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By Keith Archibald Forbes (see About Us) at e-mail exclusively for Bermuda Online
To refer to this webfile, please use "bermuda-online.org/economy.htm" as your Subject
Economic pillars are international business and tourism. British Bermuda is a North Atlantic business & tourism center. Not in the Caribbean, it is the only part left of British North America after the USA and Canada got their independence. There is a public sector Bermuda Government Department of Tourism web site which includes what offices in Bermuda and overseas it operates at Bermuda taxpayers' expense.
Bermuda has a high-cost economy. The World Bank rates it as # 3 in the world in GNI - Gross National Income. (Until quite recently it was # 1). Most of its money comes from being an International Business center or offshore jurisdiction - some would say tax haven for corporate entities (not for their employees). It is also a long-established tourism resort. It has no natural resources of its own in its 21 square miles, no oil, no gas, no heavy industry. It is one of the most isolated yet highly populated places anywhere in the world and one of the most regulated, with controls on what non-nationals cannot do that no other jurisdiction in the world imposes. Lack of citizenship to newcomers except after 10 years of continuous and living-together marriage to a Bermudian, lack of citizenship to children of non-nationals, plus their consequences of inability to vote, inability to buy property except in certain circumstances only, are merely some of them. All these mean that for most non-Bermudians including all from Britain who come to Bermuda to work in jobs Bermudians cannot or will not do or want, there can be little chance of staying beyond their Work Permit term, with no security of tenure, no prospects of citizenship, no opportunity to buy a house or condominium at the same price levels as Bermudians. But for their international business employers, it is a different story. Many were either incorporated in Bermuda or have moved their corporate headquarters to Bermuda, for international tax reasons. Why? Because Bermuda levies no taxes on their world business activities. So far, Bermuda offers them far more in assets than in liabilities. It pays them to come here, for as long as Bermuda's advantages as an offshore jurisdiction outweigh those of competing jurisdictions. It continues to do so for the international corporate entities, but not to their non-Bermudian employees for the reasons given above. Plus, it it is not true to say Bermuda has no taxes. It has no capital gains tax, true, but the other direct and indirect taxes it levies on managements, their staff, business visitors and tourists are many and they can be so very heavy that overall Bermuda's cost of living is one of the highest in the world, if not the highest, nearly three times more than in the UK and nearly four times more than in the USA. They include a direct income tax, in the form of a Payroll tax, payable by employers and employees. It is based on what is earned from employment. From April 1, 2011 it is 14% with employers paying some and employees paying the balance. Bermuda Government Customs Duties averaging 35% of wholesale costs, translating into 100% or more at retail level, and Bermuda Government Annual License Fees on automobiles averaging $590 per auto. These are merely a few examples of why Bermuda has an appreciably higher cost of living than direct taxed and indirect taxed jurisdictions.
Bermuda has no double taxation treaties of any kind. This does not affect nationals of most other direct-taxed countries who live and work in Bermuda but it means that nationals of countries like the United States of America and the Philippines who live and work in Bermuda are liable to taxes on their Bermuda income over a certain amount, without any kind of tax rebate from their own country. A form of taxation treaty with the USA gives USA resident taxpayers in Bermuda a more than $80,000 discount off their US taxes payable, partly because the overall cost of living overseas - in places like Bermuda - is recognized as much higher than in the USA.
Bermuda's most important trading partner is the USA, by a huge margin. From October 8, 2011. Bermuda became a more prominent trading partner with the US as other offshore financial centres suffered from the fallout from the financial crisis. That was according to the ‘US-Bermuda Economic Relations: Economic Impact Study 2011’ conducted by Dr Charles Ludolph, senior vice-president of the Washington DC-based Albright Stonebridge Group. That report revealed that the two-way trade in services between the two countries had grown to more than $80 billion by the end of 2010 (and has grown significantly more since then). Bermuda also became the leading supplier of reinsurance to America averaging $20 billion in payments or as much as $35 billion in recovered losses annually and the leading export market for the US primary insurance sector in 2010, while US exports of research and development and testing services to companies here rose by $2 billion during the recession. The study found that over 2010 the Island was the fourth largest investor in US government bonds, the eighth largest investor in the US, the fifth largest export market for banking and investment funds, the eighth largest for shipping services and the 11th largest for business services. In addition, Bermuda represented the 14th largest market for all US services exports, excluding royalties and service fees and was the 10th largest portfolio capital investor. “The overall economic relationship between Bermuda and the United States continued to expand through the 2000s,” wrote Dr Ludolph. “The relationship even strengthened during the most recent global economic crisis as Bermuda continues to offer economic advantages that met US business needs and expanded employment opportunities.” Furthermore the report concluded that the Island’s prominent position in the US marketplace, particularly in insurance, was due to a number of factors including its proximity to the US financial and capital markets, UK and US compatible law and regulation and extensive financial regulatory co-operation and quality. And it surmised that Bermuda’s economic independence from larger global financial centres and concentration in niche risk insurance sectors which were not correlated with the world’s financial meltdown gave it a more competitive capacity. The Island’s trade and investment relationship with the US helped to sustain 300,00 jobs during 2010, with 101,000 US jobs created by annual exports to Bermuda and 200,000 were derived from US majority-owned affiliates of Bermuda companies. From a re/insurance perspective, approximately 75 percent of the 500 top American companies have captives in Bermuda, while Bermuda-domiciled shipping companies provided $1.1 billion in energy-related shipping services designed to work with existing US refineries, ports and pipelines. The report said that US operating companies continued to domicile in Bermuda, with Freescale, Marvell, Contel, AOSL and Chipmos moving base to the Island since 2006. Since 2008, these chip companies provided more than $3 billion of service-based export business to Bermuda in testing and research and development services thus creating more US jobs.
The USA has more visitors to Bermuda than all other countries combined, about 85 percent in total. Next are Canada and UK, with about 5% each, then other countries. Tourism is the major pillar of the economy in employment. It employs thousands more than international business. All the latter's accommodation, service and travel needs developed as an adjunct of tourism. Bermuda caters to thousands of business visitors as well as tourists. So an exception is made in the case of hotels to the rule of local companies having to be at least 60% beneficially Bermudian owned. Non local hotel investors may provide the foreign capital required to build and maintain an up market resort hotel.
With their labor intensity, size, heat and light needs and other factors, they bear the biggest burden of the Bermuda Government's up-front payable labor related employers' taxes, fuels' import duties and other hotels related costs. Since 1989 more than a third of Bermuda's hotel rooms have been lost. Bermuda is a quality but very high cost destination. The Bermuda Government makes no secret of the fact that it does not want low-income tourists, expects them to be earning good incomes and charges them accordingly. They are mostly 35 years old or more, 60 percent with college degrees and annual income of at least US$ 75,000 per person. A high 35% to 40% are repeat visitors earning much more each and staying an average of 6.2 nights, the majority in April through October.
As of December 31st, 2010 there were 57 licensed properties, 3,000 rooms and an estimated bed count of 5,998.In recent years, Bermuda's tourism industry has been overtaken hugely by International Business as Bermuda's principal revenue-earner (see Bermuda's International Business Industry: a Profile).
In July 2013 the Bermuda Monetary Authority signed the cooperation agreement with European Union (EU) Member States in relation to the AIFMD. This means that new and existing Bermuda-based funds and fund managers can continue to seamlessly conduct business with the European market. This is the result of a concerted effort by the Bermuda team, led by Shauna MacKenzie, Director of Policy, Legal and Enforcement at the Authority. The ongoing work on this initiative also involves a legislative review of Bermuda's methodology and appropriate adaptations in relation to the oversight of Bermuda-based investment managers. This work will ensure that investment managers may fully participate in European markets from Bermuda and reinforces Bermuda's position as a competitive jurisdiction for the global funds sector.
Conducted periodically by the Bermuda Government's Department of Statistics from businesses and organizations including retail stores, hotels, guest houses, banks, utilities, schools, restaurants and sports clubs.
In 2012, it was calculated as $69,183. In 2012, the average in the banking and international business sector was estimated as US$ 89,896. Many earn far more. Median incomes of Bermudians stood at $65,559, non-Bermudians stood at $89,315. High median salaries included actuaries at $175,378, lawyers at $180,499 and auditors at $100,000. Job benefits went up with 10,551 getting annual bonuses and 3,541 getting stock options. More than 2,300 workers got mortgage subsidies or rent subsidies while more than 1,800 got travel allowances. The percentage of Bermudians in the workforce fell from 74 percent in 2001 to 70 percent in 2008
With Gross National Income (GNI) of more than US$ 99,500 per capita, the World Bank rated it #1 in the world.
April 2013. The value of goods imported to Bermuda fell again in the fourth quarter of 2012, by 3.6 percent to $216 million, according to the Government’s Balance of Payments statistics released. This marks the 11th consecutive quarter imports have declined. Imported goods from the Island’s largest trading partner the United States remained stable at $141 million during the quarter, while the value of imports from Canada increased by $6 million over the same period. Imports of finished equipment and fuel recorded the largest declines, falling by $7 million each. Other spending decreases were recorded in the transport equipment and semi-manufactured goods categories which declined by $3 million and $2 million, respectively. In contrast, imports of food, beverages and tobacco grew by $8 million. Revenue from exports remained unchanged at $3 million during the quarter. The Bermuda current account recorded a surplus of $189 million in the fourth quarter of 2012. This represented an $89 million increase year-over-year. The deficit on the goods account decreased by $8 million to $213 million. Services transactions realized a surplus of $74 million in the fourth quarter of 2012. And the surplus on Bermuda’s primary income account grew to $363 million in the last quarter of 2012. The BOP release further noted transactions on Bermuda’s asset accounts resulted in a net lending position of $5 million. Factors influencing this performance include: Bermuda’s net acquisition of financial assets resulted in an accumulation of $344 million compared to a reduction of $83 million in 2011. And Bermuda increased its net incurrence of financial liabilities by $338 million this quarter compared to a decrease of $47 million in 2011. The Services account surplus fell $9 million. Receipts from services transactions stood at $322 million during the quarter. Among the services categories, revenue from business services transactions grew $6 million. This was due partly to a $7 million increase in insurance services related to inflows of reinsurance premiums and auxiliary insurance service revenue. In contrast, travel inflows fell $8 million on account of lower expenditure by cruise and air visitors. Revenue received from government services amounted to $13 million, equaling the previous year’s total. At the end of the fourth quarter of 2012 the stock of foreign assets held by Bermuda residents registered above its stock of foreign liabilities by an estimated $1,980 million. This net IIP increased by $79 million over the third quarter of 2012.
For more information see Bermuda Government's Department of Statistics.
With 47 paid legislators (36 in the House of Assembly plus 11 in the Senate), for a total of about 38,500 registered voters, a ratio of legislators to voters more than twelve times higher than the average equivalent in virtually any other country, and with in excess of 13 percent of the entire workforce working directly or indirectly by it. In February 2013, the Bermuda Government workforce - excluding the Government-owned quangos - was 5,815 - in less than 21 square miles. Thus it can be readily seen how the Bermuda Government is exceedingly expensive for Bermuda's individual taxpayers, companies both local and international, business visitors and tourists, to finance and maintain. It is Bermuda's single largest beneficiary of tourism revenue.
Bermuda Government imposed methods of direct and indirect taxation and fees have become complex, bewildering - and why Bermuda is such an expensive place for locals and residents to live, companies to operate and tourists to visit. The tax structure puts a burden directly on locals, business visitors and tourists and penalizes tourism dependent industries.
In every year without exception Government spending has increased appreciably, to the highest ever total. Since the final closure of the American, British and Canadian military bases in 1995, recouping the $60 million they yielded yearly has become a Bermuda Government priority, with a mix of tax increases and new taxes. In terms of total employers, only the international business sector generally, with 4,701 employees in thousands of different businesses in 2013, has fewer employees than the government.
Government's salary bill has jumped more than $70 million in two years.An estimated $383 million went on salaries in 2012, up from $339 million in 2008 and $283 million in 2007. An estimated 5,815 people were employed by Government in 2012, up from 5,754 in the previous years. Meanwhile Government cut its travel budget from $7.4 million last year to $6.3 million, a fall of 14.2 percent. That move comes after criticism of soaring government travel expenditure.
Bermuda Beneficial Ownership of Businesses trading in Bermuda
In general, all businesses trading in Bermuda in the local marketplace must be at least 60% Bermudian beneficially owned, controlled and managed, unlike exempted or international companies and corporations that do not trade in the local marketplace except with each other, instead trade beyond Bermuda from their corporate base or office located in or managed from Bermuda. However, on July 26, 2012 amendments relaxing the 60-40 rule on foreign ownership of businesses in specific industries were approved by the Senate, after being similarly approved by Bermuda's House of Assembly. The change allows firms listed on the Bermuda Stock Exchange, or other designated exchange, to apply for a licence to access more capital overseas than the current 60 percent Bermudian ownership requirement allows. The legislation however limits the businesses that can apply for such licenses to capital-heavy industries, such as the insurance, telecommunications and hotel industries. In the past the blanket 60-40 rule had helped protect Bermudians, but industries like hotels and insurance need capital injections to spur them to higher levels. It had become prudent to review policies. There was already a way for businesses to apply for an exception to the 60-40 rule, with 169 companies having applied for 114B licenses. Noted was the importance of striking the right balance with the legislation to both protect Bermudian business ownership, and help businesses grow to create jobs. With controls still in place there was no danger of Wal-Mart or the like being allowed in Bermuda.
2013. June 8. Fitch Ratings yesterday downgraded Bermuda’s credit rating, citing the Island’s continuing recession, sustained high fiscal deficits and increased Government debt burden. Downgrading Bermuda’s Government bond rating to ‘AA-’ and changing the rating outlook from stable to negative, Fitch said the Island’s prospects for 2013 and beyond were “weak.” The ratings agency also warned that public debt could approach 40 percent of Gross Domestic Product (GDP) by 2014-15. That would equate to a $2.2 billion debt when measured against 2011 GDP, the most recent number available. Government had more than $1.5 billion of debt outstanding at the end of March this year. The negative outlook is a signal that Fitch may downgrade Bermuda’s ratings again if it sees a worsening of the fiscal situation. The outlook reflects “continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy.” The downgrade means that Bermuda is likely to have to pay more to borrow money, as investors in future Government bond issuances would seek a higher rate of interest. The ‘AA-’ rating is in line with countries including Saudi Arabia and South Korea. Public debt had soared from six percent of GDP in 2007 to 28.5 percent in 2012, Fitch noted, adding that “multiple changes in the debt ceiling have undermined the credibility of this fiscal policy anchor.” The agency said the 2013-14 Budget had effectively postponed fiscal adjustment for a year. But it added that Government’s business-friendly policies and efforts to cut wasteful public spending, spearheaded by the SAGE Commission, could result in higher economic growth, “but only in the medium term”. Finance Minister Bob Richards said yesterday: “The Ministry of Finance anticipated that the tough conditions at home could put Bermuda’s sovereign rating at risk of a downgrade.” While the ratings adjustment is “disappointing news”, Mr Richards noted that the adjusted rating remains in the top tier of the ratings matrix. “At AA-, our sovereign bond rating is only three notches below the highest rating of AAA,” he said. “This rating action now brings Fitch’s Ratings on Bermuda in line with the other major ratings agencies. “Fitch continues to endorse our competitive advantage as a domicile for reinsurance and financial services companies due to our sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US and highly-skilled human capital. The report also noted that “Bermuda’s ‘AA-’ ratings are supported by Bermuda’s wealth (the fourth-highest GDP per capita among Fitch-rated sovereigns) and its high savings rate relative to its peers in the ‘AA’ category. “The Government will continue to balance the needs of all citizens during these tough times. We will continue to press ahead with our Jobs and Economic Turnaround Plan that strikes a balance between responsible growth and disciplined financial management. As the Minister of Finance, I remain committed to creating an economy that works for everyone and returning our public finances to a sustainable position.” Fitch’s downgrade follows Moody’s downgrade of Bermuda’s rating last month by another notch as it reiterated its concerns about Government’s mounting debt and lack of an economic recovery. That review came about a week after Standard & Poor's Ratings Services lowered its outlook on Bermuda to negative from stable, citing its prolonged economic downturn and weakened financial performance. Fitch said its downgrade of Bermuda’s sovereign ratings “reflects four years of economic contraction, sustained high fiscal deficits, and increased government debt burden. The sovereign’s ability to sustain higher levels of debt is constrained by its narrow revenue base and its underdeveloped domestic public debt markets. Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects.” Commenting on the key rating drivers, Fitch said: “Bermuda’s economic recession continued for the fourth consecutive year in 2012 due to a combination of cyclical and structural factors affecting employment creation, household consumption, public finances, and the real estate market. Prospects for 2013 and beyond are weak as tourism and the international business sector, Bermuda's two main industries, have reached a mature stage of business and face increasing competition from other jurisdictions. Bermuda's government debt-to-revenue ratio is high and is forecasted to deteriorate faster than its peers. This fiscal solvency ratio gains importance because of the sovereign’s limited tax-raising capacity.” The agency noted that Bermuda has the strongest external creditor position among sovereigns rated by it, thanks to large external assets held by its international business sector.
2013. May 16. Moody's Investors Services downgraded Bermuda's rating by another notch, following its April 2013 findings, as it reiterated its concerns about Government's mounting debt and lack of an economic recovery. Moody's lowered Bermuda to Aa3, three notches below the top triple-A level, and said the outlook is negative, reflecting uncertainty about Government's debt trajectory over the medium term. The move ends a review for a potential cut that began April 3 when Moody’s put Bermuda on a downgrade watch. The ratings agency said then that the review was prompted by the Island’s steep rise in government debt and its ongoing recession since the global financial crisis. That review came about a week after Standard & Poor's Ratings Services lowered its outlook on Bermuda to negative from stable, citing its prolonged economic downturn and weakened financial performance. S&P had Bermuda at double-A-minus, also three notches below the top rating. Moody's expects Bermuda's weaker economic trends will continue through this year, with moderate growth returning next year. Moody's also expects a long-term decline in the tourism industry and says less dynamic growth in the insurance sector may limit future growth. The outlook could return to stable if the economy begins to grow and the government can contain its rising debt. However, a further potential downgrade could be prompted by continued economic weakening or a lack of significant government spending policy measures. In response to Moody’s rating action, the Ministry of Finance today said it recognised that continuing government deficits and weak economic growth could put Bermuda’s sovereign rating at risk of a downgrade by one notch. “We note however, that in so doing, Moody’s affirmed that our rating is supported by very high per capita income, strong institutions, and our still moderate level of government debt in relation to similarly rated sovereigns,” the Ministry of Finance said in a statement. While the ratings adjustment was not positive, the Ministry of Finance also noted that the adjusted rating remains in the top tier of the ratings matrix. “At Aa3, our sovereign bond rating is only three notches below the highest rating of Aaa. Moody’s continues to endorse the Island’s institutional strength and the Island’s very high per capita income. Government remains optimistic about future prospects for growth and will continue to press ahead with our Jobs and Economic Turnaround Plan which involves providing balance between responsible economic growth and disciplined financial management.”
2013. April. The Standard & Poor’s (S&P) rating agency, after earlier having placed Bermuda's sovereign credit rating from stable to negative, said its outlook revision for Bermuda does not affect the Island’s insurers and reinsurers. S&P’s credit and financial strength ratings on Bermuda-based insurers and reinsurers remains unchanged. Seven (re)insurers in Bermuda are rated ‘AA’ by S&P’s. The firm said that in limited circumstances it rates reinsurers higher than the local currency sovereign credit rating according to its criteria. As a financial centre, Bermuda is rated (AA-/Negative/A-1+) by S&P’s. The agency has produced a special report titled “The Recent Outlook Revision On Bermuda Does Not Affect Bermudian (Re)Insurers.” In September 2010 Standard & Poor’s lowered its outlook on Bermuda’s creditworthiness to stable from negative. In its statement, S&P said its decision to affirm the Island’s AA long-term credit reflected “receding economic, fiscal, and banking-sector risks compared with our expectations in mid-2009.” However S&P warned that “the ratings could come under downward pressure if the general Government deficit was to continue at current levels due to weaker-than-expected economic growth or flagging political will to consolidate fiscally.” In April 2012 stated this in similar terms and in June 2012 Fitch Ratings agreed.
In its statement, S&P said its decision to affirm the Island’s AA long-term credit reflected “receding economic, fiscal, and banking-sector risks compared with our expectations in mid-2009.” However S&P warned that “the ratings could come under downward pressure if the general Government deficit was to continue at current levels due to weaker-than-expected economic growth or flagging political will to consolidate fiscally.” In April 2012 stated this in similar terms and in June 2012 Fitch Ratings agreed.
2013. January 24. Most of Bermuda’s reinsurance market is expected to report profits and capital growth for 2012, despite losses from Hurricane Sandy, stated a new Fitch Ratings report. In its Bermuda 2013 Market Update, Fitch states that the Bermuda market, made up of the 17 publicly traded companies Fitch actively follows, remains robust. “While companies will suffer a sizeable hit to fourth-quarter earnings, (re) insurers will still report an improved combined ration of approximately 95 percent for 2012 compare with 107.1 percent in 2011,” the report stated, adding that the firm views Superstorm Sandy as an earnings event and not a capital event for Bermuda. Re/insurers will be reporting fourth-quarter and full-year earnings over the next few weeks. Supported by its strong capitalization and favorable risk management, the Bermuda market has been able to absorb heightened catastrophe losses in recent years, including Sandy. “This is partly reflective of the large capital buffer accumulated by the sector from earlier years of profitable business,” the report read. “Companies have been further protected by the purchase of retrocession and the use of capital market risk transfer instruments. Sandy losses were below or well contained within the first layer of primary insurers’ excess of loss property catastrophe treaties.” According to Munich Re, global industry insured losses from natural catastrophes in 2012 will total $65 billion, which is above the ten-year average of $50 billion. While in 2011, cat losses came from Japan, New Zealand and Thailand — in 2012, the top five catastrophe losses originated in the US, including Sandy ($25 billion insured losses), drought ($15-$17 billion), storms and tornadoes ($7 billion). The report also states that Bermuda is the “preferred domicile of choice” for special-purpose insurers (SPIs) due to the Island’s “moderate regulatory environment, lower operational entry barriers, and concentration of underwriting talent and capital resources.” According to the Bermuda Insurance Development Council, a total of 27 new SPIs were registered by the Bermuda Monetary Authority (BMA) last year — 11 in December alone. Though this area of capital market alternatives is growing for Bermuda, Fitch, along with many industry veterans, do not expect there to be another influx of brick-and-mortar reinsurers to the Island following a significant catastrophe event, which last occurred with the class of 2005. Instead, Fitch expects that sidecars, will continue to be employed post a large cat event, particularly for the property catastrophe retrocession business. Between 2012 and January 2013, approximately $1.9 billion in capital has been invested in 11 Bermuda sidecar formations. Additionally, four Bermuda reinsurers set up insurance-linked securities fund managers and three hedge fund-backed start-up reinsurers have formed. The report also states that it does not expect a wave of consolidation or M&A activity due to a number of obstacles, one of which being that 15 of the 17 reinsurers, as of September 30, 2012, were trading below book value. Add in regulatory uncertainty; and unattractive valuation multiples, with low market-to-book value ratios “make share repurchases more attractive than M&As”, the report stated.
2013, February 23. Creating an economic environment in which entrepreneurs can thrive and job creation blossoms is key to driving the economy forward, according to Government. And yesterday Finance Minister Bob Richards unveiled a number of measures including tax breaks and the slashing of red tape which he believes will enable Bermudians to get back to work. Running through a catalogue of failing industries, from a depressed retail sector to a tourism industry forced to downsize, Mr Richards said: “The human toll that these trends have inflicted is unprecedented. Although up-to-date accurate statistics are not available, we know that thousands of Bermudians are unemployed and that more are under-employed, earning less than before.” Stressing that it was not Government’s responsibility to provide employment, Mr Richards said Government will improve the Island’s entrepreneurial environment “so that job creators can do what they do best. As a Government, the choice is simple we either employ everybody who wants to work but doesn’t have a job, or we make it easier, cheaper and more attractive for businesses based in Bermuda to employ more people. The first option would bankrupt the Government, the second option leads to a more sustainable path. We choose the sustainable option.” Pointing out that “ultimately, all jobs in Bermuda are derived from primary foreign exchange earning businesses”, Mr Richards said the Island had become “an uncompetitive player” in the global market and it was now essential to improve the quality of service and speed of delivery to lure overseas business back to the Island. But he denied that Government was cosying up to big business while ignoring the plight of struggling Bermudians. “I cannot repeat this enough it takes an employer to create a job, they don’t just fall from the sky,” Mr Richards said. He described the recently-dropped term limit policy as “a job-killer” that had driven out foreign intellectual capital and put Bermudians out of work. And he said cutting bureaucracy which had “reduced the flow of inward direct investment to virtually a trickle” would also give Bermuda a competitive edge in the global market. He announced the creation of two bodies, the Economic Development Committee and the Bermuda Business Development Corporation which will “compress the time taken to obtain the necessary approvals for direct investment” and “spearhead the promotion of Bermuda as a preferred domicile for a variety of international business activities.” Mr Richards said the measures would also encourage foreign hotel development “which will provide new construction jobs and ultimately new jobs in hospitality”. And he said local entrepreneurs would continue to be supported by the Bermuda Economic Development Corporation. “This Government has embarked on these initiatives and will take any other necessary steps to stimulate economic growth through these non-tax policy driven initiatives,” Mr Richards said. Government believes that two new tax initiatives will also help job creation a payroll tax “holiday” for employers who hire Bermudians, and a reduction in licence fees for non-Bermudians who purchase property on the Island. Currently, the fee is calculated at 25 percent of the value of the property being purchased, but Government will slash that to just eight percent.
2013. November 26. Bermuda's international business pumped an estimated $1.47 billion into the islands economy last year, a survey released today said. The largest single contribution was salaries, with exempt companies paying staff a total of $433 million last year pouring $47 million into Government coffers through payroll tax. Another $10 million was paid in other taxes, while rents and services amounted to more than $50 million and charities got $8 million in donations and sponsorships. A further $7.4 million was spent on entertainment in Bermuda by international business. But Association of Bermuda International Companies (ABIC) president George Hutchings said that overall spending by international business had dropped in recent years, with only training expenditure increasing.
In December 2012 almost one in three jobs on the Island were held by non-Bermudians.
On June 24, 2013 it was reported Bermuda’s role in tax avoidance schemes, such as those employed by multinationals like Google, is being examined, Premier Craig Cannonier said in a response to parliamentary questions.“Does the Premier and his Government have any intention of extricating Bermuda from the tax avoidance networks comprised of countries such as Ireland, the British Virgin Islands and Luxembourg, which allow Bermuda-based global registered companies to considerably reduce their tax obligations in the countries in which their substantial business takes place?” asked Progressive Labour Party MP Rolfe Commissiong. “Yes, we’ll continue to look at it. Yes,” Mr Cannonier said. “In light of the fact that the aforementioned global companies are not part of the general insurance reinsurance risk management sectors why does Bermuda continue to facilitate these networks and/or allow Bermuda to be used by these companies?” Mr Commissiong then asked. “It’s something that the Finance Ministry is continuing to take a look at,” the Premier responded. Google avoids paying about $2 billion in taxes every year by shifting profits to a Bermuda subsidiary via Ireland and the Netherlands. Earlier this week Mr Cannonier said that the UK should look at Ireland first if it wished to address Google’s tax avoidance strategy as Bermuda is “further down the chain.” The European Union has estimated it is losing collectively about $1.3 trillion a year from tax avoidance schemes of multinationals such as Google, Amazon, Apple and Starbucks.
Casual upscale sportswear is acceptable in restaurants for lunch but many restaurants and night clubs require a gentleman's ensemble to include a pair of long trousers and jacket and tie in the evenings, or official dress Bermuda shorts with full jacket and tie and long knee length hose ensemble. Formal dress attire is not required. Swimsuits, abbreviated tops and short shorts should be used only at beaches and pools. There are no nude or semi nude beaches in Bermuda and indecent exposure is an indictable offense. Bare feet and hair curlers are not acceptable anywhere in public. If you jog, wear standard running shorts and shirts.
2012. October 4. A new report reveals that Bermuda's international companies provide nearly $1 trillion of direct investment in the global economy. Business Bermuda's 2012 Economic Impact Report, published yesterday, showed that Bermuda's holding companies provided $939 billion of inward and outward direct investment for the world economy. It also shows that the Island's two-way trade with the rest of the world totaled $80 billion in 2010. In addition, Bermuda's multinational companies generated an additional $100 billion of direct sales in ten major markets surveyed through its subsidiaries in the manufacturing and financial services sectors. The report also concludes that Bermuda's businesses provide 600,000 jobs in the world economy. The US remains the Island's largest trading partner. Bermuda is the eighth largest investor in the US, with a direct investment position of $55 billion — more than the entire Caribbean, Singapore and Hong Kong taken altogether. Asia is the fastest growing trading partner for Bermuda. Trade with China, including Hong Kong, and Singapore grew 200 percent between 2004 and 2011. Bermuda holds $20 billion of investment from China and Singapore — up from $1 billion in 2000. Meanwhile, Bermuda emerged as one of the top 20 trading partners of the European Union. Dr Charles Ludolph, a US-based economist who conducted the study on Business Bermuda's behalf, said: “The study captures the four economic roles that Bermuda plays in the world economy. “Bermuda's financial sector and regulatory governance provides financial stability in a time of volatile global capital flows. Second, Bermuda is stepping up from its regional strength in providing a needed capital market for the US in insurance and reinsurance and expanding into Asia and other markets. Bermuda is finding a new role as an investment domicile for Asia. And perhaps most important, Bermuda continues to support US international business competitiveness with company law and regulation that meets the security needs of business but is responsive enough to lower costs in a tough international competitive environment.” Business Bermuda also revealed the results of its annual Top-of-Mind Awareness Study, which showed that awareness and understanding of Bermuda in international business is high overall in key markets around the world. Sloane & Company, in partnership with regional firms, conducted 250 telephone interviews among a representative sample of Bermuda's traditional base of clients in North America, London, Europe, Asia and the Gulf including lawyers, accountants, financial services and re/insurance executives between August 1 and August 30, 2012. One finding was that Bermuda faces challenge in reinvigorating the discussion about its international business offerings as familiarity breeds complacency. Since the 2011 study, there was a ten percent increase in overall awareness in Asia to more than 95 percent and an 18 percent increase to 78 percent in the number of people who indicated they were very familiar with Bermuda in the Gulf. One issue that emerged is that Bermuda's sophistication and reputation for substance are “double-edged” swords. Respondents highlighted that Bermuda is great for complicated international business transactions and the most-established hedge funds as they enter the reinsurance market. However, when lawyers are looking at jurisdictions for the most basic, small and emerging hedge funds other jurisdictions appear to have a simpler and more efficient approach. In addition, the lingering effects of the economic crisis in Europe and North America remain a concern for the financial community and have caused investors and others to be more cautious. While not as significant as previous years, there are some concerns about the impact on tax and regulatory environments impacting offshore based on the outcome of the US Presidential election in 2012. Business Bermuda CEO Cheryl Packwood said: “This research is very helpful in guiding our marketing efforts and providing a benchmark for our progress. The news out of Asia and the Gulf is heartening and confirms that we are investing time and energy and that is making a difference. We are also pleased with the research out of the US, UK and Europe as it shows we have not lost any ground in highly competitive markets and it gives us some clear indications on the issues we need to address.”
In January 2012 the total actual number of companies registered in Bermuda fell below 17,000 for the first time since 2007, presumably due to liquidations and companies re-domiciling.
Until then there were more than 15,300 Bermuda based international companies, 2650 local companies, 430 overseas partnerships and 940 other non residents, many with a global business empire. They include subsidiaries of 75% of the Fortune 100 and their European equivalents. Only 235 or 3.4% of the internationals have local offices, yet account for 75% of internationals' spending. In insurance and reinsurance, Bermuda has an industry capital base exceeding US$ 35 billion and gross premiums of US$ 24 billion. It ranks with Lloyds of London and New York as a global leader.
Exempted companies, or international companies. Most focus on international activity. To protect local business interests, the Bermuda Government will not normally allow the formation of an exempted company in banking. However, some quality international banking organizations may, under certain circumstances, apply to form an exempted company for international or multinational general trust, investment and executorship activities. By qualifying as exempted companies, these corporate entities are not subject to any restrictions on foreign ownership. They can be either 100% owned by non-Bermudian interests or anywhere from 100% to 80%. Bermudians cannot hold more than a combined 20% interest in any one exempted company or partnership.
Continuation or Permit Companies. Also Exempted Companies. These are incorporated outside Bermuda but are permitted to operate from Bermuda in the same way as exempted companies. They evolved originally to meet certain special situations, for example when the United Kingdom's exchange control restrictions once prevented incorporation in Bermuda, or where tax treaties made it disadvantageous to incorporate in Bermuda. Others are encouraged to do so, for strategic reasons.
Local Companies. Beneficially owned by Bermudians and operating in the local marketplace, they are NOT "exempted" companies. The legal requirement that they must be at least 60 percent beneficially owned by Bermudians goes further. To avoid non Bermudians controlling local companies through pyramiding or secret agreements, corporate shareholders of local companies must themselves be at least 60 percent owned by Bermudians to qualify as Bermudian owners and with at least 60 percent Bermudians as directors. They provide support services. They include local accounting, banking and legal firms.
In August 2011 Bermuda featured prominently in a report on US corporate tax avoidance. The report entitled ‘Corporate America Untaxed: Tax Avoidance on the Rise’ was published by The Greenling Institute, a national policy, research, organization and leadership group. It revealed that 184 significant corporate subsidiaries were based in Bermuda - considerably less than the likes of the Cayman Islands (580) and Ireland (287), but more than Switzerland (179). It also disclosed that the Island accounted for 10.4 percent of dividends that came back to the US during the 2004 one-time tax holiday that allowed corporations to repatriate offshore earnings, according to Internal Revenue Service figures. American corporations are known to avoid approximately $60 billion in US corporate income taxes through using “devices and gimmicks” to shift profits to foreign subsidiaries, according to the report, and since the US Government Accountability Office reviewed the issue in 2008, top companies had added 44 new subsidiaries in countries it had identified as tax havens. Fifty-two of the 100 largest corporations in terms of 2010 revenue added at least one subsidiary in a tax haven and 21 companies reduced their subsidiaries in tax havens by at least one between 2008 and 2010, the report stated, with each company adding on average 2.9 foreign subsidiaries and 0.5 in a tax haven over that period. CitiGroup was the outlier, decreasing its number of foreign subsidiaries by 1,129 during that time, 404 of which were in tax havens. Caterpillar Inc, which has 10 Bermuda subsidiaries listed on the Registrar of Companies website, was listed as having 38 subsidiaries based in tax havens, down by 11 between 2008 and 2010, bringing in revenue of $42.5 billion. General Electric (GE), which also has 10 subsidiaries listed in Bermuda, has 14 significant subsidiaries in tax havens and 57 significant foreign subsidiaries, bringing in revenue of $151.6 billion, and Google, with six subsidiaries on the Island, had two significant subsidiaries in tax havens and two significant foreign subsidiaries, with a revenue stream of $29.3 billion. GE made $94 billion in undistributed earnings of profits from foreign subsidiaries, while Google earned $17.5 billion.
See Cost of Living Guide in Bermuda. Bermuda's retail prices are high mostly because of the Bermuda Government duty rates on imports, the Government's single biggest source of revenue - and the Government law requiring all local companies except hotels to be at least 60 percent Bermudian owned. So non-Bermudian companies with substantial bulk purchasing power cannot enter the local market as investors and part owners to give much needed economies of scale in local costs of goods to businesses, residents and visitors in the same unrestricted way they can do so elsewhere. Despite these drawbacks, Bermuda's overall economy remains good, even if it is artificially so. Except that export earnings from international company businesses based in Bermuda now greatly exceed tourism earnings from people who visit Bermuda on vacation.
2013. July 13. The Bermuda current account surplus increased by more than half a billion dollars year-over-year, recording a surplus of $725 million in the first quarter of 2013. The figure, which represents the difference between receipts and payments in transactions with overseas entities represents a $633 million increase year-over-year. The Department of Statistics’ ‘Balance of Payments and International Investment Position’ report said the surplus on Bermuda’s primary income account grew to almost a billion dollars — $922 million in the first quarter of 2013. Services transactions’ surplus was $70 million in the first quarter of 2013, while the deficit on the goods account increased by $15 million to $230 million. Bermuda also decreased its net incurrence of financial liabilities by $799 million this quarter, compared to a decrease of $818 million in 2012. The value of goods imported grew 6.8 percent to $233 million during the quarter. Imported goods from the United States increased $27 million, while the value of imports from Canada increased $5 million over the same period. Imports of fuel recorded the largest increase of $14 million. Moderate increases were recorded in the food and machinery categories at $3 million and $2 million, respectively. In contrast, imports of finished goods such as furniture and photographic equipment fell $4 million. Revenue earned from the exports of goods remained unchanged at $3 million during the quarter. Payments by residents for travel (including overseas training and conferences) totaled $61 million. In contrast, transportation outflows increased $1 million and mostly reflected freight payments for imported goods. The services account surplus fell $8 million, with receipts from services transactions standing at $296 million during the quarter. Among the services categories, revenue from business services transactions fell $12 million. This was due partly to a $5 million decrease in financial services related to less fees and commissions collected on transactions with non-residents. In contrast, revenue received from government services increased $1 million while travel services remained unchanged at $46 million. Payments for services from non-residents totalled $226 million in the first quarter, $5 million below the level recorded in 2012. The report explained this outcome reflected a $4 million decrease in insurance services, specifically reinsurance premiums paid by resident firms to non-resident entities. The primary income account, the balances on compensation earned or paid to non-residents, and income from investments and payroll tax paid by non-resident companies to the government, grew $656 million. The surplus on the primary income account increased to $922 million from $266 million in 2012. Income receipts advanced $564 million, reflecting mostly dividend earnings on direct investment. Employee compensation increased $13 million, while income payments to non-residents fell by $93 million to $72 million. This decrease was due to a sharp decline in direct investment income paid overseas on equity and investment fund shares. Secondary income recorded a $38 million deficit. The report explained that the secondary income account reflects the balances on donations, insurance claims and other transfers between residents and non-residents. The deficit on the secondary income account increased $2 million from a year ago. Transactions on Bermuda’s asset accounts resulted in a net lending position of $762 million. Factors influencing this performance include Bermuda’s net acquisition of financial assets which resulted in a reduction of $37 million compared to a reduction of $604 million in 2012.
See Bermuda Government's Department of Statistics.
The figures below do not include race. It is estimated that of Bermuda's current total resident population of about 65,400 about 38,674 or 62 percent of all employees in Bermuda are black, with whites and others about 24,726 or 39 percent.
|Total working population (excludes juveniles, retirees and those unable to work)||39,457|
|Hotels, restaurants and clubs||5,607|
|Public Administration (excludes employees in Bermuda Government-owned hospitals and quangos||4,054|
|Banks, insurance and real estate||3,359|
|Average employment income overall for the population and all ages ($55,000 in government, $78,666 in private sector including international insurance company executives based in Bermuda)||$46,414|
|Hours worked per week||33.3|
|Unemployment - among Bermudians allowed to work||estimated 3 percent|
|Male employees||50 percent|
|Female employees||50 percent|
|Bermudian employees||70 percent|
|Expatriate employees (on Work Permits)||30 percent|
Overall, women outnumber men in population (32,019 compared to 30,258 men) in the community services, education, financial sector, retail and wholesale trades. Men outnumber women in the transport sector. Nearly 75 percent of the new jobs created in 1999 were in professional and managerial posts. Non Bermudians number 7,521 persons. Work Permits (see separate file) are required to be applied for by all employers (except the Bermuda Government) of non Bermudians without local spouses. The Bermuda Government reaps a healthy annual revenue benefit from the desire of employers to employ non Bermudians.
The majority of employees in Bermuda work for a relatively small number of businesses. Some 113 companies, representing just over 3 percent of the total number of locally based business organizations, employ 18,517 people, 54 percent of the entire work force. In the international sector, 262 non-Bermudian companies with an active physical presence employ an average of 8.7 persons each. By contrast, some 2,741 organizations, nearly 75 percent of all employers, provide a total of 4,422 jobs, representing 22 percent of the work force. Most employers in this category employ five or fewer people.
Employment Rights. Under the Employment Act 2000, employees are entitled to legislated benefits from employers. They include two weeks holiday (vacation) after one year; no unauthorized docking of salaries or wages; a written contract after one week's employment; a 40-hour week; time and a half, or time off, after 40 hours, with possible exemptions; paid Public Holidays; a rest period of at least 24 consecutive hours each week; 8 days paid sick leave per year; unlimited time off to attend ante-natal classes for pregnant employees; 8 weeks paid and 4 weeks unpaid maternity leave after one year; statutory notice period; bereavement leave of 3 days unpaid or 5 days unpaid if traveling abroad; disciplinary procedure; time off for court duty, voting, meeting of Government Boards, Bermuda Regiment, Reserve Police, Senate or House of Assembly; notice of 1 week if weekly paid, 2 weeks if bi-weekly paid, 1 month in any other case; employers cannot sack employees for complaining about their treatment; an employees can take an employer to the Employment Tribunal for unfair or constructive dismissal.
Extends a guarantee that the Bermuda Government will not charge exempt companies any taxes on profits, income or capital gains. The amendment prolongs that guarantee until 2035. While then-Premier Cox said the Government had no intention of starting taxation based on profit, income or capital gains, she said the amendment was meant to reassure businesses and make them more comfortable investing in the Island. She said that extending the agreement had always been on the Government agenda, but had been put off in the past because of international concerns that the exception could lead to harmful business practices, favoring international businesses over local.
2013. June 29. Tougher requirements for Financial Assistance proposed by Community Minister Wayne Scott have been approved in Parliament. The amendment won broad support from Opposition MPs. They include requirements that recipients register with the Department of Workforce Development — and give the Director of Financial Assistance the power to require recipients to attend life skills programmes or vocational training. An able-bodied recipient who has failed to find a job after three months could be ordered to do up to 15 hours a week of community service. They may also be referred for substance abuse assessment. The Minister said the amendments allowed Government to offer assistance beyond mere financial help. “We have given our people fish — we will now aim to teach our people how to fish,” Mr Scott said, adding that Financial Assistance is not “a right.” More and more people are applying for assistance, he said. For the 2012 to 2013, fiscal year there were 385 in the second quarter and 498 for the most recent quarter. Shadow Minister Michael Weeks said the amendments would “bring Financial Assistance into the 21st century”. However, he added that not all applicants needed parenting and financial classes. “We have to be careful we don’t just put that blanket over all applicants,” he said. Progressive Labour Party MP Glenn Blakeney called the measures “prudent” but said the Department itself was heavily stressed. “On this side we have no real contention or objection,” the former Minister said, but added: “I don’t know how Government will find a way to infuse the capital required to reduce the number of clients per case worker.” And Independent MP Terry Lister cautioned that measures designed to decrease clients shouldn’t frustrate people or chase them away. “Ultimately, the real help people will get is through jobs,” Mr Weeks said, challenging Government to say more on plans to generate employment. Mr Lister supported life skills requirements but added: “What we don’t have is any control or knowledge of its application in reality.” PLP MP Michael Scott agreed: “We don’t need to add, in bad economic conditions for people looking for financial assistance, added stress.” Mr Scott called for a “more human, respectful approach” in the rush to address social problems, and said training was the trigger for innovation. “We can do better,” Mr Scott told MPs, asking that training be looked into going forward. PLP MP Wayne Furbert told the House the numbers of people on financial assistance were “not really that high”. He speculated whether rent assistance could even be cut because rents have fallen. Mr Furbert threw in his support but said: “I hope they don’t hurt those who really need it.” In a committee debate, Mr Scott was challenged by Mr Blakeney to explain protocols for assessing substance abuse problems. Mr Lister asked to hear what life skills programmes were in place. The Minister said a Department social worker would make referrals, and that life skills programmes were offered by the Department of Workforce Development, the National Training Board and Bermuda College. Parenting classes are offered under Government’s Child Development programme. Their frequency would be as deemed necessary.
2012. April 17. The number of people on financial assistance has nearly doubled in the past seven years, and the amount they’re receiving has dramatically increased. Government figures show 1,375 people are claiming assistance, up from 1,350 last year, and a rise of 94 percent from the 714 who claimed in 2005/6. The average monthly payout is now $1,855, up from $1,110 in 2005/6, an increase of 67 percent. These figures are in addition to the 390 people currently claiming an average $775 child day care allowance, although the number claiming that benefit has decreased from 600 in 2009/10. Seniors and disabled people make up the majority of those on financial assistance. About 38 percent are seniors and another 38 percent are people with temporary or permanent disabilities. Fourteen percent are employed people who don’t earn enough to make ends meet, while the remaining ten percent are able-bodied unemployed people. To qualify for financial assistance, a family’s income must be less than its living costs. The amount they get is calculated by the simple formula of subtracting their income from their expenses. For more information on financial assistance, call 297-7600 or 295-5151, extension 1608.
In general, non-Bermudians may not be eligible for this, period, not even if they lose their Bermuda employment or fall on hard times. In the case of Bermudians, anyone who owns or has recently sold their home will no longer be entitled to cash handouts from Government. The money-saving crackdown on those who are eligible for financial assistance were announced in 2011 due to Government’s reduced budget. To be eligible for a childcare allowance the income threshold is now $50,000, reduced from $70,000. Only one month’s arrears will be paid on expenditure items to encourage people to be “more timely and responsible.” Property is now considered an asset so anyone who owns property is no longer eligible to apply for help. And people who sell on property can’t apply for handouts within five years of the transaction. The raft of changes also includes the axing of mortgage interest/ areas, property insurance, personal/household and comfort allowance. Returning Bermudians must have lived on the Island one year before applying for assistance and if a person loses their job because of their own actions, they have to wait three months after the date of termination. It was also announced that the Department of Financial Assistance, of the Ministry of Youth, Families, Sports and Community Development, would be giving out about 600 non-cash grocery cards. Each card will be activated monthly with the approved food allowance and will replace paper food vouchers.
Those likely to be affected by FATCA include US citizens and green card holders resident in the US and living abroad such as Bermuda who have foreign financial bank accounts, financial interests and other holdings; US residents for income tax purposes (those who do not have a US passport or citizenship but have resided in the US long enough to meet the substantial presence test), and others with US connections such US owned foreign entities. Also liable are US-classified foreign financial institutions and non-financial foreign entities including all those with US proprietary investments, US account holders, or other US financial dealings. FATCA cooperation is both encouraged and enforceable in Bermuda because Bermuda has signed Tax Information Exchange Agreements (TIEAs) in the last few years with the United States and other countries. TIEAs, tax treaties, and Intergovernmental Agreements all aid in mutual information exchange cooperation. In cases where tax evasion, etc, is suspected or determined, the US Internal Revenue Service has profound regulatory powers (agreed on by the TIEAs and tax treaties) to request detailed significant confidential information on specified US individuals and related parties.
2013. November 25. Minister of Finance Bob Richards today signed the UK FATCA Intergovernmental Model 2 Agreement, IGA Model 2 with the United Kingdom. Signing on behalf of the UK was the Secretary to the Exchequer, the Hon. David Gauke. A press release announcing the move quoted the Minister of Finance, who said: "The signing of IGA Model 2 is in keeping with the Government's international tax strategy which is to demonstrate our commitment to tax transparency and automatic exchange of information, and ensure Bermudas reputation as the premier international financial jurisdiction in which to do business. The significance of choosing IGA Model 2 versus IGA Model 1 means all Bermuda's financial institutions must identify all UK residents with interests in Bermuda and automatically report them to HM Treasury on an annual basis. HM Treasury will receive the information on those residents in bulk form and will be able to issue group requests for information in relation to recalcitrant clients of Bermuda financial institutions." Recalcitrant clients are persons who refuse consent to allow the financial institution to automatically share their information. Additionally, where HM Treasury initiate investigations on a person with respect to possible tax evasion, a request for information can be made under the UK Bermuda Tax Information Exchange Agreement. Utilizing this method of automatic exchange of information guarantees the rights, safeguards, and confidentiality of the information received in regards to those persons.
May 22, 2013. More than 250 local industry professionals were told “now is the time to take action in preparation for FATCA”, during KPMG’s second FATCA forum, held earlier this week at the Fairmont Hamilton Princess. Building on the topics raised during the 2012 FATCA forum, the interactive session again asked the question “Are you ready for FATCA?” and delivered the message that as we approach the looming FATCA threshold dates, it is clear that FATCA is not going away. Discussion covered a wide range of topics, including FATCA from a global perspective; Bermuda’s response to FATCA; the Intergovernmental Agreement (IGA) models; FATCA’s potential impacts on business in Bermuda; and the cost of compliance and impact on customers, investors and counterparties. Describing why KPMG in Bermuda felt it was important to run a second FACTA forum for Bermuda professionals, KPMG managing director Charles Thresh, said; “This US legislation will have far-reaching consequences for the financial industry worldwide and Bermuda is no exception. If companies haven’t yet started planning for FATCA, it is not too late to become compliant, but the window is closing and the time to do so is now.” A key component of the panel portion was discussions around the IGA models, with particular interest on the differences between Models 1 & 2, the potential benefits and impacts of a Model 2 IGA, and the potential impact of FATCA on Bermuda’s insurance, funds, trust and banking industries. Additional analysis was also sought around the final FATCA regulations, as issued January 17, 2013, and a high degree of interest was shown around the compliance timeline, strongly echoing last year’s forum. In the wake of the timeline discussion, consensus again reflected that the time for Bermuda companies to act on FATCA is now. Describing the global implications of planning and preparation, David Neuenhaus, KPMG global FATCA lead partner said; “How companies transition to FATCA compliance will have a significant impact on their relationships with their customers, investors, counterparties and services providers. Companies who are early adopters of a robust compliance programme will have the competitive advantage — so a timely response is key.” This year’s forum was led by Charles Thresh, Managing Director of KPMG Advisory, Bermuda with keynote address provided by KPMG Global’s David Neuenhaus and Daniel Dzenkowski, and additional local market insights from KPMG FATCA team members including Catherine Sheridan Moore, James Berry and Will McCallum. In addition, valuable industry insights were provided by Kiernan Bell, managing partner, Appleby; Alison Morrison managing director, Oyster Consulting; Peter Pearman, partner CD&P; and Lyndon Quinn of HSBC.
2013. August 7. Fitch Ratings has assigned a long-term foreign currency rating of ‘AA-’ to the Government of Bermuda’s USD750 million Global bond (4.854% coupon) maturing in 2024. The proceeds will go toward repaying public debt and fund current and future budget deficits, the rating agency has announced. Fitch stated that the rating is in line with Bermuda’s long-term foreign currency Issuer Default Rating (IDR) of ‘AA-’ with a negative outlook. On June 7, 2013 Fitch downgraded Bermuda’s ratings and revised the outlook to negative from stable. Explaining its decision to rate the bonds AA-, Fitch said: “Bermuda’s ‘AA-’ ratings are supported by Bermuda’s wealth — the fourth-highest GDP per capita among Fitch-rated sovereigns — and its high savings rate relative to its ‘AA’ peers. Bermuda maintains its competitive advantage as a domicile for reinsurance and financial services companies due to its sophisticated legal system, strong regulatory framework, simple tax regime, proximity to the US and highly-skilled human capital. “Bermuda’s ratings are constrained by years of economic contraction, sustained high fiscal deficits, and increased government debt burden. The sovereign’s ability to sustain higher levels of debt is constrained by its narrow revenue base and its underdeveloped domestic public debt markets. Bermuda’s lack of economic diversification and excessive reliance on mature industries is limiting its growth prospects. The Negative Outlook reflects continued uncertainty as to Bermuda’s fiscal and economic trajectory and the lack of a credible fiscal consolidation strategy. The rating on the aforementioned bonds would be sensitive to any changes in Bermuda’s long-term foreign currency IDR. Lack of a credible plan to consolidate public finances, continued deterioration in the sovereign’s fiscal metrics and weaker-than-expected economic growth could put downward pressure on the ratings. Regulatory changes that hurt international companies operating in Bermuda could also undermine creditworthiness. Resumed economic growth and concrete signs of fiscal consolidation and debt stabilisation could reverse the current Negative Outlook on Bermuda’s ratings.”
2013. August 6. The Bermuda Government's bond issue expected to raise 50 million Bermuda dollars will take place in September. Finance Minister Bob Richards said: (It means) the average Bermudian can invest in a Bermuda dollar bond. Mr Richards said he would prefer the issue to be offered through the local banks rather than the Government. It means retail customers can invest in Bermuda dollar bonds; companies, investors, estates who are not happy with the returns (at present). The Minister said he could not prejudge what the interest rates would be, and could not say how they would be priced. He did indicate that the interest rates would probably be in a similar range to the US dollar Bermuda Government bond sale, where demand for the $750 million issue has meant a yield of 4.85 percent. There is an appetite among Bermudian men and women for a Bermuda Government piece of paper, he said.
2013. June 25. Government is set to borrow up to $800 million to cover budget deficits for the next three years. Finance Minister Bob Richards yesterday explained that borrowing for the medium term in the current low interest rate environment will save the taxpayer millions of dollars in financing costs. "We judge that we are in the last phase of the ultra low US dollar interest rate cycle," Mr Richards said. "As the US economy gains strength, US dollar interest rates, and therefore bond yields and borrowing costs, are highly likely to rise. Borrowing three years' worth of deficits now will save the Government tens of millions of dollars of financing costs. This will give us certainty of financing as well. Instead of borrowing on a year to year basis in a rising market, we will be locking in three years at low rates.” The money will be raised this summer through a bond issue divided into two tranches, a local Bermuda dollar denominated one and a US dollar one. Local retail Bermuda dollar investors, Bermuda based US$ institutional investors and global institutional investors are the likely targets for the bond issue, the Minister said. The unprecedented strategy will not fall foul of borrowing rules, the Minister said, because two years' worth of borrowing will be placed in the Sinking Fund and “prudently invested.” "Public debt is defined by a simple formula: gross debt outstanding minus money in the Sinking Fund," he said. Government committed in March 2013 to keep public debt at such a level that the net debt/GDP ratio is capped at 38 percent, that the net debt/revenue ratio is below 80 percent and that the debt service cost/revenue ratio is below 10 percent. Mr Richards estimated the new strategy will save between $20 million and $40 million depending on future interest rates. He stressed that Government is committed to eliminating deficits but said operational deficits will likely continue through the next three to four years. He touted the new strategy as an improvement over the former administration. He said: “Although the previous administration gave lip service to the inauguration of a medium term financial plan, their actual method of debt financing remained unchanged: i.e. the method was to borrow money either through bank lines or bond issues for the current fiscal year. There has never been multiyear financing, until now.” He said the strategy will show rating agencies that Government is following their recommendation to tap into local money markets. “The Ministry is currently reviewing offers from a variety of investment banks to manage this upcoming bond issue and will announce the successful manager/managers in due course. We are confident that there is significant appetite in the local retail market for government bonds. We have already apprised the rating agencies of our change in strategy.” The Government Loans Act will be amended shortly “to allow money to be deposited and extracted from the Sinking Fund, as it was not designed for multiple year budgeting.” Government raised the debt ceiling to $2.5 billion earlier this year — a $1 billion increase. The current operating deficit is $331 million and the net debt is projected at $1.75 billion by the end of this fiscal year. Government projects public debt is likely to rise to just over $2 billion by 2017, but could be as high as $4 billion under a worst-case scenario based on an extrapolation of current deficit and debt trends.
2013. February. Government's Debt ceiling to rise again. A new statutory debt ceiling of $2.5 billion should not be taken as an indication that borrowing under the new Government will increase by another $1 billion, Finance Minister Bob Richards insists. Mr Richards told the House of Assembly that the new ceiling is at a “realistic” level — in contrast to the debt ceilings of previous administrations. “It is the view of this Government that what has become the annual ritual of ratcheting up the debt ceiling gives the impression that there is indeed no debt management plan at all. This is a negative insofar as capital markets are concerned, the same entities we rely on to finance this debt. Therefore, we will be laying legislation, for the approval by Parliament, to raise the authorized debt ceiling to $2.5 billion. It is important to note that this only authorizes the limit of Government borrowing, it does not prescribe the actual amount of borrowing. We do not expect the borrowing requirement to take us to that level, but we want a level that is pragmatic, realistic and static. The only adjustment to this ceiling I would like to see is an eventual downward adjustment. But new rules will be implemented to keep the debt affordable. In conjunction with the new ceiling, the Government commits to keep public debt at such a level that the net debt/GDP ratio does not exceed 38 percent. Additionally, Government recognizes the desirability of achieving a net debt/revenue ratio that is below 80 percent and a debt service cost/revenue ratio that is below 10 percent. We will work toward reducing these ratios to such a level over the medium term.” Mr Richards was reminded at the post Budget press conference that he had harshly criticized former Finance Minister Paula Cox for using debt/GPD ratio as a measure of affordability of the national debt. But he said other performance measures were being used and Government was not comparing the country to bigger jurisdictions as had the previous administration. Mr Richards’ forecasting envisages a likely “base case” scenario where debt could rise to just over $2 billion by 2017. But he warned the debt could end up being as high as $4 billion if corrective action is not taken. “The most noteworthy of the scenarios is the worst case because it merely extrapolates the current real life deficit and debt trends. In other words if we do nothing and economic conditions remain as they are now, Bermuda is forecast to have a public debt of about $4 billion in five years. Debt service is forecast to be in the area of $300 million per year, making it by far the largest Government ‘department’. After paying debt service and salaries there would be little left for anything else. The base case scenario shows debt continuing to rise to just over $2 billion and declining thereafter. The best case sees debt rolling over faster and being somewhat lower after five years. Again, we are working toward and hoping for the best case but the highest probability scenario, ie the expected case, is the base case.”
2013. January 3, 2013. It was reported by the Bermuda Chamber of Commerce as a key financial concern, that the Island’s debt then stood at $1.4 billion, roughly $28,000 per Bermudian, with a debt-to-GDP ratio of 25 percent. Since 2005, the debt has shot up more than 700 percent, with today’s total coming with fiscal year interest payments of $85 million or approximately $233,000 a day.
2012. The island was in a vulnerable position, having to fork out nearly $100 million a year just to service the debt it has taken on.Bermuda’s debt soared from $176 million in 1998 to almost $1.5 billion in December 2012 - an over 600% percent rise. The legal debt ceiling was $1.25 billion. The Ministry of Finance claims this is OK because Bermuda's debt-to-GDP ratio is lower than other countries. But the smallness, openness and fragility of the economy makes this a contentious argument. GDP doesn’t pay back debt, the tax payers have to pay back this debt, plus the interest which is budgeted to be $70 million in 2011. Combine that with mandatory contributions to the sinking fund, the Bermuda government debt service is about $95 million per year. This is money that has to be set aside before civil servants’ salaries, financial assistance or any other contractual obligation is paid by Government. This burden of debt severely limits the amount of assistance the Government can provide Bermudians during difficult economic times such as the present.
2012. June 26. Government raised nearly half a billion dollars in a four-times oversubscribed bond sale. Institutional investors receive an interest rate of 4.13 percent on the $475 million of ten-year bonds sold. Some of the proceeds will be used to restructure more expensive and shorter-term debt. More than 106 investors placed orders from places including from Austria, Belgium, Bermuda, Brazil, Chile, France, Germany, Hong Kong, Israel, Italy, Luxembourg, the Netherlands, Singapore, Switzerland, the UK and US, the Finance Ministry said. It also stated the use of proceeds included the refinancing of more expensive and shorter term debt with $180 million representing new debt; the refinancing of a $200 million 4.95 percent loan facility due 2014 will result in savings for the country over the next two years; and the low pricing and very large order book confirmed that the markets continue to have a very favorable view of the Bermuda credit story despite ongoing economic challenges and the general volatile backdrop stemming from the European debt crisis. The debt sale came on the same day that Fitch downgraded Bermuda’s sovereign bond credit rating to AA from AA+.
2012. March. Bermuda's lawmakers raised the Island’s debt ceiling from $1.25 billion to $1.45 billion, over the objections of Opposition MPs. Then-Premier and Minister of Finance Paula Cox had signaled her intention to raise the statutory debt limit in her Budget Statement. She defended Government borrowing in her introduction to the Government Loans Amendment Act 2012, repeating her argument that it is affordable. Ms Cox said her administration had invested in hard assets and provided an economic backstop through concessions and relief for businesses and people to assist them through the economic downturn. “Since April 1999 to March 2011 this Government has invested over $1.2 billion in hard assets,” the Premier said. “These assets include: modern and upgraded school facilities; modern public transportation, other social infrastructure such as public housing, senior care facilities and national sports facilities and economic infrastructure such as airport works, docks and bridges. Indeed part of the borrowing requirement in 2012/13 relates to further investment in economic infrastructure at the LF Wade International Airport, namely, building our capacity to take control of Bermuda’s commercial airspace.” Shadow Finance Minister Bob Richards led the criticism against Government’s management of the purse strings, arguing it had put the entire community at risk. “When a business fails a lot of people fail but the whole community doesn’t fail. There are no shareholders in the Government, but everybody’s a stakeholder.” Mr Richards said that the debt would have to be paid off by younger Bermudians and not the current generation of decision-makers. And he denounced the trend of rising debt. “The escalation of debt has been caused by bad decisions. We have a Country of 62 or 63,000 people and the Government of the Country is planning to owe almost a billion-and-a-half dollars. That’s a heck of a lot of money. What we have here is built on virtually nothing. And when you put almost a billion-and-a-half dollars of debt in that context, it’s a scary thing. It’s a very scary thing.” He rejected the argument that much of the debt was spent on hard assets saying much of the overspending was on current accounts. “All of this stuff about hard assets is a bit of a smokescreen. This debt is the result of cumulative deficits. It just didn’t drop from the sky. The debt was too high and was on an upward trend and Government had not indicated how it would be reduced." Mr Richards said that his calculations showed that the debt per young person under 35 worked out to be about $53,000 and per worker it is $55,000 a near tenfold increase since the Progressive Labour Party came to power. “We haven’t seen ten times the amount of hard assets that the Government owns in 13 years. Government has the temerity to tell Bermudians that they shouldn’t be worried about this.” Bermuda has fought no wars, maintains no “huge employment insurance” system, does not provide huge amounts of aid to developing nations, “yet we have debt levels that are of the same order of magnitude of countries that have all these things.” He compared Bermuda’s deficit of $3,365 per person to California’s debt of $233 per person, Hawaii’s debt of $363 per person and Florida’s debt of $105 per person. Mr Richards also expressed doubts about Government plans to float a bond locally, saying that he did not believe that would work because “Bermuda dollars are US dollars in Bermuda shorts”. He expected that Government would offer them to local pension funds, including the Government pension fund. Mr Richards warned that interest rates would inevitably rise and the cost of servicing the debt could become astronomical. Families Minister Glenn Blakeney said Government was managing finances responsibly. “We’ve used the money for the people of this Country, especially the people of this Country who were having hard times.” He noted that Government had given the $200 million guarantee to Butterfield Bank, which had saved jobs. “That’s what we’re here to do to help our people and sometimes it takes a little more than you project because nothing is absolute in life. And credit and debt is what makes this world go around in the beginning,” he said. Kim Swan of the United Bermuda Party said that Government had inherited a clean set of books in 1998 and young Bermudians would have to deal with the debt problem without any particular indication by the Progressive Labour Party Government that they’re going to wrap their minds around moving in the other direction. He stated: “If for the last six years, your expenditure is more than your income, Mr Speaker, and you haven’t made any particular effort to reverse that particular trend then the Country has to be concerned. We’ve been in recessions before but the Country was in better financial shape to withstand it, to help its people.” Premier Cox insisted that Government was doing its duty to protect people in tough times. “When times are down, when people are struggling, when they are feeling the pinch in their pocket, they don’t want the Government to kick them when they’re down,” she said. “They want the Government to provide a shield for them. They want the Government to insulate them and their businesses and give them some time to get out of their difficult position. The Government has to, as its job, has to create and use the fiscal space in order to help those who are hurting. Governments either must continue to borrow to bridge the financial gap or they have to cut spending to accommodate the actual revenues. If you do the latter, it will result in public sector downsizing and that will also lead to increased weaknesses in the private sector and in terms of having negative economic growth.”
2010. July 14. Government raises $500 million in bond sale. The Bermuda Government yesterday raised $500 million in a public bond offering that was six times oversubscribed. Government will pay a fixed interest rate of 5.6 percent on the 10-year bonds, or a total of $28 million a year. Originally, the intention was to raise $400 million, but then Financial Secretary Donald Scott revealed last night that the strong global demand, which generated an order book of $2.4 billion, had enabled Government to upsize the transaction to $500 million. Mr. Scott added that the debt sale had attracted 146 investors, 10 percent from Bermuda. The other geographical areas of greatest demand were North America (60 percent), Europe (20 percent) and Asia and the Middle East (10 percent). The Government is saddled with a debt burden that has soared in recent years and total debt outstanding was $826 million at March 31 this year. The proceeds of the bond sale will be used to repay a bridge loan covering a revolving credit facility, short-term indebtedness with local banks of around $140 million and to fund ongoing capital expenditure programmes. Finance Minister Paula Cox was said to be overseas and unavailable for comment. Yesterday's sale was managed by HSBC and followed a roadshow designed to drum up global investor interest in the bonds. This involved a delegation led by Mr. Scott, with Assistant Financial Secretary (Economics and Finance) Anthony Manders, Director of Budget Tina Tucker and Economic Adviser Hasan Durham meeting some 35 high quality investors in Singapore, Hong Kong, London, Los Angeles, Boston, New York and Hamilton earlier this year. Mr. Scott said the bonds had been priced at the lowest yield ever offered by a Caribbean region issuer in the US dollar public bond market and it locked an historically low interest rate for the 10-year duration. Mr Scott noted The Ministry of Finance borrowing strategy is set well in advance of a given financial year taking account of long term capacity to repay debt, the view of debt capital markets, the borrowing requirement signaled by planned capital investment in infrastructure for Bermuda's sustained future and other important policy factors. However, the pricing of the bonds attracted criticism from Acting Shadow Finance Minister Grant Gibbons, who said it was bad news for the taxpayer. The Government will undoubtedly spin this issue as a great success as they were able to get subscriptions for the full $500 million offering, Dr. Gibbons said last night. However, in the cold light of day, the community should understand that it is just more debt and that it will cost $280 million in interest payments over the 10-year life of the bonds. In fact, a number of financial observers have noted that the 5.6 percent pricing (at 2.5 percent spread over US 10-year bonds) was at a premium and certainly no bargain to the long suffering Bermudian taxpayer. The Finance Ministry last night stated that included in the deal were major investors from Bahrain, Bermuda, Denmark, Germany, Great Britain, Hong Kong, Israel, Italy, Portugal, Saudi Arabia, Singapore, Spain, Switzerland, and the US, among others. Most of the demand came from institutional accounts, driven by asset/fund managers (66 percent), private banks/retail (12 percent), insurance companies (nine percent), financial institutions (nine percent) and other (four percent). But one potential local investor had been frustrated in his attempt to buy the bonds, having read The Royal Gazette's exclusive story on the offering yesterday morning. The Bermudian caller said he had contacted HSBC, the agent managing the sale, to find out more. He said the bank had not been able to tell him the price of the bonds and added that a bank employee had told him that he was awaiting confirmation that the issue is being offered on a retail level. The caller said: "This is a bond issue for the people of Bermuda. But nobody at the bank can tell me anything about the bond, never mind the coupon."ť Mr. Scott revealed more about the Government's pricing strategy for the historic offering. He said that on Monday this week, the Government took advantage of a positive market window by whispering a price range of US Treasury 10-year bill rate plus around 275 basis points (2.75 percentage points), generating a more than $1.5 billion order book by market close in the US. Based on this strong early market response, the transaction was left open overnight for Asia, Europe and Bermuda at a revised, tighter price range of 262.5 basis points over US, which generated more than $1 billion in additional demand. With an order book approaching $2.5 billion, the Government proceeded to launch and price the deal on Tuesday, July 13, at a revised price of T+250 basis points, the tightest end of guidance. Fitch, which yesterday rated the bonds AA+, said in its commentary: "Bermuda's creditworthiness is underpinned by a high per capita income of over $94,000, low public debt burden and effective management of the business and economic environment. Moreover, Bermuda's well-established reputation as a domicile of choice for (re) insurance and financial services companies provides a basis for sustainable economic growth." But Fitch warned: "Such credit strengths, however, are counterbalanced by the island's lack of economic diversification and small size, which curbs the capacity to absorb extreme shocks relative to other high-grade sovereigns. Policy flexibility is limited by the lack of reserve currency status and a lender of last resort to the financial sector, as well as a limited scope to incur and fund large fiscal deficits."ť
Legislation enacted by MPs allowed Government to raise its statutory
debt ceiling from $1 billion to $1.25 billion.
The move came despite vociferous protests from the
Opposition, who said Government's financial stable door is wide open "and
the horse is bolting". Then-Minister of Finance
Paula Cox announced the plan in the 2010-2011 Budget. She said the decision to
raise the ceiling was taken to account for Government debt guarantees that are
charged against the statutory debt ceiling. In
January 2010 Bermuda's net public debt, excluding the $200 million guarantee to
Butterfield Bank, was about $679 million. Public
debt is a Government obligation that results from borrowing when tax revenue is
insufficient to finance Government expenditure.
GDP is the market value of all the goods and services produced and in Bermuda has mainly due to the expansion of the international business sector. Bermuda, 21 square miles and with 67,400 residents, once had the highest gross domestic product per capita in the world. $5.57 billion in 2012, fell by 3.5 percent compared to 2011, the third consecutive year of negative growth. In 2007 it was 5.9, in 2008 6.1, in 2009 5.8, in 2010 5.5, in 2011 5.62 The highest-ever figure recorded to-date was in 2008 with $6.1 billion. According to Government’s Department of Statistics, the GDP was adversely affected by continued job losses and business closures. When adjusted for inflation, GDP contracted 2.8 percent. Ten of the 15 industrial sections experienced lower economic activity, with the strongest impact felt in the construction, manufacturing and international business sectors. Overall, the decline in economic growth translated into a 4.1 percent fall in GDP per capita which was measured at $85,996 per person in 2011. International business is Bermuda’s primary pillar of the economy. 80% of GDP is provided by the international business sector. But the latter has declined noticeably in recent years. As a result, GDP has been suffering setbacks as the graph below shows.
Bermuda is Britain's oldest British Overseas Territory, self-governing, with its own laws including those on citizenship, commerce, customs duties, employment, finance, health, insurance, investments, hospitalization, immigration, taxation, trade, welfare, etc. It is not part of the European Community, unlike Britain. Despite its small size it is an important offshore business jurisdiction, the registered corporate home of many multinational business entities, particularly for insurance and reinsurance companies. The World Bank rates Bermuda as one of the top three jurisdictions in Gross National Income per capita.
How they compare, according to the World Bank:
The cost of living is also very high.
Hugely expensive in Bermuda, $10,562 per capita, 12.2% of GDP in 2012. These statistics place Bermuda significantly ahead of virtually all other countries in the Organization for Cooperation and Development (OECD) on health care spending, more so than in the USA.
In Bermuda, prices have risen by nearly 180% since 2000 and in 2013 to date are at least $990,000 for a house with an apartment ($540,000 in 2000) and $1 million - $995,000 ($545,000 in 2000) for an average 2/3 bedroom median single dwelling house. These figures are obtained from current Coldwell Banker JW Bermuda Realty statistics. Housing costs are on average 400% more than similar properties and plots in the USA and Canada - about US $160,000 and 280% more than in UK. Small periodic increases in social security pensions and salaries have lagged far behind the overall rate of inflation of housing. In the USA, according to CNN on May 8, 2005, a 30-year mortgage can be obtained at an interest rate of 5.6% but in Bermuda it is 9%.Only 42% of Bermudians own their own homes, the lowest rate in the developed world. Only 21 percent of locals own their own homes with a mortgage and 23% of locals without a mortgage do so, compared to an average of 64 percent overseas. Only a small percentage under the age of 50 do so, compared to over 60% elsewhere. Here is the shocking breakdown:
|Own with mortgage||7.1%||19.5%||29.42%||27.41%||11.4%||21.1%|
|Own without mortgage||2.1%||5.6%||12.1%||31.1%||60%||22.8%|
Source: 2010 Bermuda Census (last available figures) released in mid 2011
30-year mortgages are now available to qualified persons from the local banks at interest rates totaling about 9 percent per annum (7 percent plus finder's fee). The required monthly payment of a 30 year mortgage of an average $975,000 Bermuda property is $6,090 but the average monthly Bermudian take home pay is $3,569. Bermuda banks require a household to make in excess of $12,000 a month to meet average 30 year mortgage payments. Plus, they need a $250,000 down payment, as a bank will not lend more than 85% of the appraised value of the property. Thus a far greater number of Bermudians than non-Bermudians in other countries are denied the opportunity of home ownership. The number of households that can afford to buy the average Bermuda property is 5,064 of the 19,505 households in Bermuda making over $108,000 a year.
The Bermuda Housing Corporation has built several thousand properties which it has sold to Bermudian families. The original idea was to provide subsidized housing to Bermuda's lower income families. But by international standards of subsidized housing costs, these are extremely expensive.
Practically everything in Bermuda is imported, except for what is generated by the secondary industries shown below. In 1999, Bermuda imported $620 million worth of goods, more than at any time earlier. By far and away the greatest portion came from the USA, despite the odd fact that shipping costs from Britain and Europe are not more expensive than from the USA.
Residents alone - not companies - spent $460 million in 2011 on overseas travel and purchases. In Bermuda, the average duty rate for dutiable goods exceeds 30 percent. 85% of all visitors are from the USA and assume, incorrectly, that in Customs exemption of duties for visitors - from wherever they may be - and returning residents, Bermuda has the same very generous laws as the USA. Unfortunately, this is not the case. By comparison with the USA, Britain and Europe, in this regard Bermuda treats its visitors very severely and its returning residents with laws and regulations the democratic countries would not dare impose.
Produce receipts from a retail store satisfactory to the Customs Department of actual purchase price of the items or be prepared for the Customs Department to assess items for your payment of duty at much higher Bermuda prices. This is applied vigorously. To avoid being arrested and having goods confiscated, do not try to import goods into Bermuda without paying the duty.
Only Bermudian legislators consider themselves exempt from laws affecting other people, like Customs inspection and payment of duty. It was reported in The Royal Gazette on page 9 of Thursday, September 13, 2001 that Bermuda Customs and Immigration have a long-standing practice of giving preferential treatment to local legislators returning from abroad. Other Members of Parliament have confirmed to this author that they too - not just the Premier and Ministers - do not pay any Customs duties unless they wish to do so voluntarily. Most don't wish to, so will not. Nor are they searched. It is not a policy, technically payment of Customs duty applies to everyone, but individual Customs Officers have the authority to use their discretion and not levy duty in the case of legislators.
Hosted by KPMG in Bermuda, this will take place September 22 to 24 in Miami, Florida, focusing on issues affecting island jurisdictions. This year’s summit will explore how island economies can use alternative financing models, such as public private partnerships (PPPs) to work with the private sector to deliver innovation and efficiencies in asset management, and achieve accelerated infrastructure development that drives economic growth. The summit is the highly anticipated second instalment of their successful Island Infrastructure Summit Series. From managing risk and meeting timelines, to selecting the right investment, construction, and technology partners, the Summit will feature lessons learned across island jurisdictions and from some of the industry’s most experienced infrastructure professionals. As an added highlight, the 2013 programme features a preview of island infrastructure project pipelines, showcasing high priority projects and providing an opportunity to explore project delivery options with international infrastructure developers and other leading infrastructure advisers. It will once again include an impressive combination of panels and speakers, featuring key decision makers, executives and financiers from across the Public and Private Sectors. Confirmed speakers and panellists for 2013 include:
Dr the Hon. Orlando Smith, OBE, the Premier and Finance Minister of the British Virgin Islands
The Hon. Craig Cannonier, JP, MP, Premier of Bermuda
Dennis Richardson, Kingdom Advisory State Councillor for St Maarten
The Hon. Burney El Hage, MP, Minister of Economic Development & Management and Support, Bonaire
The Hon. Ryan Pinder, MP, Minister of Financial Services, Trade and Industry of The Bahamas
The Hon. Trevor Moniz, JP, MP, Minister of Public Works, Bermuda
The Hon. Khaalis Rolle, Minister of State for Investments of the Bahamas
Senator the Hon. Darcy W. Boyce, Minister of State in the Prime Minister's Office, Government of Barbados
Neil Smith, Financial Secretary, Ministry of Finance of the Virgin Islands
Denise Arana, General Manager of PPP and Privatisation Division, Development Bank of Jamaica Limited
Lizanne Dindial, President & CEO of Curacao Hospitality and Tourism Association
Russell Harrigan, Chairman of the BVI Tourist Board
Phaedra Mackey-Knowles, Deputy Director — Investments, National Insurance Board of The Bahamas
David Altshuler, Senior Vice President — Infrastructure Practice Leader, Meketa Investment Group
Ian Bendell, Foreign Legal Consultant, Project Finance, Davis and Co., LLP
Nick Bliss, Partner, Freshfields Bruckhaus Deringer
Chris Brock, CEO, Island Analysis Limited, Guernsey
Duncan Caird, Managing Director, Head of Project and Export Finance — The Americas, HSBC Securities (USA) Inc.
Walter M. Higgins, Chief Executive Officer and President of Ascendant Group Ltd
Nigel Lelew, Vice President Technical Director, Balfour Beatty Investments
Ruth McMorrow, Executive Vice President, Parsons Corporation, New York
Jason Radford, Partner, Head of Americas Energy, Transportation and Infrastructure, Ashurst LLP
Darryl White, Regional Vice President, Corporate Banking, RBC Merchant Bank (Caribbean) Limited
Peter Williams, Managing Director, Light & Power Holdings Ltd, Barbados
To view the 2013 Island Infrastructure Summit agenda, including a regularly updated list of confirmed speakers and panellist, or to register for the event, please visit: http://www.kpmgislandinfrastructure.com/.
See Household Income.
2013. February 23. A fifth year of recession is officially forecast by Government in the National Economic Report of Bermuda for 2012, released yesterday. The Ministry of Finance estimated that Bermuda’s GDP will decline in the region of 1.5 to 0 percent this year and there will be “modest growth in 2014.” It also expects that our GDP may have contracted by 1.75 to 2.25 percent in 2012 after a decline of 2.8 percent in 2011. This would be deeper than expected as the last Economic Report estimated GDP would decline one to two percent in 2012. The report goes on to further state that employment fell by 5.1 percent and the official unemployment rate was calculated at eight percent in 2012. Momentum that gained in tourism in 2011, when air arrivals increased for the first time since 2007, did not carry into 2012. “The reality is that 2012 experienced the worst visitor numbers since 2008 when the Island was first hit by the global recession,” the report said. “That was the last time that both air and cruise figures declined in the same year.” Hotel occupancy rates averaged 55.7 percent in 2012 a drop of 1.1 percent year-over-year. In the international business sector, jobs declined by 5.2 percent and the number of active international companies registered fell by two percent. Hotel employment fell by 5.3 percent while air visitors also decreased by 1.7 percent. One positive result in the economy, the report noted, was the gross turnover generated by retail stores increased by 0.5 percent. February saw the first increase in retail sales activity since March 2009, and the first growth in the volume of retail sales since April 2008. All sectors in the RSI recorded declines in sales in 2012 apart from food and liquor stores. Another piece of good news was the balance of payments continued to record relatively large current account surpluses, an important strength in the Bermuda economy. Bermuda’s current account surplus was recorded at $496 million at the end of the third quarter of 2012 6.7 percent greater than the $465 million recorded over the first three quarters of 2011. However employment income was estimated to have declined by 4.8 percent for the first three quarters of 2012, compared with the same period in 2011. The Department of Statistics estimated that in the first three quarters of 2012 tourism and international business combined to provide at least $1,602 million (excluding financial services) in foreign currency receipts. The figure represented a 4.2 percent decline, year-over-year. Individually, the amount of foreign exchange earnings produced by the international business sector declined by 2.7 percent year-over-year, with third quarter figures of $1.28 billion. The amount of foreign exchange earnings generated by tourism activity decreased by 9.4 percent, recording earnings of $326.3 million at the end of September. International business provided 3,867 jobs in the economy in 2012, reflecting a decrease of 5.2 percent year-over-year, or a loss of 210 posts. There were 14,590 active international companies registered in Bermuda at the end of 2012, a decline of 292 companies or two percent less than the total at the end of 2011. In the banking sector, total assets of the banks declined by almost $2 billion (or 7.7 percent) during the first three quarters of 2012 (and 2.1 percent year-on-year). In its 2013 outlook, the report stated: “Since any meaningful economic recovery centres on renewed growth in international business income, the long-term convergence to the historical growth rate of about three percent appears doubtful.” The report added: “While the outlook for growth over the next year remains negative, the proposed reform measures in the areas of employment, international business, tourism and construction are all expected to have a positive impact on the economy beginning in the second half of 2013 and beyond.”
Despite a 10 to 30 percent drop in property prices since 2008 (Coldwell Banker Bermuda Realty earlier in February 2012 said house and condo prices in Bermuda had plunged as much as 10 to 30 percent in the last four years) Government announced on 24 February 2012 it was unlikely the Bermuda housing market had hit bottom and this could challenge Bermuda’s banks in the coming months. This was one of several concerns raised in the National Economic Report (NER) outlook for 2012, which expects the economy to shrink a further 1 to 2 percent this year. The NER believes:
Real estate prices have declined sharply but have not bottomed.
Households are highly indebted and thus vulnerable to further declines in housing prices.
Given the banking sector’s large exposure to real estate, deterioration in asset quality would render existing loan loss provisions insufficient.
Weaker demand for loans, high levels of non-performing loans, plus the intensifying competition for deposits are likely to dent banks’ earnings/capital formation.
Increasingly adverse economic conditions and the intensification of the decline in real estate prices on both the residential and commercial sector will further challenge the credit fundamentals of the domestic banking sector.
In the reinsurance sector,
This, the key driver of the current account surplus, has remained well-capitalized in spite of a near record-level of catastrophe losses in 2011, and fundamentals appears to be still strong, but there are short-term challenges.
Insurers’ profitability is likely to come under pressure by the slow economic recovery, record low interest rates and a reduction in reserve releases.
The impact of the trend of an increasing frequency of catastrophes, attributed to climate change, has been largely offset by excess capacity and the lack of industry consolidation, leading to only very moderate premium hardening in certain classes of business.
While the outlook for 2012 was negative, proposed reform measures in the areas of labour market, fiscal stability and the continued resilience of the international business sector can have an important and positive impact on Bermuda’s growth outlook beyond 2012.
Plans to liberalize immigration policy in association with foreign direct investment will also have a positive impact on growth prospects.
These measures combined with sustained growth from Bermuda’s largest trading partner, the United States, should contribute to a mild recovery in Bermuda’s economy leading to positive but still historically weak growth in years 2012 and 2014.
Government said the National Economic Report for 2012 was compiled with the assistance of organizations including the Bermuda Monetary Authority, the Bermuda Hotel Association, Registrar of Companies, Statistics Department, Tourism.
See the Bermuda Government's The Pension Commission, at http://www.pensioncommission.bm/. Not Social Security (see separately), but private pension plans. The National Pension Scheme Act 1999 became effective on 1st January 2000. All employers, whether local or international or exempted must comply, for every employee whether Bermudian or a non-Bermudian spouse of a Bermudian of from 23 years of age who works a minimum of 720 hours per calendar year. Employers may, however, offer more generous eligibility provisions to employees by allowing them to become members of their pension plan at an earlier age and with fewer numbers of hours worked. While 65 for men and women is when those eligible in Bermuda will get Social Security, private pension plans can be more generous and in lesser age as well. Note that the Act specifies private pensions only for Bermudian and international or exempted company employers employing Bermudians or non-Bermudian spouses of Bermudians. There is no requirement to establish pension plans for guest workers, which may come as a shock to the latter. Non-Bermudian employees should ask local and international companies and or the Bermuda Government employing them what, if anything, they offer as private pension plans or equivalent, so they know where they stand and what they can expect to take with them when they leave Bermuda.
For those who qualify under the Act for pension eligibility, the pension scheme (plan) can be offered only by approved local insurance companies, not the "exempted" or "international" variety registered in Bermuda but not "corporate citizens" as they are often referred to, inaccurately.
The Act removed many of the anomalies and restrictions that since the 1970s for "approved private pension plans" had existed in some with 15 or more years service but had severely restricted or totally excluded others, for example all those with say 12 years service with the same employer by retirement age. The current Act creates some portability for plans of all employers and employees. But for some people close to retirement age when it came into effect, it was far too late to ensure that once they become senior citizens and retire from working, they will have an adequate income without hardship.
Minimum contribution rates are based on pensionable earnings per year. At January 14, 2012 Approved Pension Plan Administrators under the Act were:
Life Insurance Company Ltd.
Life Insurance Company Ltd (Argus).
Investment Advisory Services Ltd.
Pension Services Ltd.
Insurance Services Ltd.
Cooper Young & Associates Ltd.
2013. July 22. There are new concerns in Bermuda’s international business and insurance community about what the latest OECD proposal for cracking down on corporate tax-avoidance could potentially mean for the Island. The 40-page report, backed by the G20 this week, takes aim at tax-avoidance strategies used by companies such as Google, Apple and Yahoo! There are some 12,000 multinational companies registered in Bermuda compared to 100,000 in the Cayman Islands. But another growing concern for Bermuda’s re/insurers is the potential impact on captives, though most are not tax driven and the inclusion of “insurance” in the report. Whether the report will impact Bermuda depends on the backbone of the individual legislators on a country-by-country basis. The OECD action plan follows hearings in the US and UK revealing how companies avoided billions in taxes by attributing profits to mailbox subsidiaries in places like here in Bermuda and the Cayman Islands. California-based Google, for example, avoided as much as $2 billion in worldwide income taxes annually by attributing profits to a subsidiary in Bermuda that holds the rights to its intellectual property for sales outside the US, as reported by Bloomberg News in December. Though there is no real economic activity going on in Bermuda “all the returns are in Bermuda,” Pascal Saint-Amans, director of the Center for Tax Policy and Administration for the Paris-based OECD, said, not referring specifically to Google. “This is wrong, we need to fix it.” The proposal aims to develop rules over the next two years preventing companies from escaping taxes by putting patent rights into shell companies, taking interest deductions in one country without reporting taxable profit in another, and forcing them to disclose to regulators where they report their income around the world. "People and companies have to pay the taxes that are due. It's the only way to operate in a fair and competitive society," said British finance minister George Osborne. German Finance Minister Wolfgang Schaeuble said without “fair burden sharing, in the end we will destroy even a global, open economy.” The 40-page report will complement efforts by deficit-laden governments to increase revenue they collect from profitable enterprises. The UK Parliament has held three hearings since November on corporate tax dodging — examining strategies used by Google, Amazon and Starbucks Corp. In May 2013, the US Senate held a hearing on Apple’s offshore tax strategies. The companies all say they’ve complied with international tax laws. “It is clear multinational companies have developed an unprecedented know-how for minimising their worldwide tax pressure,” French Finance Minister Pierre Moscovici said in Moscow. “These situations are literally impossible to explain to our fellow citizens.” A pair of the OECD proposals calls for rules to make it harder to shift profits by assigning intellectual property, such as patent rights, to offshore units. Under current law, such offshore subsidiaries can take credit for profits arising from patents developed in countries like the US and UK, generally with cash the parent companies provided to them in the first place. The OECD is a government-funded think tank that was charged by the G20 to tackle the issue. UK Prime Minister David Cameron said the OECD report “shows how taxpayers, governments and businesses all suffer when some companies manipulate the tax system to avoid paying their fair share of taxes. And it highlights how much we still have to do to bring the international tax system, conceived back in the 1920s, into the 21st century.” Bloomberg reported that although the UK has been accelerating its own efforts to help multinationals avoid taxes, Cameron said in a statement that he would highlight the OECD plan at the G20 Summit in St Petersburg in September 2013.
Bermuda has an uneasy relationship with OECD, especially since May 16, 2013 when it was reported that international country leaders are moving closer to taking action on corporate tax avoidance, despite challenges. "You need to neutralize the use of tax havens," Pascal Saint-Amans, head of the OECD's tax centre, told Reuters. The OECD, whose members include the UK and most developed economies, has led the way in an international drive against tax evasion and the use of so-called tax havens. National austerity measures taken by OECD member governments as a result of the financial crisis have sparked voter anger at the way big international companies shift profits around the world to cut their tax bills, Reuters reported. As a result they have asked the OECD to draft proposals to tackle problems like double-tax agreements, transfer pricing and the exchange of information between tax jurisdictions. "You cannot have a situation of crisis, unemployment, people unhappy, facing increases in taxes and no recovery and at the same time big profitable, juicy players not paying a penny," Saint-Amans told Reuters. "It's just politically impossible," he said in an interview, adding that the support of "right-wing" governments increased the chances of action. In the last year, Reuters reported, Britain has become more prominent in the controversy over how much tax multinationals pay and Prime Minister David Cameron called on the European Union to use the impetus of the G8 summit he is hosting in June to organize "radical" international action to crack down on tax evasion and avoidance. The OECD was due to deliver its recommendations at the July Group of 20 (G20) meeting. These have not yet been agreed but Saint-Amans said one of the proposals would be that double taxation agreements (DTAs) between countries be amended to avoid the problem whereby neither country taxes the income. The European Commission recommended such a measure in December 2012. In a recent example it was revealed in a report by Reuters that Google takes advantage of DTAs between Ireland, where the internet search firm has its European base, and other countries, to shelter billions of dollars each year from tax. Most of Google's European income flows to Ireland untaxed, thanks to DTAs, and most of this income is then sent to an untaxed Google entity in Bermuda. Google says its follows the tax rules that apply in every country where it operates. The OECD has no estimates of how much is lost by tax evasion and avoidance, but wants to set up a mechanism that could measure the money at stake, he added. Saint-Amans said other areas that the OECD was looking at included revisions to international transfer pricing rules in relation to intellectual property. Companies can avoid tax by parking intellectual property, such as brands or work processes, with a subsidiary in a tax haven, which then charges affiliates in major markets hefty fees for its use. Other ideas include a harmonization of the tax treatment of transactions or financial instruments, such as convertible bonds, which in some countries are taxed as bonds and in others treated as shares, allowing a form of tax arbitrage. The OECD will also urge companies and governments to be more transparent and adopt "spontaneous exchange of information". Saint-Amans expects the G20 group to adopt the measure in July or September as the new standard to curb cross-border tax evasion. Currently only a small group of countries have signed tax treaties guaranteeing the automatic exchange of tax information, as opposed to delivery upon specific requests. As well as new measures, Saint-Amans said governments needed to implement the laws they already have. UK lawmakers have said a recent Reuters report which showed Google employs sales staff in the UK while telling the tax office that sales are made from Ireland, raised questions about whether the power of existing tax law had really been tested. Google says UK staff do not sell to UK customers but has not said whether they negotiated with customers, had sales targets or 'closed' deals. Job advertisements on its website had said recruits would be expected to conduct such roles.
There is some poverty. Some Bermudians are less affluent than others, mostly those who cannot make ends meet, including many single parent families and those who have a permanent disability of one kind which overseas would give them some disability allowance and other concessions but which in Bermuda do not. Some Government financial assistance, via the Ministry of Health and Social Services, is given to Bermudians only who are pensioners, or not pensioned by former long term employers, who don't own and have to pay to rent a home and don't have a job or any private income and have virtually no savings; or are qualifying single parent families; or certain others (on a discretionary basis) who are permanently mentally or physically handicapped; and certain able-bodied but unemployed or under-employed individuals not earning sufficient income to live on; and those who are born locally or overseas and are twins or triplets or higher. There is also a housing allowance program for Bermudians only with temporary rent payment difficulties because 99 percent of all Bermuda properties are hugely over-priced to rent or buy.
In July 2008 Government has released its long-awaited low income study, 'Low Income Thresholds for Bermuda Households in Need' which pitches the poverty line at incomes of less than $27,000 per annum for a single person and $76,000 for a two-parent family with two children under 16.The study found 11 percent of households fell below the new threshold, which equates to 3,050 homes. It contrasts with Census 2000 figures which showed 30 percent of households fell in the poor or near poor category. The study found that the highest incidence of low income households occurred for single and two parent households with young children and in elderly adult households. The Department of Statistics spent just under two years researching poverty and low income models from different countries, getting feedback from local groups and consulting with international academia and organizations.
Compare the Bermuda 2008 (latest available) poverty line figures with the United States' Government's 2010 figures:
|Persons in family||Poverty guideline|
|For families with more than 8 persons, add $3,740 for each additional person.|
Poverty is a very complex concept to define and measure, particularly in affluent and wealthy countries such as Bermuda. So 'Low Income Thresholds' or LIT measures were developed as indicators to identify and assist Bermuda households that are economically disadvantaged or simply less well off. The latest LIT study revealed that in 2012 there were 3,600 households in Bermuda currently living below established low income thresholds which range from $27,000 per year for a single adult household to $76,000 a year for a family of two parents and two children younger than 16 years old. LIT measures were derived from a nutritious low-cost food basket as approved by the Government Nutritionist combined with essential services that families need such as education, health and transportation. They show that in 2012, the minimum expenditure a single parent household with one child needed to ensure a nutritional diet of food was $4,471 per year or over $12 per day; housing cost averaged roughly $65 per day or $1,993 per month, the cost of fuel and power totalled close to $9 per day while health care costs averaged $7.80 per day. The LIT measures will be used by the Department of Financial Assistance to make annual adjustments to help paid to families and the new figures have already helped work out a threshold for free child care assistance. Other programs such as free public transportation, an affordable health care system and subsidies for the elderly will certainly help to alleviate the financial burden that some households face. Government will track the long-term impact of Government spending on the economic and financial positions of families in need. Families struggling to make ends meet are urged to contact the Department of Financial Assistance.
Thus, in July 2008, the Child Day Care Allowance Act 2008 was passed, to pay child care bills for Bermudian families or single parents earning under $70,000 a year. The financial threshold was set at families earning less than $70,000 using new statistics culled from the poverty study released by Government. The incomes of all the biological parents would be assessed, whether they were living together or not.
Issued by the Department of Statistics of the Bermuda Government at http://www.statistics.gov.bm/portal/server.pt.
All homes and apartments (flats) with an annual rental value (ARV) of less than a certain amount are subject to rent control. This has applied anew since August, 2000 with the Rent Increases (Domestic Premises) Control Amendment Act 2000. It updated the Rent Increases Domestic Premises) Control Act 1978. Before then, only homes built before 1983 and with an ARV of less than $9,900 were subject to the controls. The legislation increased the number of rental units affected by rent control from 3,600 to 13,300 or 48 percent of Bermuda's residential units. This is a good benefit for people who do not live in up-market houses or apartments and do not own their own homes. But it means that the minimum rent for a 2-bedroom apartment is now at least $1,400 a month and often much higher.
Other secondary industries include artistic works; beer brewing; carbonated beverages bottling; cedar wood souvenirs; condiments; concrete block and related products for building purposes; diary products such as cream and ice cream; glass-blowing; ornamental iron working; paint manufacture; and perfumes and toiletries preparation. But these are mostly only specialty items with very small export markets.
To see how their status and benefits compare to other countries overseas, see Senior Citizens in Bermuda.
In contrast, in the United Kingdom the Old Age Pensions Act was enacted on August 1, 1908.
Current deductions from wages or salaries apply under section 4 of the Contributory Pensions Act 1970.
|Category of insured person||Payable weekly by Employee in BD$||Payable weekly by Employer in BD$||Total|
|Employed person over school leaving age and under 65||$30.40||$30.40||$60.80|
|Employed persons over 65||-||$30.40||$30.40|
|Self-employed persons over school leaving age and under 65||$60.80||-||$60.80|
|Self-employed persons over 65||$30.40||-||$30.40|
|Voluntary contributions under 65||$60.80|
There is a Contributory Pensions Appeal Tribunal. See Bermuda Government Boards
When private corporate pensions are offered, they are in addition to the Government administered Contributory Pensions plan shown above.
2013. November 25. Minister of Finance Bob Richards today visited the Polish Embassy in London to sign a bilateral Tax Information Exchange Agreement (TIEA) with the Republic of Poland. A Ministry of Finance press release announcing the bilateral agreement quoted Mr Richards, who said: "Signing a TIEA with Poland has been a long time in the making and represents the beginning of an official exchange of information relationship with Poland upon which the Government of Bermuda hopes to build a long and fruitful partnership." The press release stated that with these bilateral treaties Bermuda establishes a direct treaty relationship, which in this case, is with the Minister of Finance for Poland. "As Poland is a member of the European Union (EU) it is crucial that Bermuda signs this TIEA; the EU has always been one of the main regions with which Bermuda has a strategic and economic relationship and Poland is one of the many countries Bermuda reinsurers do business with in Europe. The benefit of signing the Poland TIEA is that it allows for tax transparency and information exchange on a by-request basis, where previously there was no formal avenue available." Bermuda now has bilateral TIEAs with 50 percent of the members of the EU.
2013. June 4. Finance Minister Bob Richards updated the House of Assembly on talks between both Bermuda and the United Kingdom, and Bermuda and the United States about tax information exchange agreements (TIEAs). He told MPs Bermuda’s dependant territory status means Bermuda is required to sign a tax information exchange agreement with the United Kingdom (UK). The UK Treasury also “encouraged” Bermuda and all other Crown Dependencies and Overseas Territories to sign tax information exchange agreements with the US. The US has proposed two FATCA reporting options. Under IGA Model 1 financial institutions would be required to provide US client data to their government authorities, who would vet the information for correctness and accuracy before making an annual filing to the IRS, or Under IGA Model 2 a jurisdiction agrees to create a piece of legislation that would require its financial institutions to register with the IRS directly and submit annual filings of its US clients’ accounts and investments to the IRS, also directly. Government would not be involved in the annual reporting process but would ensure compliance, and assist the IRS in their investigations of non-compliant US clients, in Bermuda’s case in the form of group requests for information under the US-Bermuda tax information exchange agreement (TIEA). Bermuda will sign Foreign Account and Transaction Compliance Act (FATCA) intergovernmental agreements with both the US and the UK “as soon as possible”, and intends to “conclude and initial both the US and UK Intergovernmental Agreement (IGA) Model 2 documents by the end of this summer.” Bermuda has opted for IGA Model 2 because without an income tax system or central filing system to register account data on personal income, it means undertaking the “mammoth task” of creating a secure IT structure and legal platform. There would also be the need to hire additional government personnel to vet the information being deposited from the various financial institutions. It would be expensive and would open the Government to legal action should incorrect information be released to US authorities. Government began consultations with industry stakeholders a year ago about the IGA model options. On April 10, 2013 the Finance Minister announced to industry representatives the intention to recommend to the Cabinet that Bermuda should negotiate a US IGA Model 2. HM Treasury officials visited Bermuda in May to negotiate with the Bermuda FATCA team. Ministry of Finance officials and key industry representatives have begun formal official negotiations on the US FATCA IGA Model 2 and were to meet in June 2013 with US Treasury officials in Washington, DC.
Since 2010 Bermuda has signed a series of other similar Tax Information Exchange Agreements (TIEAs) with Aruba, Australia, Bahrain, Belgium, Brazil, Canada, Czech Republic, Denmark, Faroe Islands, Finland, France, Germany,Iceland, India, Ireland, Greenland, Indonesia, Italy, Japan, Malta, Malaysia, Mexico, Netherlands (Holland), Netherlands Antilles, New Zealand, Norway, People's Republic of China, Poland, Portugal, Singapore, Spain, South Africa, South Korea, Sweden and Turkey. These supplement the TIEAs already signed with USA, UK, etc. The tax information exchange agreements are part of a joint campaign by the parties to stop tax evasion and will enable the authorities to access information about anyone seeking to evade payment of tax on income and capital investment and help disclose assets that have not been reported in their home country. Information to be exchanged includes information on beneficial ownership of companies in the whole ownership chain; settlers, trustees and beneficiaries of trusts, and information held by banks and financial institutions. The process will enable tax authorities in Bermuda and all the countries mentioned above to access information about tax evaders and disclose any assets not reported in their home country. Bermuda has received recognition from the USA's Internal Revenue Service (IRS) and the British Prime Minister for its efforts to get onto the Organization of Economic Cooperation and Development (OECD) "white list." The OECD attaches great importance to the number of TIEAs signed by each country. Bermuda has now met both the G20 and original OECD standards.
Photo above: signing ceremony June 2010: Dan Sullivan, Canadian Consul General of Canada, and Paula Cox MP, then Finance Minister, sign at Camden, Paget, a Tax Information Exchange Agreement between the two countries. (Royal Gazette photo).
The agreement is a reciprocal arrangement between the country concerned and Bermuda not to tax the repatriated income that a firm or a national of the parties domiciled in one country earned (and paid taxes on) in the other country. In 1988 Bermuda and USA signed the US-Bermuda tax treaty in Washington DC, shortly after Premier Sir John Swan met with President Ronald Reagan. It began the international business boom for Bermuda that continues to this day. It is so favorable to Bermuda that all conferences and conventions involving American businesses meeting in Bermuda end up being borne entirely by American taxpayers. Since then, Bermuda also has a Tax Information Exchange (TIEA) in force with the US and a Mutual Legal Assistance Treaty (MLAT) with the US.
2013. June 4. The Association of Bermuda Insurers and Reinsurers (ABIR) expressed concern in a leading re/insurance publication that legislation in the USA to close a so-called tax loophole that favors Bermuda-based insurers could pass without warning. “The threat is some middle-of-the-night, last-minute deal,” said Bradley L Kading, president of the Association of Bermuda Insurers and Reinsurers, which opposes the measure. “That's what we've always been waiting for.” He was commenting on the reinsurance tax loophole legislation in the US being revived. Business Insurance reported at the weekend: “The Legislation that would change the tax treatment of reinsurance ceded to non-US affiliates of domestic insurers is unlikely to be enacted as a stand-alone measure, but might pass as part of a larger budget or tax reform bill, insurance industry sources say. Companion bills introduced by Rep Richard Neal, Democrat-Massachusetts, and Sen Bob Menendez, Democrat-New Jersey, would disallow tax deductions for reinsurance premiums ceded to affiliates in jurisdictions not subject to US tax law. The measure has been introduced and failed in previous sessions.” The publication noted President Barack Obama included a similar provision in his 2013 budget, estimating that it would raise $6.2 billion in revenue over 10 years. “Several US insurers supporting the legislation argue that it closes an unfair tax loophole, while a wider group of opponents — including many multinational insurance groups and the Risk & Insurance Management Society Inc claim that it will reduce market capacity and raise costs for policyholders,” Business Insurance said. “While several sources say the measure likely has too much opposition to pass on its own, opponents say it may be rolled into a tax reform bill now being drafted by the House Ways and Means Committee, or into a larger budget bill.”
2013. May 27. It was reported that legislation to tax Bermuda reinsurers has been resurrected in the US Congress. The offshore reinsurance tax debate has been revived with the introduction there of two new bills. Two American lawmakers have reintroduced legislation that would end a tax break they say favors foreign insurers — including those based in Bermuda — over US insurers. Congressman Richard Neal, the ranking Democrat on the House Ways and Means Select Revenue Subcommittee and Senator Robert Menendez, a Democrat on the Senate Finance Committee, introduced bills in both the House and the Senate last week aimed at preventing non-US based insurers operating in the US from reducing their US tax bill by reinsuring with their non-US affiliates. “Many foreign-based insurance companies are using affiliate reinsurance to shift their US reserves into tax havens overseas, thereby avoiding US tax on their investment income,” Congressman Neal said. “This provides these companies with a significant unfair competitive advantage over US based companies, which must pay tax on their investment income. That is why I am filing legislation to end the Bermuda reinsurance loophole. Ending this unintended tax subsidy for foreign insurance companies will stop the capital flight at the expense of American taxpayers and restore competitive balance for domestic companies. It simply reinforces my efforts to combat offshore tax avoidance,” the congressman added. The legislation closely resembles legislation Congressman Neal first introduced in the House in 2008 and again in 2009. It was later reintroduced in 2010 with the added sponsorship of Sen Menendez. But the legislation failed, as have Congressman Neal’s other efforts to close what he, and a number of US insurers, see as a loophole that allows reinsurers, mainly based in Bermuda, to dodge US taxes. A similar proposal is included in President Barack Obama’s 2014 budget. Under current law, property and casualty insurers are allowed a deduction for premiums paid for reinsurance — that is, insurance for insurance companies — if the reinsurer is an affiliate not based in the US.In essence, the Neal-Menendez legislation defers the tax deduction for premiums paid to an offshore affiliate until the insured event occurs. That effectively restricts any benefit a company would gain by shifting reserves and associated investment income overseas and is modelled after the Obama administration’s budget proposal. The Coalition for a Domestic Insurance Industry, led by US insurers, WR Berkley and Chubb said in a statement that the bills’ sponsors worked with tax experts at the Treasury Department and the Joint Tax committee in drafting the bill. “We urge Congress to swiftly adopt the proposed legislation. Congress never intended to give a preference to foreign-controlled insurers over their domestic competitors,” said WR Berkley, chairman and CEO of WR Berkley Corporation. "Closing unintended loopholes to recover lost revenue is one of the best ways to offset the cost of needed tax reform. The increasing trend of foreign insurance companies moving profits made in America offshore and sticking Americans with the bill is incredibly troubling,” said Sen Menendez. “This legislation will staunch the flow of capital overseas, protect American jobs, and reduce deficits by shutting down a tax loophole that provides a huge unintended subsidy to foreign companies at the expense of both their US competitors and American taxpayers. "But opponents contend the bill would do serious damage to the US property and casualty insurance markets, while also violating international commitments made to trading partners. A group representing the reinsurance industry, the Coalition for Competitive Insurance Rates (CCIR), is objecting to the proposed legislation, arguing that it would increase costs and limit coverage availability for American consumers. “The legislation introduced closely mirrors thinking we have seen time and again from the Obama Administration and Congress,” said Bill Newton, executive director of the Florida Consumer Action Network. “Our concerns remain the same: instituting a tax on foreign affiliate reinsurance would only result in a more limited US domestic insurance capacity and more expensive insurance coverage, a major threat to homeowners and small businesses whether they are in Florida, Massachusetts, New Jersey or elsewhere, but particularly those in states that are historically susceptible to natural disaster." Approximately two-thirds of all reinsurance coverage currently required to protect American homes and businesses is provided by non-US reinsurance companies. In Florida, less than ten percent of that reinsurance comes from US companies — with the rest coming from foreign affiliates — 62 percent of them right here in Bermuda. Estimated losses from Hurricane Sandy currently stand at more than $19 billion and may reach $25 billion. International insurance companies are expected to cover nearly 50 percent of the losses caused by the storm, the CCIR says. “This legislation would shift the financial burden of rebuilding following a disaster onto already strained domestic insurers and their policyholders,” said James Donelon, the Louisiana commissioner of insurance. “As we enter the 2013 tornado and hurricane seasons, we need Congress and the President working on legislation to aid rebuild efforts, not hinder them with avoidable economic challenges.” Carolyn Shaw, Risk and Insurance Management Society (RIMS) board liaison to the society’s external affairs committee international reinsurers are essential to the US insurance markets — able to fill gaps in coverage while domestic insurers are coping with an influx of claims following a disaster. “This short-sighted legislation fails to realise that if organisations are forced to abandon their offshore counterparts, the financial burden would fall on government and policyholders — an alternative that could shatter this country’s economic vitality,” Ms Shaw said. RIMS president John Phelps says the use of foreign reinsurance by domestic carriers is an “efficient mechanism to pool risks, diversify exposures, reduce the volatility of losses, and as a result, enhance availability of coverage and reduce prices for consumers.” He says the proposed legislation would make critical types of coverage, scarce for American companies and consumers. “Throughout the recent series of natural catastrophic events, and the terrorist attacks on 9/11, foreign reinsurers have filled gaps in coverage where domestic insurers either discontinued or severely curtailed coverage or significantly increased rates,” Mr Phelps said. In an economic impact study of the Neal-Menendez bill, the Brattle Group, an economic consulting firm, found that the proposed tax would reduce the net supply of reinsurance in the US by 20 percent — which would raise rates.
The Association of Bermuda Insurers and Reinsurers (ABIR), which represents 22 of the world’s largest international re/insurers is a member of the CCIR. Brad Kading, ABIR’s president and executive director, has been lobbying on Capitol Hill against the Neal Bill for more than six years now. He says the proposed legislation would take away reinsurers’ ability to diversify and spread risk. “Affiliate reinsurance is a fundamental component of insurance group operations,” Mr Kading said. “US and non-US insurers use affiliate reinsurance to spread risk and match capital with risk — this helps generate capacity to meet client needs. You can’t do business without it.” RJ Lehmann, a fellow with the R Street Institute, a non-profit policy research organisation, says in the end, the legislation would only benefit a small group of US insurance companies at the expense of American consumers. “This is a protectionist measure that serves the interests of certain large domestic insurance companies by discouraging foreign-based competitors from devoting their capital to US risks. It also is simply bad policy, in that it would tend to concentrate US risks within the United States, rather than allowing the global reinsurance system to spread them throughout the globe." Mr Lehmann also added that the legislation appears to violate the United States’ commitment under the General Agreement on Trade in Services not to subject companies to more punitive or burdensome taxation based solely on where the company is based.
2012. October. It was revealed that 10,000 residents — or more than a quarter of the Bermuda workforce — are either unemployed or underemployed. That is the stark finding of a survey published by the Department of Statistics, which reveals more about the impact of business closures and downsizing in a shrinking economy. The Labour Force Survey Executive Report shows a snapshot of the employment situation, as of May 13 to 19 this year. Since the 2010 Census, the number of unemployed has risen by 1,323. Even among the 35,874 who still have work, nearly one in five were described as “underemployed”, which refers to people who had a job during the survey’s reference week but were willing and available to work “more adequately”. This means that 10,065 people — more than a quarter of the workforce — is either unemployed or underemployed. That was reflected in the sharp fall in average weekly working hours, which fell to 38 hours, compared to 42 hours in 2010. What was also clear from the survey was the difficulty for young people in finding a job. Youth unemployment was 36 percent with 1,176 people between 16 and 24 looking for work out of 3,295 of the working population in that age group. The number of workers under 25 decreased by 567, representing a decline of 21.1 percent, the largest decrease among all age groups. The construction industry’s post-boom demise is apparent, with 2,721 workers employed in the industry, representing a fall of 750, or 21.6 percent from 2010. However, the survey indicated some surprising increases in sectors such as international business — up from 3,802 to 4,094 — and financial intermediation — up from 2,741 to 3,131. The business services sector also added more than 500 workers and the struggling retail and repair services sector added nearly 200 jobs, according to the survey. The data was taken from a sample of nearly 1,500 households, some five percent of all households on the Island, producing aggregate results at the 95 percent confidence level with a margin of error of plus or minus 2.5 percent, the Department of Statistics stated. The survey said the number of Bermudians in the working population decreased by 336 or 1.2 percent. There were 244 more spouses of Bermudians in the workforce than in 2010, while Permanent Resident Certificate holders fell from 1,370 in 2010 to 1,222 in 2012. The most severe contraction in jobs was among “other non-Bermudians”, who numbered 1,083 fewer this year than in 2010, representing a fall of 16.7 percent, as expatriates left the Island in their hundreds. Wages have changed little, with the median gross income at $58,698, compared to $58,355 two years ago. Women appear to be suffering disproportionately from the job losses, with the number of females in the workforce declining by 780 to 17,723, compared to a drop of 543 in the number of men, to 18,151. The statistics also indicated differing labour market fortunes for blacks and whites. The number of blacks in the working population fell from 20,171 in 2010 to 17,229 in 2012. In contrast, the number of whites increased from 11,312 in 2010 to 13,237 in 2012. Blacks accounted for 48 percent of the working population; whites comprised 37 percent. People of mixed and other races accounted for 14 percent, while 216 workers did not state their race. Men earned a median income of $60,156, maintaining their earnings advantage over women, who took home $57,322. Whites’ median income, at $71,751, was around $20,000 more than that of both blacks ($50,799) and mixed/other races ($53,191). Bermudians earned $54,550, less than non-Bermudian spouses of Bermudians ($69,378), other non-Bermudians ($87,089) and permanent residents ($74,499). Workers in the international business sector were the highest paid, with a median income of $114,951, followed by financial intermediation ($74,231) and electricity, gas and water ($69,068). The lowest paid sectors were restaurants and bars ($33,471), “other community, social and personal services” ($35,017) and retail and repair services ($40,751).
2012. April 24. The Bermuda Government yesterday confirmed what The Royal Gazette has been reporting for months now, hundreds of people in Bermuda have lost their jobs. Nearly 700 people in all lost their jobs in Bermuda last year, according to the Government, marking the third straight year of job losses for the Island. The vast majority of those made redundant were expatriates. According to the annual Bermuda Job Market report, released by the Department of Statistics yesterday, there were 698 fewer jobs in 2011 than there were in 2010, a decline of two percent. The report said the number of filled positions reported in 2011 was 37,399 compared to 38,097 in 2010. Of those 698 people who lost jobs, 691 were non-Bermudians and 60 were Bermudian, offset by spouses of Bermudians who gained 30 jobs and permanent resident certificate holders who gained 23 jobs. “My initial reaction is that this survey further exemplifies the need to change gears,” said Buddy Rego, President of the Bermuda Chamber of Commerce. “Relax employment restrictions, give incentive to the business community to create new business and job opportunities.” After reading the report, Doug Soares, a partner at Expertise, Bermuda’s largest management consulting and outsourcing company, said employees in the private sector seem hardest hit. “The level of austerity felt by private-sector employees has not yet been felt by Government employees. For the 12 months ending August 2011, Public Administration shed only 12 jobs and increased compensation by 1.5 percent over the annual inflation rate,” he said. “The Government seems committed to preserving the size of the public service. This is only sustainable for as long as we continue adding to the public debt. Government has instituted a hiring freeze so downsizing will occur but too slowly to avoid the eventual need for reductions in the public sector payroll. At some point, job losses or reduction in hours of work, pay or benefits, or a combination thereof, will be required to match payroll costs with shrinking tax receipts.” The Government’s report is based on a census of all businesses on the Island. The survey was conducted during the week of August 28 to September 3, 2011. Mr Soares said unemployment figures are likely to get worse before they get better. “It is important to note that the statistics published in the 2012 employment brief are already dated. They represent a snapshot of the job count in August 2011,” Mr Soares said. “So the question is, has the unemployment situation gotten better or worse over the past seven months? Unfortunately, the answer is worse.” The hardest hit sector was construction, which shed 493 jobs, a fall of 16 percent. Also hard hit were real estate, which lost 14 percent of its workforce due to a slumping housing market. The number of jobs in international business dropped five percent from 4,287 in 2010 to 4,077 in 2011, down 210 jobs. Mr Soares points out that in some sectors, the losses might not get too much worse but for others, there could be greater issue at hand. “For example, job losses in construction have slowed in recent months,” he said. “What is not well understood by the average Bermudian is the cause of the job losses. It is widely presumed that all job losses are caused by the recession. Not so. For example, while a construction job is lost due to a lack of demand for building in the economy, most international business job losses are actually job relocations. This means that the job is just moving from Bermuda to another jurisdiction. So the question should be: what must we as a jurisdiction to retain international business job in Bermuda?” One of a handful of sectors not cutting positions was the hotel industry, which added 131 jobs last year. Restaurants, cafes and bars added 53 jobs. And 270 positions were added in education, healthcare and social work. Those who managed to stay employed are likely earning more money. The median annual salary for jobholders in companies with ten or more employees increased three percent from $57,915 to $59,364. For the third year in a row, women, on average, earned more than men. The median annual income for women was $59,677 and for men, it was $59,081. The report points out that the increase in women’s earnings exceeding those of men is attributable to the decline in construction jobs, primarily held by men. Of all the jobs lost in 2011, male workers held 90 percent of them. There was no change in the number of jobs filled by black workers however, there were significant job losses among workers who classified themselves as white, mixed and other races. The highest average salary was in the international business sector at $111,938 while the lowest averages were in the retail ($42,000), hotel ($35,898) and restaurant ($35,664) sectors. Non-Bermudians with no spousal ties to Bermudians were heavily employed in the professionals occupation group. Positions in that category include actuaries (123 jobs), lawyers (103) and certified accountants (490). They were also some of the better jobs with median salaries of $189,263 for actuaries, $184,902 for lawyers and $98,229 for certified accountants. Other positions with large numbers of work permit holders, which also paid above the national median salary included junior accountants (174 jobs, $96,346), secondary school teachers, (153 jobs, $85,500) and registered nurses (490 jobs $67,598).
Some residents can't work because of Bermuda's Work Permit rules that stipulate Bermudians only in certain non-professional categories of employment. Unemployment benefits in Bermuda are far tighter to obtain in Bermuda compared to the USA, Canada, UK, etc. Also, non-Bermudians don't generally qualify.
See details in Non-Bermudians Working in Bermuda.
December 12, 2013.
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