Guidelines For The Formation of Bermuda Business Vehicles

Ordinary Exempted Companies

An ordinary exempted company is a company that is established by non-residents of Bermuda to conduct a trade or business but is not required to be licensed under another piece of legislation (i.e. bank, insurance or investment professional). Such exempted companies may conduct business as a trading or holding company and the application for incorporation takes approximately 4-6 days.

Exempted businesses are cleared from the Companies Act provisions relating to “local companies.” In Bermuda there are no taxes on profits, income or dividends, nor is there capital gains, withholding or estate tax, or death duty. Profits can accumulate without the payment of dividends.

Incorporation Procedure

Clients wishing to establish non-restricted exempted companies must submit an application to the Bermuda Monetary Authority for permission to incorporate the exempted company. They must also supply:

  • A note of the chain of ownership, should there be an intermediary or nominee holding shares.
  • A Personal Declaration Form for each of the proposed Non-Bermudian beneficial owners (direct, intermediate and ultimate) who propose to have an equity interest of 5% or more in the company. In respect of partnerships, a Declaration is to be completed by the general partner(s), where the general partner is an individual.

If the ultimate beneficial owner is a public company, only an Annual Report is required. For a private company, the most recent audited financial statements, or unaudited financial statements, with a written explanation for the non-audit, must be produced alongside a Personal Declaration Form for each Shareholder holding 5% or more of the shares in that company.

All documents submitted to the Bermuda Monetary Authority in connection with the application for consent to incorporate are required by statute to be kept confidential, subject to some very limited exceptions.

Whilst there are no taxes on corporate income, investment income derived from sources abroad may be subject to a withholding tax at source. The banks, however, offer internationally competitive rates for foreign currency deposits and the interest generated from these deposits is, in Bermuda, entirely free of tax.

Exempted companies are entitled to apply for (and invariably will obtain) an undertaking from the Government that, in the event of direct taxation being imposed in Bermuda (e.g. corporate tax, dividend tax), the company will be exempt from such taxes until the year 2016. This period is extended from time to time.

As of April 1, 1990, stamp duty was eradicated on transactions involving exempted companies and non-residents.

Foreign Exchange Control

All exempted companies, with a few exceptions, are designated by the Bermuda Monetary Authority (Foreign Exchange Control) as “non-resident,” which means that they will be free to deal in any currency of their choosing, other than resident Bermuda dollars, and will, in effect, be completely free from all Exchange Control regulations.

Capital Structure

The Companies Act, 1981, as amended (the “Companies Act”) provides that a company must have at least a minimum capital of US$12,000 (or its equivalent in another foreign currency) and that all shares should have a par value. A company limited by shares may issue common shares or any other type of shares, including preference shares. The designation of “preference” was applied to all those shares that had attached to them preferences or rights over common shares.

The Companies Act permits a company, if authorized by a general meeting and by its by-laws, to divide its shares into special classes and attach thereto any preferential, deferred, qualified or special rights, privileges or conditions.

The proportion of the share capital of the corporation which is to consist of common shares will depend on the proposed method of financing the company.

The minimum share capital of US$12,000 (or its equivalent in another foreign currency) must be subscribed but there is no requirement that this capital be actually paid up. Where the shares are held by a nominee company, it is usually a stipulated requirement of that nominee that the capital be paid up for the avoidance of any further contingent liability on its part. This capital may be used for the business purposes of the company, including the settlement of incorporation costs and subsequent administration fees.