Bermuda: An Introduction to Offshore Trusts

Prominence of Bermuda for High Net Worth Individuals

There are many reasons for the prominence of Bermuda in the trusts sphere. Bermuda is white-listed by the European Union and complies with international regulatory standards on anti-money-laundering, anti-terrorist financing and information exchange under the US Foreign Account Tax Compliance Act, the Common Reporting Standard and various exchange of information treaties, meaning that doing business with Bermuda entities internationally is generally seamless.

Further, there is no personal income tax, capital gains tax, gift tax, inheritance tax, death tax or wealth tax in Bermuda making it an excellent base for international structures, since it generally offers tax neutrality.

Additionally, Bermuda has stable institutions, a world-class advisory services industry (due in part to the status of Bermuda as a global hub for the insurance sector) and, as a consequence of decades of serving some of the largest trusts in the world, gold-standard trusts legislation.

Bermuda trust law is very largely based on English trust law, but with certain enhancements that were advised upon by Bermuda’s leading trust practitioners, often in conjunction with English counsel.

Examples of the responsible, commercially minded innovation seen in the Bermuda trust law arena are many, but some of the most important are listed below:

• Purpose trusts: Bermuda is the first jurisdiction to have recognised purpose trusts, an important element of many commercial structures, particularly in the insurance industry for which Bermuda is renowned (similar legislation followed suit in many jurisdictions around the world).
• Rule against perpetuities: Bermuda is also one of the first jurisdictions in the world to disapply the rule against perpetuities, permitting trusts in Bermuda to (generally) endure indefinitely.
• Setting aside trustee mistakes: When the rule in Hastings Bass was unexpectedly overturned in the English courts, Bermuda acted quickly to enshrine a similar rule in legislation, giving the island’s courts the discretion to set aside certain mistakes made by trustees, including in circumstances where they make decisions in ignorance of negative tax implications.
• Reserved powers: Bermuda has world-leading reserved powers provisions, enabling certain powers to be retained by the settlor or granted to trusted third parties without causing the trust assets to form part of the settlor’s estate or invalidating the trust.
• Private trust companies: Bermuda has also led the way with private trust companies, which are very widely used and have a range of benefits.
• Variation of trusts: Another star of the Bermuda trust offering is Section 47 of the Trustee Act 1975. This permits the Bermuda courts to confer on the trustees of Bermuda trusts the power to effect “expedient” transactions which they would not otherwise have the power to effect, which can include the variation of beneficial interests.
• Firewall provisions: Bermuda law also protects Bermuda trusts from foreign-law attacks based on overseas forced heirship laws, communal property laws, bankruptcy/insolvency provisions and divorce laws, offering significant asset protection opportunities.

Recent Developments

Corporate income tax

A key development in the past 12 months has been the introduction of corporate income tax from 1 January 2025. In 2021 the OECD agreed on a global minimum tax framework (“Pillar Two”) that envisages foreign countries imposing tax in respect of revenue generated by non-resident entities in other jurisdictions in certain circumstances where the effective tax rate payable by the specified group is below 15%.

Accordingly, like many business-friendly jurisdictions with historically low rates of tax, Bermuda adopted the Corporate Income Tax Act 2023 (CITA). CITA imposes a new 15% income tax on certain Bermuda entities that are part of large multinational groups. Its provisions are complex, as most of the scoping provisions mirror the GloBE rules, themselves very technical, to ensure that the new tax is a covered tax under Pillar Two.

The headline point for private trust structures in Bermuda is that the vast majority will be clearly outside of the scope of the new tax. The key reason for this is that the new tax does not apply to any structure where the annual revenue in the consolidated financial statements of the “ultimate parent entity” of the structure in at least two of the four fiscal years immediately preceding the fiscal year in question is less than EUR750 million. Even by Bermuda standards, it is hard to find many private structures that generate that amount of revenue in a single year.

Economic Investment Residential Certificate

Bermuda remains committed to attracting high net worth individuals to the jurisdiction. Accordingly, it is constantly refining its Economic Investment Residential Certificate Policy, and it has made various changes to this policy over the past year.

Under this policy, a person who makes a BMD2.5 million investment in permitted investments in Bermuda and who fulfils certain other criteria can apply for the right to reside and seek work in Bermuda for an indefinite period.

There is an automatic right to be given a work permit to work for any business in which the person has invested. Further, the successful applicant’s spouse and children (who are either under 18 years of age, or under 25 years of age if in full-time education) can generally reside in Bermuda.

Family offices

Bermuda makes an excellent base for family offices, and the Bermuda government has announced that it is planning a suite of legislation to facilitate opening new family offices in Bermuda. The legislation has not yet been published, but further details of this initiative will be available soon. It promises to be a welcome development to encourage the establishment of family offices on the island in a streamlined, efficient manner.

Upcoming Developments

Beneficial ownership register

On 20 November 2024, the Bermuda government announced that it was consulting to establish a unified register for beneficial ownership of legal entities, aligning with international transparency standards. Bermuda is advancing efforts to enhance transparency and combat financial crimes through a proposed Central Register of Beneficial Ownership.

The Beneficial Ownership Bill 2025 has since been tabled with the intention of authorising transfer of the existing central register of company beneficial ownership information from the Bermuda Monetary Authority to the Companies Registrar. The Registrar will have powers to disclose the information to competent authorities and obliged entities to exercise their statutory functions. It will also be allowed to issue and update any necessary guidance.

The Bill makes no mention of access to registry information by parties claiming to have a “legitimate interest”. For the moment, access is purely restricted to official bodies and to entities regulated under the anti-money laundering regime. Information disclosed by the Registrar to any person must not be further disclosed except for a statutory purpose and then only with the Registrar’s consent.

Ethical investments

In terms of policy, an interesting development is that legislation on ethical investing looks likely, having been recommended to government by the Bermuda Trust Law Reform Committee.

The Trust Law Reform Committee has proposed amending the Bermuda Trustee Act 1975 to clarify the law and enable trustees to consider settlor and beneficiary views on ethical investments when making investment decisions.

At the current time there is a certain level of uncertainty in most trusts jurisdictions as to the ability of trustees with a general power of investment to exercise investment powers for reasons other than maximum financial return. The proposed new law, if enacted, would provide clarity on this.

First Published in Chambers and Partners