Local vs. Exempted Companies in Bermuda

Local vs. Exempted Companies in Bermuda

What is the difference between a local and exempted Company in Bermuda?

At the time of incorporation, a Bermuda company must be registered either as a local or exempted company. A local company is one that is incorporated by Bermudians to trade primarily in Bermuda. An exempted company is one that is incorporated by non-Bermudians for the purpose of conducting business outside Bermuda.

Local companies

Local companies are free to carry on business with whomever they choose in Bermuda and may provide services to both Bermudian and international businesses which have a presence in Bermuda. Local companies must be owned and controlled by Bermudians in accordance with the Companies Act 1981 (as amended) (the “Companies Act”); in particular 60% of the directors must be Bermudian and 60% of the company’s shares/equity must be owned by Bermudians (known locally as the “60/40 Rule”). However, the Minister of Finance (the “Minister”) may grant a licence permitting a local company to carry on business even though it does not satisfy the 60/40 rule.

Exempted companies

Exempted companies are classified as exempted because they are exempted from the provisions of Bermuda law requiring that at least 60% of the equity in the company must be beneficially owned by Bermudians, as well as being exempt from exchange control provisions. Generally speaking, exempted companies may be owned by non-Bermudians only. Additionally, exempted companies, or those persons designated as “non-resident” for exchange control purposes (being non-Bermudians and exempted companies) are permitted to hold foreign currency without being requested to convert it to local currency.

The Companies Act restricts an exempted company from carrying on business in Bermuda. However, the Companies Act does have some exceptions allowing exempted companies to transact limited categories of business in Bermuda but permission is granted by way of a licence granted by the Minister. It should be noted that there are certain activities that can be carried out in Bermuda by an exempted company that do not require a licence from the Minister, examples include: doing business with other exempted companies in carrying out the business of the exempted company which is being conducted outside Bermuda; dealing in securities of exempted undertakings, local companies or partnerships; carrying on business as manager or agent for, or consultant or advisor to, any exempted company which is affiliated (whether or not the affiliate is incorporated in Bermuda) with the exempted company in which the exempted company is a partner (which includes mutual funds selling or distributing their shares in Bermuda).

Taxation of Exempted Companies

An exempted company is an “exempted undertaking” within the meaning of The Exempted Undertakings Tax Protection Act 1966 (the “TPA 1966”). Under the TPA 966, the Minister will grant an assurance to any exempted company that the Bermuda government will not impose taxes “profits” or “income” or “capital gains or appreciations” of the company or its operations prior to a certain date, currently 31st March, 2035.

Exempted companies are “international businesses” for the purposes of the Stamp Duties (International Businesses Relief Act) 1990. All documents executed by an international business are exempt from stamp duty, except for instruments relating to real and personal property of any kind situated or being in Bermuda, and the proceeds of the sale thereof and any investment for the time being representing the same.