Setting Up a Company in Bermuda
The law in Bermuda allows for the incorporation through two different types legal vehicles; local companies and exempted companies. Bermudians mainly own local companies. Foreign nationals mainly own exempted companies. Only local companies can conduct business within Bermuda’s borders.
Exempted companies can conduct business which is outside of Bermuda. Additionally, they can conduct business with other exempted companies located within Bermuda. In certain circumstances, it is possible for an exempted company to obtain a license to conduct business within Bermuda’s borders.
It is not possible to buy shelf corporations in Bermuda. Therefore, you need to set up a new company in order to take advantage of Bermuda’s asset protection benefits.
Incorporation of a Bermuda company is easy. The Registrar of Companies (ROC) registers all companies in Bermuda. This include Local Companies, Foreign Sales Corporations, Exempted Companies and Overseas Companies under the guidelines of The Companies Act 1981. The Companies Act first came into operation 1 July 1983.
There are several types of entities available in Bermuda. We will discuss four types here: the limited company, company liability limited by guarantee, unlimited liability company and limited liability company. When working on the incorporation of a Bermuda company, the limited company limits the liability of its shareholders.
Here is some detail on the four different types of companies provided for under the Companies Act of 1981:
Company Limited by Shares
Under Bermudian law, a company limited by shares has the ability to limit the liability of the company’s members to the amount that remains unpaid on the shares that they hold. This amount can be zero if there is no unpaid remainder on a member’s shares. That is, when someone sues the company, the laws can protect the company shareholders from the lawsuit. One declares the liability limits in a written memorandum. The limited company is the most common type of corporation people form in Bermuda.
Company Limited by Guarantee
In a company limited by guarantee, the memorandum document limits the liability of a company’s members. It limits their liability to an amount which members may need to contribute to the company’s assets in the event that the company is wound up (dissolved). The main purpose of companies limited by guarantee in Bermuda is charitable works. These companies generally do not pay dividends.
Unlimited Liability Company
As their name suggests, in an unlimited liability company, the liability of a company’s members is unlimited. It combines all of the usual characteristics of a company, such as a board of directors, with the unlimited liability characteristic of a partnership.
Limited Liability Company (LLC)
You form a Bermuda LLC under the Limited Liability Company Act 2016. The two types of LLCs: exempted (offshore) companies or local companies.
Bermudian LLCs are hybrid entities. This is because they have the advantages of both partnerships and corporations. LLC are like partnerships in that people or other companies manage them pursuant to an LLC operating agreement among the members. LLCs are also like corporations because LLCs can offer its members protection for the debts and liabilities of the business.
This combination offers substantial flexibility for LLC members. That is, members can decide on the most beneficial terms and conditions to run the LLC. Unlike a partnership, the company separates your business and personal finances. Plus, LLCs have fewer formalities than do corporations. For example, since there are no directors or shareholders, there are no director or shareholder meeting requirements. Instead, LLCs have members and managers.
The lawsuit protection for the members remains even if members of the LLC actively manage the business. So, members and managers can run the day-to-day operation while maintaining their limited liability. These two fundamental benefits make the Bermuda LLC very attractive to business owners.
Bermuda LLC Types
There are two types of LLCs in Bermuda. The first category is the offshore LLC, which the law calls an “exempted LLC.” Then there are local LLCs, for the purpose of doing business within Bermuda. An exempted LLC is the most popular type for those who do not live in Bermuda. Local LLCs, on the other hand, stipulate that Bermudans must own at least 60% of the company.
Why Incorporate Companies in Bermuda?
In Bermuda, there are no taxes on profits, income, or dividends paid to a Bermuda company or its shareholders. Additionally, there is no capital gains tax, estate duty, or death duty. Only shareholders who are ordinarily residents of Bermuda are subject to tax. Profits can accumulate within the company. Bermuda tax laws do not require the company to pay dividends.
Bermuda even provides exempted companies with the ability to apply for legal assurance from the Minister of Finance under the Exempted Undertakings Tax Protection Act of 1966. This assurance states that, should Bermudian law change to impose tax on profits, income, or capital asset gains or appreciation, those taxes will not apply to exempted companies. The Minister of Finance usually grants these assurances when companies make such requests.
There is no stamp duty with respect to any instrument executed by an exempted company. A stamp duty a government tax on legal documents. Such documents usually transfer real estate or other assets from one party to another. There is also no stamp duty on an instrument relating to an interest of an exempted company. However, the government may collect stamp duty with respect to transactions involving property located in Bermuda.
That said, many countries tax its residents on worldwide income. This includes the United States, which tax its citizens regardless of place of residence.
Minimalist shareholder requirement
Under the Companies Act of 1981, businesses need only one director and one shareholder for incorporation. LLCs need only one member and manager. In each case, this may be the same person.
Lax reporting requirements
The statutes only require the following items for exempted company incorporation in Bermuda:
- The memorandum of association of the company
- The certificate of incorporation
- The company’s registered address
- A list of the company’s directors
- The registrar of charges of the company
- Any prospectus filed with the registrar
The regulations only require Bermuda exempted companies to make one annual filing. Regulators call this the Statutory Declaration. This filing lists the authorized share capital.
The Bermuda Aircraft Register has a strong reputation internationally for the registration of aircraft used for private purposes. The Bermuda Department of Civil Aviation (BDCA) is the body that regulates such registrations. The BDCA maintains internationally recognized standards for the licensing, operation, and maintenance of private aircraft. However, the regulatory body also maintains sensitivity and discretion towards the needs of businesses. In Bermuda, exempted companies can own private aircraft. As a result, aircraft registered in Bermuda are not subject to the claims of creditors of the corporation’s owner.
According to the Bermuda Monetary Authority, one can complete incorporation the same day that the government receives the filing. That is the typical timeframe if the filing does not require Ministerial consent. For incorporation that does not require Ministerial consent, one should allow two to three working days for processing following the submission of a completed application. Keep in mind this does not include shipping time. It also does not include the time it takes for you to provide the legally required due diligence (know-your-client) documents.
Bermuda Company Documents & Requirements
Memorandum of Association
Together, the memorandum of association and by-laws form the constitution of an exempted company in Bermuda. The memorandum of association is on file with the Registrar. It is a matter of public record. The memorandum of association of an exempted company is available for public inspection upon request at the office of the Registrar.
An exempted company’s by-laws set out the rights and duties among the corporation, its shareholders, and its directors. One does not file bylaws with the Registrar of Companies in Bermuda. Thus, it is not generally available to the public.
Exempted companies are legally required to have a registered office in in Bermuda. The address of this office must be on file with the Registrar.
Officers or Representation in Bermuda
The law requires corporations in Bermuda to have one director and one secretary. The secretary can be an individual or a company. The director of an exempted company may be an individual or any other legal entity. The secretary or the director must be an ordinary resident in Bermuda in order to satisfy the residency requirement.
It is allowable for the directors of exempted companies to also serve as the company’s officers. The law requires that the company appoint a secretary who attends all meetings of the directors and shareholders. The secretary is also responsible for maintaining the company’s records.
Bermuda corporations are legally allowed to hold bank accounts both within Bermuda and outside its borders.
Bermuda companies are required to maintain accounting records with regards to business activities. These records must be kept on file for a period of five years.
A Bermuda company may have a common seal, as well as one or more duplicate common seals either within or external to Bermuda. While corporations can have seals, they are not required. The ability to affix the seal should be described in the company’s by-laws.
Financial Year End
Exempted companies in Bermuda are required by law to declare a financial year end.
Shareholders of a Bermuda company are required to appoint the auditors of the company. They are responsible for fixing the remuneration of the auditor. They may also delegate this responsibility to the board of directors. This requirement can be waived if all shareholders and all directors agree in writing or at a general meeting where minutes are taken.
Exempted companies are required to have at least one shareholder by Bermuda law. A shareholder may hold their shares as nominee for another person.
Background of Bermuda
Bermuda has the largest population of any British overseas territory. Despite being an overseas UK territory, it is self-governing. Bermuda enjoys the world’s fourth highest per capita income. The per capita GDP in Bermuda is 60% higher than the per capita GDP of the United States. The country is about one-third the size of Washington D.C. A group of islands located east of South Carolina in the North Atlantic Ocean, Bermuda offers a temperate climate and beautiful landscape. The nation is a popular destination for tourists, receiving about 5% of its GDP from the tourism industry. Over 80% of visitors to Bermuda come from the US.
Due to its reliance on the financial sector, Bermuda was hit hard by the global financial recession. The financial sector has lost 5,000 high paying jobs during that period. Years later, the COVID crisis struck the tourism industry. The public debt is US$ 3.35 billion. Increases in tourist arrivals and tourism-related investment are contributed to a modest economic recovery in 2022.
Bermuda has strong anti-money laundering legislation. It has 41 Tax Information Exchange Agreements with other jurisdictions. Bermuda has also signed nine income tax treaties. The Organization for Economic Co-operation and Development (OECD) has placed Bermuda on its “white list” of countries with transparent tax practices. Bermuda is a signatory on the Convention on Mutual Assistance in tax matters. As a result, it automatically exchanges tax information on an annual basis with over 100 partner countries which belong to the convention.
More Bermuda Information
In 1609 Bermuda was settled by shipwrecked English Colonists heading for Virginia. Bermuda is a group of islands east of South Carolina in the North Atlantic ocean. The islands are approximately one third the size of Washington, DC. The official language is English. The capital of Bermuda is Hamilton. International Businesses have began to take over Bermuda’s economy. Bermuda has become a successful offshore financial center. Economy primarily based on providing financial services for international business.
The island territory of Bermuda is known for its highly developed financial sector. Bermuda offers a number of attractive legal vehicles for those seeking asset protection through offshore incorporation in a low-tax jurisdiction.
During the 2016 US presidential elections, the use of Bermuda for asset protection made international headlines. Hillary Clinton accused Donald Trump of using offshore incorporation to avoid taxes when he set up DJ Aerospace Ltd in Bermuda in 1994. Trump’s response to these claims was “that makes me smart.”