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Bermuda's International Business industry

It earns significantly more revenue than tourism for the Government

By Keith Archibald Forbes (see About Us) exclusively for Bermuda Online

To refer by email to this file, please use "bermuda-online.org/intbiz" as your Subject.

Please note that no UK laws apply in Bermuda to Bermuda-registered companies. There is no equivalent to the UK's Companies House. Instead, if you wish to research any particular company, ask the Registrar of Companies or the Bermuda Monetary Authority, both of the Bermuda Government, under whose jurisdiction they fall, if and how they can help. Please do NOT ask this author.

Introduction

How it began in February 1947

In 1947 - a full three years before appropriate legislation officially launched the industry - Bermuda welcomed an organization known worldwide because of its distinctive trademark of a sea shell. With dramatic implications to fuel and light Bermuda's lawyers for future business of equal caliber, the Provident Fund of the combined petroleum companies known in The Netherlands as Voorzieningsfond Der Verbonden Petroleum Maatschappojen was transferred to Bermuda. It had been granted exemption from payment of United Kingdom Income Tax on its investments when it had to quickly transfer its Headquarters from The Hague to London following the fall of Holland in 1940.

Thus the Shell Oil Company arrived in Bermuda, initially as an investment vehicle to protect the pensions of employees of all companies within the Royal Dutch Shell umbrella from unnecessary taxation by Britain. Lawyers Conyers, Dill & Pearman, with bankers Jack Tucker (later, Sir Henry) of the Bank of Bermuda Ltd. and Hal Butterfield (later, Sir Harry) of the Bank of N. T. Butterfield & Son Ltd., assisted in the transfer of Shell's Provident Fund to Bermuda. Three Shell VIPs, Sir George Legh-Jones, Mr. Tim Wilkinson and Mr. Tim Boyle even bought land in exclusive Tuckers Town. They built very expensive homes there, as a visible sign that Shell was here to stay. Its first staff - a group of 20 mostly young ladies - arrived from England on Shell tankers Many have since graduated to the great clamshell womb of heaven but several are still alive and retired.

Shell was also the first to operate a corporate administrative structure for a collection of affiliated international companies outside the City of Hamilton, at Ferry Reach in St. George's Parish. Interestingly, the only other organization today with a similar clutch of international companies also in this Parish is its competitor, Esso Bermuda, with the Exxon group of companies also based at its Ferry Reach head office just down from the Shell building.

Today...

Bermuda is the business jurisdiction for many. There are more than 18,000 Bermuda based exempted or international companies (see Definitions below), 2551 local companies, 420 overseas partnerships and 840 other non residents, many with a global business empire. 

Most popular international companies in Bermuda are investment holding, insurance, mutual funds, commercial trading and shipping. There are also managers, consultants, insurance brokers, natural resources, etc.

Exempted or international companies, not being majority locally-owned, are not permitted to carry on local business. However, they may deal with other locally based exempted companies without restriction and may buy their locally needed necessities or services from local companies. Examples are the accounting, banking, legal, management and office supply services they buy locally.

Exempted or international companies include subsidiaries of 75% of the Fortune 100 and their European equivalents. Only 235 or 3.4% of the internationals have local offices, yet account for 75% of internationals' spending. In insurance and reinsurance, Bermuda ranks with Lloyds of London and New York as a global leader and in some aspects of specialty insurance, outranks them. In 2007, Lloyd’s of London insurers who have either moved their domiciles to Bermuda or have substantial subsidiaries on the Island include

Bermuda is a 'designated territory' under the Financial Services Act of the United Kingdom. As an international offshore business center, Bermuda hosts insurance, reinsurance and other companies. It can provide significant advantages to companies and corporations.

Newcomers like having only half an hour to home or office, golf courses and beaches. Regulatory agencies cannot divulge information. Expatriates have freedom from foreign anti-trust laws. They are not subject to currency control. Unlike Bermudians, they can deal in any currency with any bank anywhere and freely transfer funds.

Bermuda-based but USA-owned or USA-operated companies can sue or be sued in the USA following a US Supreme Court ruling. Also, from 2003, if relocating to Bermuda from the USA or owned by US investors, they may soon have to tell shareholders they may face capital gains taxes in the USA.

But Bermuda is NOT a no- tax zone. Indirect taxes and employment (payroll) tax on an employee's salary of any rank, usually paid in part also by an employer make the cost of living about about 3.8 times more than in the USA and 2.8 times more than in Canada, United Kingdom or Ireland.

See Bermuda's Economy and Government of Bermuda for realistic assessments of the tax situation.

Aircraft Register

Bermuda has has one for many years. Of the 360 planes registered here, approximately 220 operate in Russia for various reasons including that many of them are financed by the US and the owners don't want them registered in Russia because they feel it is easier for them to retrieve their asset, if something goes array with the transaction, if it is registered in Bermuda; also, in Russia registration is a long process and can take anywhere from three months to a year. It is easier for them to register it here than in the US because Bermuda's registry is not as big and the wait is not as long; and the reason they buy older planes is they have to pay a hefty duty on any foreign built aircraft, so the older the plane the less the tax. Many of the small airlines who register aircraft here buy older planes for the first few years of operation while they build their company and then trade up to newer models. In Bermuda, there is an aged aircraft program in place for all aircraft older than 14 years. They undergo more scrutiny and maintenance. The Bermuda program is similar to what the US Federal Aviation Association has in place.

Application of laws

• All local laws, some modeled on those of the United Kingdom.  But none of the UK's laws apply in Bermuda.
• Unlike corporate laws in the United Kingdom, USA, Canada and Europe, expatriate employees of international companies based here should expect to have a limited future in Bermuda. They will never get local citizenship. Any children born here will not be Bermudian. Premium priced housing will apply and many other restrictions will have to be accepted as the price to their employers of doing offshore business from Bermuda. 
• Incorporation and servicing are handled only by local registered lawyers. They give a right of appeal in disputes to the United Kingdom's Privy Council if necessary. Officers and auditors are only proportionately liable for damages, not equally, unless fraud or dishonesty are involved.

Background checks

Confidential background checks occur. Officials see credentials of corporate applicants. They cooperate with with law enforcement agencies overseas. This is to weed out fugitives from justice, those who evade (as opposed to avoid) taxes in their own countries, money launderers, or others who could be embarrassments. Regulations are in place that help the United States of America find its tax evaders, an extension of the USA and Bermuda Tax Treaty of 1986 subsequently renewed.

Corporate advantages include

• Often, directors of onshore corporations get frivolous lawsuits from litigious shareholders. This is not the case in Bermuda. Companies can lend money to individuals to buy shares. They may merge or amalgamate.
• The time zone is one hour ahead of USA's Eastern Standard Time.
• Bermuda has the largest reinsurance and general insurance domicile after London and New York.
• For special risks, it has more clients than either, the second biggest domicile for mutual funds and largest for captives, with 65% in Bermuda. 

Distinctions and definitions

There are clear distinctions between companies owned by Bermudians and operating in the local marketplace and "exempted companies" not owned by Bermudians and not operating in the local marketplace. Exempted Companies and Partnerships - otherwise known as International Companies, Continuation or Permit Companies and Partnerships - are international because they:

• are incorporated in Bermuda but not Bermudian-owned, instead internationally owned 
• conduct their operations worldwide from Bermuda (but are not allowed to do business in Bermuda).
• unlike local companies, are exempted from Bermuda's exchange controls
• are exempted from laws applicable to local companies which trade mostly within Bermuda's domestic marketplace and require at least 60% beneficial Bermudian corporate ownership.
• unlike local companies, for a stipulated period of time, are exempted from any Bermuda tax on income or capital that may be or has been introduced.
• are not subject, because they are deemed to be Bermuda-based and therefore out of the jurisdiction of foreign places, to any of the laws or restrictions on national and international corporate acquisition and general trade currently in effect in countries such as the USA, Canada, United Kingdom, Europe, etc - unless they have offices there too.

Continuation or Permit Companies

Also Exempted Companies. These are incorporated outside Bermuda but are permitted to operate from Bermuda in the same way as exempted companies. They evolved originally to meet certain special situations, for example when the United Kingdom's exchange control restrictions once prevented incorporation in Bermuda, or where tax treaties made it disadvantageous to incorporate in Bermuda. Others are encouraged to do so, for strategic reasons.

Exempted or international companies

Most focus on international activity. To protect local business interests, the Bermuda Government will not normally allow the formation of an exempted company in banking. However, some quality international banking organizations may, under certain circumstances, apply to form an exempted company for international or multinational general trust, investment and executorship activities. By qualifying as exempted companies, these corporate entities are not subject to any restrictions on foreign ownership. They can be either 100% owned by non-Bermudian interests or anywhere from 100% to 80%. Bermudians cannot hold more than a combined 20% interest in any one exempted company or partnership.

Gambling and gaming

Bermuda deliberately does NOT allow online gaming or gambling businesses. Other jurisdictions that do so tend to attract a less wholesome reputation.

Local Companies

Non-Bermudians should note these must be beneficially owned by Bermudians and operating in the local marketplace, they are NOT "exempted" companies. The legal requirement that they must be at least 60 percent owned by Bermudians goes further. To avoid non Bermudians controlling local companies through pyramiding or secret agreements, corporate shareholders of local companies must themselves be 80 percent owned by Bermudians to qualify as Bermudian owners. They include local accounting, banking and legal firms and support services.