Table of Statutes

This is a non-exhaustive list of the main Bermuda statutes affecting offshore and non-resident business. The statutes are listed in alphabetical order click on the statute for a fuller description of the statute or the legal regime it forms part of.

Anti-Terrorism Act 2004
Banks and Deposit Companies Act 1999
Bermuda Immigration and Protection Act 1956
Bermuda Immigration and Protection Act 2002
Bermuda Monetary Authority (CISC) Regulations 1998
Bermuda Stock Exchange Company Act 1992
Companies Act 1981
Companies Amendment Act 2006
Exchange Control Act 1972
Exchange Control Regulations 1973
Exempted Partnerships Amendment Act 2005
Hospital Insurance Act 1970
Insurance Act 1978
Insurance Amendment Act 1996
International Businesses (Stamp Duty Relief) Act 1990
International Cooperation (Tax Information Exchange Agreements) Act 2005
Investment Business Act 2003
Investment Funds Act 2006
Overseas Partnerships Amendment Act 2005
The Payroll Tax Act 1995
The Payroll Tax Rates Act 1995
Segregated Accounts Companies Act 2000
Segregated Accounts Companies Amendment Act 2004
The Perpetuities and Accumulation Act 1989
Stamp Duties Amendment Act 1993
The Trustees Act 1975
Trust (Special Provisions) Act 1989
Trusts (Regulation of Trust Business) Act 2001
Trust Companies Act 1991
Proceeds of Crime Amendment Act 2000

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Trust Law

Bermudian trusts are governed by The Trustee Act 1975 which is largely based on the English Trustee Act 1925. The Trusts (Special Provisions) Act 1989, another significant statute, introduced the concept of the "purpose trust" and brought Bermudian law still closer to English law. The Perpetuities and Accumulations Act 1989 increased the perpetuity period to 100 years. Foreign inheritance laws are specifically excluded, and there is provision for the non-recognition of foreign judgements. Bermuda has adopted the Hague Convention; the Trusts (Special Provisions) Act 1989 made some consequent adjustments to the law. Appeal is to the English Privy Council.

The legislation allows for the appointment of a Protector, who can be given power to replace trustee(s), add or remove beneficiaries, and transfer the trust to another jurisdiction.

In general, trustees need not be resident in Bermuda; but one must be. A Bermudian trustee is subject to the jurisdiction of the Supreme Court of Bermuda.

The trust fund may comprise cash, land, securities, interests in property or other trusts. Non resident trusts are not permitted to hold Bermuda currency, shares or security in local companies, or an interest in land in Bermuda without the prior consent of the Bermuda Monetary Authority.

Bermuda trusts need not be registered, and following the Stamp Duty Amendment Act 1993 the only Bermuda trusts still subject to stamp duty are those established by residents in favour of their families.

The Trust Companies Act 1991 provided for the licensing and regulation of trust formation and management companies; private individuals or partnerships managing one or a group of named trusts do not need to register under the Act.

The Trusts (Regulation of Trust Business) Act 2001 also helped to establish a new regulatory regime for trust management companies in Bermuda.

Bermuda, like many other offshore jurisdictions, tightened up its regulatory regime in response to pressure from the OECD and FATF. As part of this, the government passed the Trusts (Regulation of Trust Business) Act 2001.

Much of the Act is based on the recommendations made by the November 2000 KPMG report on financial services regulation in the Overseas Territories, which was commissioned by the UK government.

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Trust Management in Bermuda

The Trust Companies Act 1991 and the Trusts (Regulation of Trust Business) Act 2001 established a regulatory regime for trust management companies in Bermuda. Excluded from the regime is any individual, partnership or company acting as the trustee of a specific trust or group of trusts; in the case of a company the word 'private' or 'pvt' must be included in its name.

Trust Companies (or indeed partnerships) offering their services more widely need a license from the Finance Ministry, which delegates the issue of licences to the Bermuda Monetary Authority (BMA). Certain minimum requirements must be met before a license is issued:

• Minimum paid-up capital of $250,000;
• Adequate insurance;
• Adequate premises and appropriately skilled staff.

An application includes details of beneficial ownership, personnel, business plan etc. A licensed company is subject to reporting and other requirements under the Bermuda Monetary Authority Act 1969. It is also subject to Codes of Conduct covering 'know your customer' rules, defences against money laundering and other criminal activities. The annual licensing fee payable to the BMA is $1,000.

A private trust company, that is, one formed to act as trustee of a limited number of trusts for the benefit of members of the same family or connected with a particular commercial transaction, is exempt from the licensing regime. The BMA requires the same background information relating to the identities of the owners of the private trust company as for the incorporation of any other company in Bermuda, but once incorporated there is no obligation on a Bermuda private trust company to file financial statements or written reports with any regulatory body in Bermuda regarding either itself or any
trusts it acts as trustee of.

When assets of significant value are placed in trust, the running costs of a private trust company will often be significantly lower than those of a public, licensed trust management company. In addition, professional trust managers are becoming twitchy about liability issues and may be reluctant to take on trust management of some types of business and asset. This problem is largely avoided in a private trust company.

There are 33 licensed trust companies in Bermuda currently (2007), some of them operating as exempt companies.

The two key associations in Bermuda for trust management companies are The Society Of Trusts and Estate Practitioners (STEP, Bermuda Branch), and the Bermuda International Business Association (BIBA).For a listing of trust management firms in Bermuda, see the Lowtax Bermuda Services Directory.

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Insurance Law

Bermudan insurance was regulated by the Minister of Finance and the Registrar of Companies under the Insurance Act 1978, the Insurance Amendment Act 1996 and the Companies Act 1981. Supervisory responsibility was transferred to the Bermuda Monetary Authority under the Insurance Amendment Act, 2004. The legislation provides greater flexibility than that of most other jurisdictions, partly accounting for Bermuda's success as an insurance centre. An annual audit is required, together with a solvency certificate. Annual licence fees vary between $800 and $2,500 (at the time of writing).

There are four classes under which insurers can register:

• Class 1: Single-parent captives which don't write external business; minimum solvency requirement $120,000;
• Class 2: Multi-owner captives underwriting the risks of their owners, or single-parent or multi-owner captives writing not more than 20% of external business; minimum solvency requirement $250,000;
• Class 3: Insurers and reinsurers not included in the other three classes, including reinsurers writing 3rd party business, finite reinsurers, etc; minimum solvency requirement of $1m;
• Class 4: insurers and reinsurers writing direct excess liability and/or property catastrophe reinsurance risks; minimum solvency requirement of $100m.

There are additional rules dealing with minimum levels of statutory and authorised capital, distinguishing between general and long-term (life) business. The solvency and liquidity requirements under the Insurance Act are found in the Insurance Returns and Solvency Regulations 1980. These require general business insurers to maintain at all times a minimum margin of solvency.

Insurers must file annual financial statements and statutory returns with the Registrar of Companies, audited by an approved auditor. They are subject to various other reporting and fiduciary requirements.

In December, 2004, the Bermuda House of Assembly approved the Segregated Accounts Companies Amendment Act. Under the Act, Bermuda segregated accounts companies are available to insurance firms, collective investment schemes and other special purpose vehicles that serve an investment purpose.

The purpose of the Bill is to amend section 18 of the principal Act which clarifies the ownership status of the assets within a segregated account and rectifies the reference to the Exchange Control Act 1972. This means those persons who are licensed to conduct long term insurance business will now be able to take advantage of the general provisions under the Principal Act.

A segregated account is an account which contains assets and liabilities that are legally separate from the assets and liabilities of a company's ordinary account, which is otherwise known as its ‘general account.’

Deputy Premier Paula Cox observed that: "The intended effect of the division between the general account is to protect the assets of one account from the liabilities of the other accounts."

Since the Segregated Accounts Act was initially enacted in 2000, over 160 firms have registered as segregated accounts companies, contributing more than $58,000 in revenue to the government annually, explained Mrs Cox.

During 2004, detailed consultations were conducted with the insurance sector on a first set of related amendments to the supervisory arrangements. These included the enactment of the Insurance Amendment Act 2004 (the Amendment Act), the preparation of a series of detailed policy Guidance Notes and the development of a formal supervisory model to be applied by the Authority. By the end of the year, preparatory work on much of this first phase was complete, enabling the first round of amendments to be implemented early in 2005.

One of the key provisions of the Amendment Act was to create a mechanism for the Authority to develop and publish guidance notes on different aspects of the standards and requirements of the Insurance Act.

Alongside the preparation of the Amendment Act itself, the Authority embarked on in-depth consultations with industry partners and the accountancy and legal professions on the drafting of detailed Guidance Notes on aspects of the supervisory framework under the Insurance Act. These covered key matters such as the role of auditors, insurance managers and principal representatives. A first series comprising 15 specific Guidance Notes was finalised and published shortly after the end of the year, when detailed timetables for their progressive implementation during 2005 were also published.

The Amendment Act, which formally commenced on 10 December 2004, also included a number of other important changes. In many respects, these changes served to provide statutory backing for a number of requirements and standards that the Authority had already applied to the licensed sector. In particular, it required:

• Notification of any change in particulars of an approved principal representative, insurance manager or approved auditor or change of location of the principal office;
• Requirement for a principal representative to notify the Authority immediately in certain circumstances – for example, if he reaches the view there is a likelihood of the insurer for which he acts becoming insolvent;
• Clarification of the approval process of the loss reserve specialist by the Authority and of the Authority’s power to revoke an approval;
• Clarification of the approval and appointment process for auditors on the basis of fit and proper criteria as well as a provision enabling the Authority to appoint an auditor where one has not been appointed, and to set the remuneration;
• Modification of the auditor independence standard in the Insurance Act to make it consistent with the standards in Bermuda’s other financial services statutes; and
• Introduction of an obligation for an auditor to notify the Authority in the event of his resignation or removal, or if he makes a material modification to a report on an insurer’s statutory financial statements.
  

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Fund Management Law

The Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations 1998 (known as the CISC Regulations) gathers together existing statutory and voluntary rules for fund management in Bermuda.

Upon authorization, funds are classified as one of the following:

Institutional Funds:

Institutional Funds are targeted essentially at institutional/sophisticated investors and are restricted to qualified participants or those investing at least $100,000.

They are required to have an officer, trustee, or resident representative in Bermuda, being a person who has access to the books and records of the fund.

Administered Funds:

Funds qualify for classification as Administered funds if they have an administrator licensed under Part III of the Act and:

Require participants to invest a minimum amount of $50,000; or
A Fund listed on a Stock Exchange recognized by the Authority for the purpose of Section II of the Act
Both Institutional and Administered funds are subject to a less comprehensive regulatory and supervisory environment because of sophistication and expertise of their investors and reflecting the other safeguards in place. The majority of Bermuda funds fall into this category.

Standard Funds:

A fund qualifies for classification as a Standard fund if it does not fit within any other class of fund. Such funds are not restricted to sophisticated investors and may include a more significant retail element among their investors. Consequently they are subject to more comprehensive and regulation and supervision.

Segregated Accounts Companies

An Investment Fund may make use of the Segregated Accounts Companies Act 2000 and take the form of a segregated accounts company. See the Investment Fund Guidelines for detailed provisions regarding certain requirements applying to funds making use of this option.

The Bermuda Monetary Authority (BMA) regulates the collective investment industry and vets new applicants to determine their qualifications and experience. A draft prospectus is required as well as evidence of the investment experience of the fund manager and details of the promoters' background. The BMA does not necessarily expect promoters to be internationally-recognised investment houses, and will normally give permission fairly readily if it thinks that a fund will be honestly and competently managed.

The promoters can either form their own management company for the scheme or select an existing Bermudan management company. A Bermuda bank must be appointed as custodian although sub-custodians are permitted. Similar regulations apply to the functions of registrar and transfer agent. The entry into force in 2000 of the Companies Amendment Act meant that the minimum capital requirement for Bermuda mutual funds was reduced from US$12,000.00 to US$1.00. See Offshore Legal and Tax Regimes for details of suitable corporate forms.

The Investment Business Act 2003, which came into force at the end of January, 2004, provides that any person undertaking investment business in or from Bermuda must hold a licence from the Bermuda Monetary Authority (BMA), unless they qualify for an exemption. The IBA also prohibits persons from entering into an investment agreement with an individual in the course of or in consequence of an unsolicited call made on that person.

Entities with no physical presence in the jurisdiction will not be required to obtain an investment business licence.

The Act prohibits persons from entering into an investment agreement with an individual in the course of or in consequence of an unsolicited call made on that person.

An important factor in the increasing numbers of individual investment portfolios has been the growing popularity with scheme promoters of the use of Bermuda Segregated Accounts Companies (SACs). By the end of 2004, 29 Bermuda SAC vehicles were classified as collective investment schemes with 159 individual segregated accounts, as compared to nine SAC vehicles and 43 individual segregated accounts at the end of 2003.

A number of initiatives were launched by the BMA during 2004 aimed at streamlining the incorporations process for schemes. The Authority issued a guidance note on the processing of scheme incorporation and classification applications. This clarified the arrangements and in particular confirmed that schemes can be incorporated on a fast-track process prior to completion of the detailed prospectus review and classification approval that is required in order to operate as a scheme.

The effect is to permit the promoters to complete preparations for the scheme to begin operations by opening bank accounts and making other administrative arrangements that are necessary before a scheme opens to investors. No scheme can begin accepting subscriptions or operating as a scheme until it obtains either classification under the CIS Regulations or exemption from them.

In a further important streamlining initiative, the Minister of Finance also agreed, after detailed consultations with industry and the Authority, that collective investment schemes should be designated as unrestricted companies under the Companies Act. The effect is to permit delegation to the Authority of the Ministerial consent to incorporation that is required. The necessary changes to the Companies Act were being introduced in 2005. This policy change is intended to make the incorporation process more efficient without in any way diluting Bermuda’s rigorous vetting and approval standards for schemes.

2004 also saw continued preparatory work for the proposed new Collective Investment Schemes Act. The new legislation is intended to expand the definition of collective investment schemes beyond mutual funds and unit trusts to include certain other corporate vehicles and limited partnerships used for investing funds on a pooled basis; to introduce a licensing regime for fund administrators; and to provide the Authority with enhanced information, intervention and enforcement powers.

In December 2006, the Bermuda International Business Association (BIBA) soundly endorsed the passing in Bermuda’s House of Assembly of the eagerly anticipated Investment Funds Act 2006, which more clearly outlines how public funds are regulated and refines the framework for non-public, institutional funds.

The bill has the following key features:

• There is a clearly defined distinction between public (retail) funds and institutional or non-public funds.
• The powers to exclude funds from particular requirements are more refined so that there is certainty as to what minimum requirements must be met by fund operators.
• Exclusions from fund regulation are more clearly defined so funds of a ‘private nature’ are not captured.
• Under previous legislation, partnerships were not covered but this gap has been now closed and they are included, as well as mutual fund companies and unit trusts.
• Fund administrators are now regulated and licensed.
• A new class of funds, known as “administered funds” has been introduced. With the introduction of licensed administrators, it is now possible to register funds under this class with the level of regulation adapted, on the grounds that the administrator is based in Bermuda and subject to codes of conduct and fund rules that will ensure the proper level of governance of the fund.
• There is clearer definition of the rules for the appointment of service providers and delegation of powers.
• A new section clearly enables unit trustees to hold property in segregated accounts, and defines how these accounts will be managed. This affords trustees the same benefits as companies operating with segregated accounts.
• The rules for prospectuses of funds are clearly set down and distinguished from the general rules under the Companies Act of 1981.
• The powers of the BMA to require more information and to inspect are enhanced.
• The requirements and powers for sharing of information with other regulators are more clearly defined.
• Similar to other financial institutions, a right of appeal to an appeal tribunal was introduced.

Deputy Premier, Paula Cox, who successfully piloted the Act to unanimous approval by the House of Assembly, is confident that the legislation enhances Bermuda’s abilities and reputation as a premier fund jurisdiction.

Cox commented that Bermuda had to streamline the incorporation process for investment funds and eliminate unnecessary administrative procedures to augment Bermuda’s competitive edge by bringing more clarity and certainty to the authorization process.

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