Business A to Z

BUSINESS A–Z Opportunities in the country that thinks like a company

By Duncan Hall

AIRCRAFT REGISTRATION

Founded in 1931, Bermuda’s register includes more than 700 aircraft, many of which are corporate and privately owned jets. However, the majority of aircraft on the register are commercial aircraft, including a number from Russia and the Commonwealth of Independent States. The Bermuda register has been designated a Category 1 operation by the US Federal Aviation Administration, recognising that Bermuda complies with international standards with respect to the safety oversight of its air carriers that operate in the US. Contact: Thomas Dunstan, Director of Civil Aviation, 293-1640 / tdunstan@gov.bm

BERMUDA STOCK EXCHANGE

Now in its 48th year of operation, the BSX is the world’s largest fully electronic offshore securities market. The BSX operates a market for international securities, issued either by Bermuda-incorporated exempted companies or non-Bermudian issuers, as well as a domestic market for Bermuda’s local companies. The BSX, which has more than 600 issuers with a total market capitalisation in excess of $430 billion, specialises in listing capital market instruments, equities, debt issues, funds and depository programmes. It is one of the world’s leading listing facilities for offshore funds and alternative investment vehicles and supports niche markets for specialised insurance and debt products. Among the BSX’s unique products and services is its Mezzanine Market, a unique pre-IPO market listing for start-up, high growth potential companies. The BSX, which is regulated by the Bermuda Monetary Authority, has been granted Designated Offshore Securities Market status by the SEC, Designated Investment Exchange status by the UK Financial Services Authority and Approved Stock Exchange status under Australia’s Foreign Investment Fund taxation rules. Contact: Greg Wojciechowski, CEO, BSX, 292-7212 / ceo@bsx.com

EXEMPTED COMPANIES

Exempted companies are the primary vehicles by which “non-Bermudians” incorporate in Bermuda. So called because they are exempted from legal requirements in respect of Bermudian ownership of the company, exempted companies are generally prohibited from carrying on business in Bermuda. Rather, they carry on business outside Bermuda from a base on the Island — or, in some limited circumstances, in Bermuda with other exempted undertakings. As for the benefits of forming such a company here, Bermuda does not levy taxes on profits, income, dividends or capital gains. Indeed, there is no requirement that a company pay dividends at all. Upon formation, exempted companies typically receive an assurance from the Government regarding their non-taxable status. Currently, that assurance is given until March 31, 2035 — and remains valid even if taxes on profits, income, or computed on any capital asset, gain or appreciation are enacted in the meantime. Contact: Kenneth Joaquin, Registrar of Companies, 295-7574 / kjoaquin@gov.bm FOREIGN SALES CORPORATIONS

Set up by American companies, FSCs take the form of exempted companies, and are given preferential treatment by US tax authorities because they promote the export of US goods. The benefits only apply to export property that is intended for sale, lease, use or consumption outside the US — and it must contain less than 50 percent nonUS content. Contact: Kenneth Joaquin, Registrar of Companies, 295-7574 / kjoaquin@gov.bm

INSURANCE & REINSURANCE

Bermuda is a key market for risk transfer, a hub for the flow of some of the most innovative risk solutions. At one time a niche captives market, the Island has not only continued its dominance as the global leader in that area, it has also emerged as the world’s second largest reinsurance market and a powerful force in commercial insurance. Bermuda reinsurers provide an estimated 40 percent of US property catastrophe reinsurance capacity.

INTELLECTUAL PROPERTY

Intellectual property rights are protected by both statute and the common law in Bermuda. Copyright protection exists upon the creation of an original work. Trade marks, service marks, patents and

designs may be registered. Contact: Aubrey Pennyman, Registrar General, 297-7705.apennyman@gov.bm

INVESTMENT SERVICES

Bermuda’s thriving financial services sector is home to a wide variety of investment managers, from traditional “long-only” fundamental research to technically driven computer based financial models. The Investment Business Act 2003 is the statutory basis for regulating investment business in Bermuda. The Act provides for a licensing regime for any person or entity (unless otherwise exempted or excluded) engaging in investment business, as defined by the Act, either in or from Bermuda. The Investment Funds Act 2006 provides the statutory basis for regulating funds in Bermuda. The Act deals with the establishment, operation and regulation of mutual funds, unit trusts and partnership funds, and also provides for the licensing and supervision of fund administrators. In both cases, the Bermuda Monetary Authority is the licensing body. The Investment Funds Act 2006 streamlined the incorporation process for investment funds, while also more clearly outlining how public (retail) funds are regulated and refining the framework for non-public, institutional funds. Contact: Bermuda Monetary Authority, www.bma.bm

LEGAL SYSTEM

It is based on the common law, the doctrines of equity and English statute law in force on July 11, 1612 as well as statutes passed in Bermuda since that date. The Supreme Court of Bermuda, which includes a Commercial Division set up specifically to hear actions of a commercial nature, sits year-round under the direction of the Chief Justice. A traveling Court of Appeal sits in Bermuda three times a year. Furthermore, the legal system permits a right of appeal to the Judicial Committee of the Privy Council, the highest judicial body in the United Kingdom. Lesser civil and criminal matters are the jurisdiction of the Magistrates Court. shareholders in local companies, but the aggregate shareholding by nonBermudians may not exceed 40 percent of the issued shares. Nor may nonBermudians control a company by any other means — for example, by controlling its board. Contact: Kenneth Joaquin, Registrar of Companies, 295-7574 / kjoaquin@gov.bm

PARTNERSHIPS

Exempted partnerships formed by non-Bermudians may conduct business outside Bermuda from a place of business on the Island. An overseas partnership is one formed under the laws of another jurisdiction that has subsequently been issued a permit by Bermudian authorities to conduct business from here. Bermuda’s law in relation to partnerships is based on the UK model. Bermuda does not currently levy taxes on profits, income, dividends or capital gains. As “exempted undertakings” under Bermuda law, both exempted partnerships and overseas partnerships may apply to the Government for an assurance regarding their non-taxable status in the future.

PERMIT COMPANIES

These are companies incorporated outside Bermuda that have received permission from the Bermudian authorities to engage in or carry on a trade or business in Bermuda. They take the form of exempted companies (see above) and are similarly exempted from legal requirements in respect of Bermudian ownership of the company. Also, they may receive an assurance as to freedom from taxation.

PRIVATE ACTS

Companies may incorporate in Bermuda by Private Act rather than by the more common registration method. Companies set up by Private Act may exempt themselves from the provisions of specific public legislation, or may create legal provisions having limited application. Private Acts must receive the approval of Bermuda’s House of Assembly and Senate. Once passed, they have the force of law. Companies incorporated by private legislation are subject to the provisions of that legislation, as well as to Bermuda’s company law provisions. More than 160 commercial vessels and nearly 260 pleasure yachts are registered in Bermuda. With the notable exception of commercial fishing vessels, any kind of commercial or pleasure craft may be registered. Contact: Francis Richardson. frichardson@bermudashipping.bm

TRUSTS

Bermuda has long been a leader in the business of setting up private trusts, which can be a valuable tax, asset protection and estate-planning tool. Bermuda’s trust laws are modelled after British trusts legislation. Purpose trusts differ from private ones in that they do not have an ascertainable beneficiary or beneficiaries. Rather, they are established for a specific purpose, either charitable or noncharitable. Business visitors may have more interest in the non-charitable purpose trust, which is often set up for a commercial use, such as to insulate a company from a particular transaction. In that way, bankruptcy remoteness can be achieved, and an “off-balancesheet” transaction can be enabled. The Trusts (Regulation of Trust Business) Act 2001 prohibits the carrying on of trust business in or from within Bermuda unless the trustee is licensed or exempt. Increasingly popular is the Private Trust Company, which is exempt from such regulation provided it meets two criteria: it does not offer its services to the general public, and it is empowered to act as trustee of only a limited number of identifiable trusts that would typically be for the benefit of related persons, or family members.

US-BERMUDA TAX CONVENTION ACT

This provides tax relief for the members of Bermuda’s international business sector. Under the legislation, the business profits of international companies are not taxable in the US unless the enterprise is or has carried on business in the US via a permanent establishment in that country. The Act also allows US residents to claim deductions for expenses incurred in attending business conventions in Bermuda.

What’s so special about Bermuda?

1. REPUTATION Bermuda is widely perceived as a blue-chip offshore financial centre, and not just in insurance and mutual funds. All manner of enterprises wish to operate physically and electronically from or through Bermuda and thereby associate themselves with Bermuda’s good name. 2. COMPETITIVE PRICES Contrary to popular belief, Bermuda is no more expensive for the establishment and management of a company than any other major offshore jurisdiction. 3. ‘DESIGNER’ COMPANIES Bermuda is unique in offering clients the ability to petition Parliament for the enactment of special legislation in favour of a particular company. Such private legislation is frequently instrumental in effecting innovative structures. 4. ELECTRONIC TRANSACTIONS ACT The ETA itself is an attraction for e-businesses. With its enactment, Bermuda joined the ranks of the leading nations in the codification of the law of the Internet. 5. REGULATORY FLEXIBILITY Bermuda’s reputation rests on sound but flexible regulation. There is sufficient oversight to ensure probity and solvency; however, the Government does not mandate the business methods of Bermuda companies except as provided in the standard for e-businesses. 6. TAX ASSURANCE Like most offshore financial centres, Bermuda does not levy income or capital taxes. By way of assurance to foreign-owned companies incorporated here, a certificate is issued by the Minister of Finance confirming that no such taxes will apply to the company until at least 2035. 7. PRIVACY While Bermuda is by no means secretive, the island does maintain confidentiality concerning the identity of sponsors of commercial transactions. Of course, there are various circumstances in which the public interest (in detecting crime, preventing pornography or preventing the abuse of personal data) over-rides concerns of commercial confidentiality. 8. SPEED As a complement to flexibility, the special partnership between industry and the Bermuda Government means that commercial objectives can be achieved very quickly. 9. PROFESSIONAL EXPERTISE Fifty years of serving the financial community has produced a core of excellent professionals working and living in Bermuda. 10. CUTTING-EDGE TELECOMS The island boasts world-class, state-ofthe-art communications systems.

Bermuda’s legal system is based on English common law. The Commercial Division of the Supreme Court hears actions of a commercial nature. The legal system permits a right of appeal to the Privy Council, the highest judicial body in the UK