Real estate guide for international buyers
First published in The Royal Gazette, Legally Speaking, November 2018
While most Bermuda residences are reserved for Bermudians, international purchasers are important for Bermuda’s economy.
International purchasers are typically categorised into the following sectors:
- Individuals who do not possess Bermuda status.
- Individuals who do not possess Bermuda status but hold a permanent resident’s certificate.
- Bermuda exempted companies.
In each case, they are restricted to purchases of fractionals, tourist accommodation/hotel residences and higher-end residences/condominiums.
A higher-end residence is determined by its annual rental value, the Bermuda Government’s notional valuation designated to each residence. Currently, a freehold residence requires an ARV of $126,000 or higher for international purchase. For condominiums, the required ARV is $25,800 or higher. Bermuda real estate agents can provide details of higher-end residences and tourist accommodation/hotel residences available to international purchasers.
Up to two international purchase category residences can be owned by an individual international purchaser. Up to four tourist accommodation/hotel residence category residences can be owned by a Bermuda exempted company.
An international owner’s residence can be let or used for profit after grant of a government permit (this is separate to the licence described below). Permits are considered case-by-case, with each letting or renewal requiring a separate permit. However, tourist accommodation/hotel residences can be placed wholly or partly into the hotel’s own inventory and there may be concessionary incentives to encourage this, including remission of the licence fee described below.
An exempted company owner may additionally use its residence for accommodation of transient guests.
Prior to closing a purchase, an international purchaser should obtain a Bermuda Government licence. The non-refundable application fee is presently $1,625 and a licence fee of 8 per cent of the value of the residence is payable on issue of the licence. The licence fee is lower for permanent resident’s certificate holders and may be remitted by concession for some tourist accommodation/hotel residences.
Each licence is personal and transfer to, say, a spouse or a child requires a repeat procedure, paying only the application fee. By concession, the full 8 per cent licence fee is waived. However, a sliding scale transfer tax (stamp duty) of approximately 5 per cent to 6½ per cent applies, depending on open market value. There is a spousal transfer tax exemption after death of the named licensee.
In addition to a licence, an exempted company also requires consent to own land under the Companies Act and also perhaps to operate the residence as a business.
All real estate transfers are subject to a sliding scale transfer tax (stamp duty) of approximately 5 per cent to 6½ per cent, depending on open market value. The transfer tax is separate to and in addition to any licence fee payable. Typically, in a standard “gross” sale, stamp duty is shared equally by seller and purchaser.
A death tax is payable on the value of all Bermuda real estate and Bermuda assets, at a current top marginal rate of 20 per cent, however there is an exemption for assets passing to a surviving spouse or to charity.
Each year, a property tax, known as land tax, is payable by two instalments, calculated on a sliding scale based on ARV. For example, a residence with an ARV of $126,000 has a total annual tax of $17,226. A larger residence with an ARV of $318,000 has a total annual land tax of $107,460.
There is no Bermuda income tax or capital gains tax. Other nation’s taxes may apply to internationals.
After an owner’s death, executors should apply for a deferral certificate (Government’s fee is currently $250) and international beneficiaries should apply for a licence to acquire by devise paying only the application fee by way of concession.
Ordinarily, internationals may enter Bermuda under usual tourist preconditions, such as for up to 90 days and having a return air ticket, etc. International purchasers have other immigration options.
A multiple re-entry permit allows entry on a single-ticket basis, on any number of occasions with ability to remain for up to six months after each arrival. A re-entry permit is valid for five years and attracts a government fee of $550.
An indefinite residential certificate allows habitual residence by an owner and dependants. The government fee is $2,500, plus $2,500 for each dependant.
Government’s general policy appears to be to encourage individuals and exempted companies to own Bermuda residences, rather than for ownership through trusts or other forms of corporate ownership.
Invariably, laws and government policies change from time to time, usually for the better but not always so. Based on these changes, property values can rise or fall. This article speaks for the date on which it was written and so please check with a Bermuda attorney for up-to-date information. Please discuss the structure of any purchase with your own tax adviser.
This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer