings including umbrella, hedge and mutual funds, trusts, companies involved in e-commerce, companies which own aircraft and ships, SPVs, insurance companies, securitization and derivatives structures
• Must maintain and appoint in Bermuda a segregated accounts representative approved by the Minister
• Registered insurers have no need to seek approval of the relevant Ministry in order to apply for registration as a segregated cell company
• The obligations, interests and rights of account owners must be stated in a governing instrument and represented by contracts
• Other segregated accounts can be created for the purpose of transferring liabilities, assets, losses or profits relating to an existing segregated account or converting interest
• A legal person distinct from the segregated accounts company is not created of a segregated account does not
• Can create and issue securities of various classes related to the same segregated account
• Records must be kept in compliance with generally accepted accounting principles established in the relevant section of the Companies Act 1981
• Must record each transaction entered into by the company
• Must keep a general account recording all the company’s liabilities and assets which are not related to the segregated account and showing all assets to be used for any type of risk which exposes the company to any loss or liability

Taxation and Fees:

• Subject to an annual license renewal fee
• An annual fee is also applicable for each segregated account operated by the company, subject to a maximum annual fee of USD 1000 in the aggregate

Bermuda Exempted Company

Main Features:

• The beneficial owners of the company must be non-Bermudian
• Bermuda exempted companies must be used solely for doing business outside Bermuda
• The exempted company is excluded from Bermudan law stating that 60% of a company’s equity must be beneficially owned by Bermudans
• Limited liability companies are not required to maintain a minimum share capital
• Companies writing insurance for its own account must have a minimum issued and authorized of $120,000 which must be fully paid-up as marketable securities or cash before the company may be registered as an insurer
• A Bermuda exempted company may not conduct business or deal securities with other exempted undertakings, for example, exempted partnerships, other exempted companies, exempted unit trusts and permit companies
• A Bermuda exempted company may not act as the manager, consultant or agent for a mutual fund which distributes or sells its shares in Bermuda
• Under the Companies Act exempted companies must appoint two residents of Bermuda either as secretary and resident agent, as directors or as secretary and director
• Companies with share listed on an ‘appointed stock exchange" need not appoint resident directors or a secretary and may simply appoint a corporate resident representative