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Legal Expert Board

JULY 2014

Offshore Companies Bermuda

As part of Lawyer Monthly’s Legal Expert Board on Offshore Companies, we take a look at the country of Bermuda, speaking to Jeremy Leese, Senior Associate in the Corporate Department at Bermuda-based law firm, MJM Limited.

What are the main benefits for companies choosing to invest in offshore jurisdictions?

There are many reasons that Bermuda is considered as a domicile of choice for those seeking to do business offshore. Firstly, and one of the primary factors in many decisions to use an offshore structure, there are no income, profit or capital gains taxes in Bermuda. Recent legislative amendments in Bermuda have extended until 31 March 2035 the period for which the Minister of Finance will grant an assurance to Bermuda companies that they will not be liable to pay any such taxes in the future. This is particularly attractive to holding companies with subsidiary operations in, or significant income arising from, more than one country as it is difficult for a particular taxing authority to assert its right to tax all of the group’s operations or profits. The absence of withholding taxes is also attractive to a Bermuda company’s shareholders.

Bermuda’s corporate law is flexible and is largely based upon the corporate law of the United Kingdom. The principal company legislation, the Companies Act 1981, is amended regularly to keep up to date with international commercial developments. Where the securities of a Bermuda company are listed on an overseas exchange, the regulatory regime set out in our statute will often defer to the relevant onshore regulation.

Bermuda’s government and business community have traditionally worked together to ensure that the reputation and integrity of the jurisdiction are preserved without the need for overly burdensome regulation. This system of light, but effective, regulation is generally characterised by a significant level of cooperation between the business community and government; there has been a renewed emphasis of late in all stakeholders in the international business sectors working together to illustrate that Bermuda is very much “open for business”.

In addition to (and, to some extent, as a result of) these other factors, there appear to be certain “intangible” benefits of establishing in Bermuda. Among other things, onshore investors seem to be more comfortable with Bermuda and its reputation for quality than some other offshore jurisdictions. Similarly, organisations such as the U.S. Securities and Exchange Commission and the major stock exchanges are now dealing with Bermuda

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companies on a regular basis and generally appear satisfied with the island’s legal system and regulatory environment. Bermuda companies are listed on most major stock exchanges around the world. Investors, lenders, rating agencies and many service providers are familiar with the legal system in Bermuda and are willing to participate in such a structure with little added due diligence.

Offshore companies have long been a popular option for businesses making the most of attractive tax, financial and legal frameworks around the world. However, the recent global financial crisis has led to several legislative attempts recently by governments globally, aiming to limit the benefits that are available to companies looking to take advantage of such opportunities. In your opinion, what do you think was the most important legislative change for this sector?

I think the implementation of anti-money laundering/ proceeds of crime legislation in accordance with the onshore regulators’ requirements has been very important in the leading offshore jurisdictions continuing to be seen as a legitimate alternative to the onshore jurisdictions. We have very strict rules with regard to obtaining client due diligence and source of funds information, with a zero tolerance policy towards non-adherence. This has ensured adverse publicity is kept to a minimum, with the political capital to be made out of targeting the offshore world reduced as a consequence.

Bermuda not only has enacted robust anti‐money laundering legislation, but has, to date, entered into thirty-four Tax Information Exchange Agreements (and concluded negotiations with three other jurisdictions). This has led to the Organisation for Economic Cooperation & Development including Bermuda on its “white list” as a co‐operative and compliant jurisdiction. This legislation, along with the regulatory enforcement provided by the Bermuda Monetary Authority, has ensured that Bermuda is a leader in international anti‐money laundering measures and reinforces its status as a premier offshore jurisdiction with which the onshore world is happy to cooperate and work.

What are the main legal implications that companies should be aware of when looking to invest in your jurisdiction?

They must analyse the rationale for using an offshore financial centre, the investment profile, the types

of investors they are seeking to attract (and where they are based) and their long-term objectives, to ensure that they can legitimately achieve the results they seek. Any tax benefits must focus on tax avoidance, which is perfectly legal, not tax evasion, which is not. They should check the tax and legal position in their home jurisdiction so as to ascertain if there will be any knock-on effects, in tax terms or otherwise, in using an offshore investment vehicle and also to determine the consequences if they choose at some stage in the future to repatriate their offshore funds.

Is there anything else you would like to add?

Further evidence of onshore and offshore jurisdictions working together comes in the form of the willingness of the offshore world to accommodate the requirements of the US Foreign Account and Tax Compliance Act (“FATCA”). In late 2013, Bermuda and the United States signed an Intergovernmental Agreement (“IGA”) to improve international tax compliance with respect to FATCA. The agreement is based on the Model 2 IGA, which requires foreign financial institutions to report information directly to the Inland Revenue Service in the US.

The major offshore financial centres offer a sophisticated and advanced environment to do business, a legitimate and legal alternative to structuring a deal onshore in a tax efficient and flexible manner. As a sophisticated offshore financial centre, Bermuda has long offered its clients demonstrable political stability, quality professional resources and tax efficient arrangements. It remains committed to offering a strong, yet flexible, regulatory environment, sensitive to the needs of the commercial world, while acknowledging the importance of international transparency. LM