Bermuda: An Expat's Fiscal Paradise

Expat Briefing Editorial Team, 15 February, 2016

Bermuda may be small and remote and most famous for the mysterious eponymous "triangle." But it is also one the world's wealthiest places, is blessed with stunning beaches and mild temperatures year round, and is almost completely devoid of taxes. Little wonder then that the Government has had to restrict who is able to live and work on the island, such is the demand for employment and residence opportunities, as well as for local property. But as the economy continues to stutter, the Government is finally making it a bit easier for expats to come to Bermuda.

Where is Bermuda?

Bermuda is not just one island, but about 150, which evolved from the remnants of a thick layer of aeolian limestone, located about 1,000 km from the coast of South Carolina in the USA. Contrary to what many people think, Bermuda isn't in the Caribbean, which is 1,500km to the south!

Bermuda Standard Time is 1 hour ahead of US Eastern Time, and 4 hours behind GMT. 

What's the Weather Like?

Warmed by the Gulf Steam, Bermuda's climate is mild and humid with an average minimum temperature of 8.3C and maximum of 32.1C. There is no frost and sea breezes provide relief from the high temperatures. Rainfall is sufficient for local agriculture and falls evenly over the year.

Is Easy To Get To And From?

A number of airlines operate direct scheduled services from North America to Bermuda's L. F. Wade International Airport, including Air Canada, American, Jet Blue, Delta, AirTran, Miami Air, United, US Airways and West Jet. They link Bermuda with the following cities: Atlanta, Boston, Baltimore, Charlotte, Washington D.C., Detroit, Newark, New York, Halifax and Toronto.

The only direct flight to Bermuda from Europe is operated by British Airways from London Gatwick. Flying time is approximately 7 hours 20 minutes.

How Many People Live There?

Bermuda is home to approximately 70,000 people (according to a July 2015 estimate) of mostly English, Portuguese and West Indian descent. The official language is English, although Portuguese is widely spoken.

Is Bermuda an Independent Country?

Bermuda is self-governing, but not independent. Constitutionally, it is a self-governing British Crown Colony and forms part of the Commonwealth. Its legal system is based on English common law. The Crown appoints the Governor and Britain is responsible for the Island's external affairs, defense, internal security and the police. Bermuda has an elected House of Assembly and an appointed Upper House.

In a 1995 vote, the island's population rejected a proposal to become independent, partly perhaps out of concern for Bermuda's highly successful financial services industry. However, agitation for independence continues.

Bermuda Is a Rich Place, Right?

It's certainly true that the Bermudian economy has been highly successful, with tourism and international business being the two main sources of revenue. However, the economy has struggled since the global financial crisis and entered its seventh consecutive year of recession in 2015. Nevertheless, Bermuda remains relatively wealthy, with GDP per head of almost USD86,000 in 2013, the fourth-highest in the world.

The development of Bermuda's thriving financial sector began in the 1950s. A wide variety of financial services are represented, with the captive insurance sector being the world leader; fund and trust management are also prominent.

The unit of currency is the Bermuda dollar (BMD) which has parity against the US dollar. However, the US dollar is also accepted.

Certain exchange controls apply to Bermudian citizens and to "local" companies, but there are no capital or exchange controls applying to non-residents or to offshore entities.

I've Heard There's No Tax in Bermuda?

That's correct. There are no taxes on profits, dividends or income (personal and corporate). Also, there is no capital gains tax, no withholding tax and no sales tax. And despite the Government's growing budget deficit and spiraling public debt, there seems to be no desire to introduce income tax.

The main tax impinging on companies is payroll tax. As from April 1, 2015, the rates vary from 5.5 percent to 14.5 percent, depending on the level of the company's total payroll. Offshore companies also pay annual registration fees.

Bermudian employers must pay social insurance contributions in respect of every employee over 16 years old, and who works more than 4 hours per week; half of the amount paid may be deducted from the employee's pay.

There are also taxes on property and stamp duty on assets at death.

Customs duties can be quite high for immigrants.

So Bermuda is a Tax Haven Then?

By virtue of its status as a no-tax (on income at least) jurisdiction, Bermuda is often labelled as a tax haven, especially as subsidiary companies formed in the jurisdiction help multinationals to minimize their liability to corporate tax in North America and Europe.

However, as Finance Minister Bob Roberts observed in his 2015/16 budget address, Bermuda "has had to work hard to differentiate itself from the dirty, shady offshore financial centers."

The Government has therefore cooperated with ongoing international regulatory and tax transparency initiatives.

In September 2013, the Government wrote to the UK Foreign and Commonwealth Office to request inclusion in the Multilateral Convention on Mutual Assistance in Tax Matters "at the earliest possible moment."

On December 19, 2013, Bermuda signed an intergovernmental agreement with the United States on the implementation of the Foreign Account Tax Compliance Act.

According to Richards, in November 2014 Bermuda had tax information exchange agreements (TIEAs) with 80 countries, including 41 TIEAs with 90 percent of the G-20, 76 percent of OECD countries, and 52 percent of EU member states.

However, Bermuda has bluntly refused to accept the need for a public register of beneficial ownership of companies registered in the jurisdiction, as is being advocated by the UK. The Government has said that it will only introduce such measures when the UK, US, and Canada do the same for their companies.

How Do I Get In?

Like many "offshore" jurisdictions, there is strong demand for skilled overseas workers with legal and finance expertise. What's more, Bermuda's lack of taxes, favorable climate and natural beauty also mean that lots of people want to live there on a long-term or even permanent basis. However, also like those other jurisdictions, Bermuda is a small place, and there simply isn't room to allow in everyone who wants to be there.

Offshore governments, including Bermuda, also deem it socially undesirable to effectively exclude locally-born people from these well-paid jobs. Therefore, work and residency permits are not dished out as readily as one might think.

However, there is a fine balance to be struck between the needs of the economy and the needs of society, and many people in Bermuda have blamed the restrictive and overly bureaucratic immigration system for exacerbating the territory's economic problems. Consequently, changes made in an attempt to improve the work permit system were introduced in March 2015. They also included new commitments to process work permit applications within days rather than months, which has previously been the case.

Work Permits

There are several work permit categories under the new rules. The following is a brief summary of the most significant types of work permit.

The Short-Term Work Permit can be used by all employers to employ workers for periods of up to six months. Terms of three, four, five and six months are available. The holder will be expected to leave Bermuda at the expiration of the permit, unless an extension has been sought. The Department of Immigration has committed to complete applications for these work permits within 10 days of submission.

The Global Work Permit allows a person who is already employed by a global company in another jurisdiction to transfer to the Bermuda office without the need for the position to be advertised locally. However, the company must demonstrate that the permit holder is not filling an existing position in Bermuda. A Global Work Permit is normally granted for periods of up to five years. Only "global" businesses may apply for this type of permit i.e. the company must also employ people in jurisdictions outside of Bermuda. Employers wishing to extend a Global Work Permit must apply for a Standard Work Permit (see below). Applicants can expect their applications to be completed in 10 days.

The New Business Work Permit allows newly formed Exempt Companies (in effect, offshore companies) to receive automatic approval of work permits for the first six months of obtaining their first business permit, without the need for these positions to be advertised. There is no maximum number of permits which can be applied for, but companies requiring more than 10 permits within the first six months of operation will be required to present an office staffing plan to the government minister responsible for immigration. A New Business Work Permit may not be granted to entry-level, graduate or trainee positions. Applicants can expect their applications to be completed in 10 days.

The Global Entrepreneur Work Permit is intended for those needing to work and reside in Bermuda for up to one year in order to perform an important business function for an Exempt Company. These work activities may include, for example, business planning, seeking appropriate government or regulatory approvals, meeting compliance or financial requirements, or raising capital. The minister responsible for immigration will grant approval if satisfied that the applicant is a bone fide investor or business person that is likely to domicile a company in Bermuda. Applicants can expect their applications to be completed in 10 days.

The Standard Work Permit allows all organizations in Bermuda to employ foreign nationals provided they can demonstrate that a Bermudian, spouse of a Bermudian or Permanent Residency Certificate holder was not suitably qualified or available to be hired. Employers may apply for standard work permits for periods of up to five years. However, there are certain categories of jobs for which an employer is not entitled to apply for a Standard Work Permit. These "closed category jobs" include: Airline Ground Agent; Retail Floor Supervisor; General Laborer; Office Receptionist; Painter; Salesperson; Tourist Retail Salesperson; Taxi Driver; Wallpaper Technician; Grocery Packer; Cashier; and Courier. Applicants can expect their applications to be completed in 20 days.

Pathways to Permanent Residency

Bermuda is one of only a few places in the world that does not allow expats to obtain permanent status other than through marriage. However, this state of affairs also looks like it's about to change.

It is proposed that any person who is ordinarily resident in Bermuda for 15 years will be eligible to apply for permanent residency. In addition, such a person will need to be resident in Bermuda for two years immediately prior to his or her application and must have been a person of good conduct and character throughout the period of residency in Bermuda.

Also, it is proposed that any person who was born in Bermuda, or who arrived before his or her 16th birthday, will be eligible for permanent residency after 10 years of ordinary residency in Bermuda upon reaching their 18th birthday. In addition, such a person will need to be resident in Bermuda for two years immediately prior to his or her application and must have been a person of good conduct and character throughout the period of residency in Bermuda.

It is also proposed that any person who has a "Bermuda close family connection" will be eligible for permanent residency after 10 years of ordinary residency in Bermuda upon reaching their 18th birthday, providing they fulfill several conditions.

The changes will be included in the Bermuda Immigration and Protection Amendment Act 2016, which, at the time of writing, is due to be tabled in the House of Assembly.

Can I Buy Property In Bermuda?

Unfortunately, while the Government is making things slightly easier for those wanting to obtain work and permanent residency permits in Bermuda, the territory's property market remains tightly restricted for foreign investors. This is because of the territory's small size, and the Government's policy of preventing Bermuda-born residents from being priced out of the market.

Consequently, foreigners are restricted to buying houses with an annual rental value of at least USD153,000, and condominiums with an AVR of at least USD32,400. Furthermore, condominiums can only be bought by foreign purchasers if they are in an "designated development."

Overseas buyers must obtain permission from the Minister of Labour and Home Affairs before they can purchase property in Bermuda. This application is usually made through a local attorney.

A license fee is also payable by the purchaser. From April 1, 2013, these rates are 8 percent for houses and 6 percent for condominiums. Holders of permanent residence certificates pay a 4 percent license fee.

There are additional property taxes, including stamp duty on property transactions, and a land tax, which is imposed at progressive rates from 9.6 percent on property with an AVR between BMD44,001 and BMD90,000, up to 23 percent on AVRs above BMD120,000.

As a result of these restrictions, only high-value property is available to non-Bermudians; houses with a qualifying ARV are priced from around USD3.5m upwards, and condominiums from about USD550,000. However, in recent years, fractional ownership schemes have become a popular form of property ownership in Bermuda by non-Bermudians.

There are no restrictions on rental properties, which are available to both Bermudians and foreign residents. 

Tags: business | payroll | dividends | Immigration | Tax | Europe | Work | North America | budget | Immigration | Offshore | FATCA | Canada | Bermuda | law | offshore | services | financial services | insurance | tax | stamp duty |


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