BERMUDA: An Introduction

Bermuda is an archipelago of islands situated in the North Atlantic Ocean, approximately 600 nautical miles from the east coast of the United States. Bermuda is a British Overseas Territory that is self-governing with its own parliamentary government, dating from 1620, and constitution. The jurisdiction’s legal system is based on the common law of England and Wales and, accordingly, decisions of the English courts are highly persuasive in Bermuda. As a dependent territory of the United Kingdom, Bermuda’s highest appellate court is the Privy Council in London, whose decisions are binding in Bermuda. Bermuda’s motto, “Quo fata ferunt”, aptly characterises the spirit of phlegmatic pragmatism that has served Bermuda so well as it has provided solutions to global problems particularly in the reinsurance space grounded in the excellence of its intellectual capital and its highly regarded regulator, the Bermuda Monetary Authority (the “Authority”).

Economy

Bermuda is a highly reputable and sophisticated offshore financial centre, with a stable political environment and effective regulation. The largest contributor to Bermuda’s gross domestic product (GDP) is international business. Bermuda is a global reinsurance hub, being the third largest reinsurance market in the world. It is also a leading captive insurer market (the concept of the captive insurer was first invented in Bermuda in the 1960s) and the largest insurance-linked securities market globally.

Bermuda is one of only two jurisdictions to have been awarded full equivalence under the Solvency II regime of the European Union (EU) applicable to reinsurance companies. This means Bermuda registered commercial reinsurers and insurance groups are able to compete on an equal footing with EU carriers when carrying out business in the EU. The National Association of Insurance Commissioners (NAIC) in the United States has also granted Bermuda “qualified jurisdiction” status, resulting in less onerous collateral requirements for Bermudian reinsurers operating in relevant United States jurisdictions. The combination of Solvency II equivalence and NAIC recognition is a unique proposition. In addition to reinsurance, a number of investment funds and investment businesses operate in Bermuda. Bermuda has also developed a regulatory framework to regulate and encourage the growth of digital asset business. Bermuda operates the largest offshore aircraft registry globally and a highly regarded ship registry. Other contributors to Bermuda’s GDP include tourism and the local economy. Bermuda’s economy is closely linked to that of the United States, particularly given the Bermuda dollar is pegged 1:1 to the United States dollar.

Doing Business in or From Bermuda

Bermuda generally prohibits local companies that intend to operate in the local economy in Bermuda from being majority owned and controlled by non-Bermudians. However, Bermuda permits exempted companies to carry on business from Bermuda, which means carrying on business internationally and in selected cases or otherwise with permission may include carrying on business with other exempted entities. Exempted companies are exempted from the requirement imposed on local companies that at least 60% of the total voting rights in the company and at least 60% of the directors must be Bermudian and therefore may be 100% foreign owned and controlled. The majority of companies incorporated in Bermuda operate as exempted companies. Similar restrictions apply to other entities such as limited partnerships and limited liability companies.

Certain financial sectors such as reinsurance, banking, investment funds, investment business and digital asset business are specifically regulated by the Authority, and businesses operating in these sectors must adhere to the relevant laws and regulations.

Bermuda adheres to strict international standards of tax transparency, anti-money laundering and anti-terrorist financing and sanctions. In line with this commitment, Bermuda introduced economic substance laws (the “ES Laws”) effective 31 December 2018 (which have since been amended and developed further). The purpose of the ES Laws is to ensure that Bermuda does not facilitate the use of structures which attract profits but which do not reflect real economic activity undertaken in Bermuda. In summary, entities undertaking a “relevant activity” (as defined in the ES Laws) and which are not tax resident in another approved jurisdiction are in scope of the ES Laws and must demonstrate, annually, that they are managed and directed in Bermuda and that core income generating activities are taking place in Bermuda.

Key Recent Developments

On 1 January 2025, the Corporate Income Tax Act 2023 came into force, with the effect that, for the first time, certain entities in Bermuda will be subject to a 15% corporate income tax in Bermuda for financial periods commencing on or after that date. The tax is applicable to entities forming part of a multinational group which has, in at least two of the four preceding fiscal years, shown annual revenues of EUR750 million or more in the consolidated accounts of its ultimate parent. Otherwise, Bermuda remains a tax neutral jurisdiction and there are no taxes imposed on profits, income or capital gains, nor is there any withholding tax, estate tax or death duty. No stamp duty is applicable for transactions involving exempted undertakings and non-residents. If exempted companies employ employees in Bermuda, payroll tax is payable by both the employer and the employee on the employees’ remuneration up to a certain annual limit.

The Personal Information Protection Act (the “PIPA”) came into force on 1 January 2025, providing an overarching framework for the processing of “personal information” in Bermuda. The PIPA was intended to bring Bermudian law into line with international standards.

In the last few years Bermuda has seen significant growth in the establishment of long-term business (predominantly life and pension annuities) reinsurers. Following extensive consultations on the Authority’s proposals for enhancements to Bermuda’s supervisory and regulatory regime for commercial insurers (first published in 2023), a number of enhanced capital requirements and supervisory provisions have been brought into operation and consultations continue on the development of regulatory and governance requirements. The Authority’s intention is to ensure the regime remains fit for purpose and in line with international standards and keeps up with market developments. The philosophy of risk-based regulation is embedded in Bermuda’s regulatory DNA and has been a critical factor in the continuing development of the jurisdiction.

2024 saw the introduction in Bermuda of a new regime for Internationally Active Insurance Groups (IAIGs), to meet the principles and standards of the International Association of Insurance Supervisors’ (IAIS) Common Framework, and the Authority’s first designation of Bermuda headquartered IAIGs (of which the Authority is the Group Supervisor). The Authority is entitled to designate an insurance group which writes premiums in three or more jurisdictions (of which at least 10% is written outside Bermuda) and which, over a rolling three-year period, averages total assets of at least USD50 billion and gross written premiums of at least USD10 billion as an IAIG. The Authority’s guidance to IAIGs and consultations on applicable detailed regulations continue to develop, with the intention to align not only with IAIS standards, but also those of its own enhanced commercial insurer regime.