Country update Bermuda: Securities and banking

This country update was originally published by Thomson Reuters Regulatory Intelligence.

Bermuda is an overseas territory of the United Kingdom and its legal system is based on English common law as altered or supplemented by local legislation.

Overview of financial services business regulation

Establishment and changes of ownership

The Companies Act 1981, as amended (the "Companies Act") provides for the establishment of companies, including those which will  carry on business mainly outside of Bermuda. The types of companies are covered in more detail below.

A Bermuda exempted limited liability company may also be formed for any lawful business, purpose or activity in accordance with the Limited Liability Company Act 2016, as amended (the "LLC Act") of Bermuda.

Under the Partnership Act 1902, as amended (the "Partnership Act"), for a partnership to exist there must be a business carried on by two or more persons in common with a view to profit. There are two different kinds of partnership in Bermuda, being a general partnership and a limited partnership (an exempted partnership can be of either type).

A limited partnership is subject to both the Partnership Act and the Limited Partnership Act 1883 (the "Limited Partnership Act").

An exempted partnership (an "Exempted Partnership") is subject to the Bermuda Partnership Act and the Exempted Partnerships Act (as amended) (and if it is a limited partnership, the Limited Partnership Act). Such a Partnership may only conduct business outside Bermuda from a principal place of business within Bermuda.

When forming an entity, the consent of the Minister of Finance (the "Minister") is required in respect of entities which engage in so called restricted activities, e.g., investment business, trust business, mutual fund business, deposit taking and money services, and initial coin offerings. The Minister will require information that demonstrates that the entity has adequate knowledge and experience available to it.

Additionally, certain information regarding the beneficial owners of a Bermuda company that falls within the scope of the Companies Act must be filed with the Bermuda Monetary Authority ("BMA"). The BMA must be notified of any changes to such information within 14 days of the company becoming aware of or is notified of a change. Generally, the ownership and any changes in ownership of any company incorporated in Bermuda must be approved by the Bermuda Monetary Authority (BMA). Any issue or transfer of shares in exempted companies or to non residents for exchange control purposes must receive prior approval under the Exchange Control Act 1972 (the EC Act) and related regulations unless a general permission has been granted, for example, where the owner is a company listed in an approved exchange. The issue of any equity securities by a Bermudian company and the transfer of those securities are generally also subject to BMA approval but an investment fund will typically seek from the BMA blanket permission for the issue and transfer of its shares.

General permits to carry on business in or from within Bermuda

There are essentially three types of incorporated entity that carry on financial services business in or from within Bermuda, namely local companies (limited liability companies that are subject to certain minimum Bermudian ownership/control requirements), exempted companies (limited liability companies incorporated in Bermuda that are exempt from Bermudian ownership requirements) and overseas companies.

In addition to any licences that may be required under specific legislation (as to which, see below), overseas companies (other than certain mutual funds) require a permit under the Companies Act from the Minister to carry on any business (including financial services business) in or from within Bermuda.

Insurance business

The carrying on of insurance business in or from within Bermuda is regulated by the Insurance Act 1978, as amended (the "Insurance Act") and related regulations. The insurance department of the BMA is responsible for the supervision and regulation of Bermuda's insurance companies and for the licensing of insurance brokers, agents, managers and sales persons under the Insurance Act.

The BMA is a charter member of the International Association of Insurance Supervisors (IAIS) and its insurance regulatory framework is consistent with the framework for risk-based insurance supervision set out by the IAIS.

In addition, due in large part to the efforts of the BMA, Bermuda has achieved full equivalence under Europe's Solvency II regime applicable to commercial insurance companies registered in Bermuda (i.e. Classes 3A, 3B, 4, C, D and E), which regime came into effect on January 1, 2016.

Any person proposing to carry on insurance business or business as an insurance manager, broker, agent or salesman in or from within Bermuda is required to be registered under the Insurance Act, including local companies, exempted companies, non-resident insurance undertakings, and overseas permit companies.

A non-life insurer may be registered as:

• A Class 1 insurer (a single-parent captive writing risks of its parent and affiliate only);
• A Class 2 insurer (multi-owner captive general insurance companies, owned by unrelated entities, underwriting only the risks of the owners and affiliates of the owners and/or risks related to or arising out of the business or operations of the owners and affiliates.);
• A Class 3 insurer (Captive insurers not included in Class 1, 2, and not included in commercial insurers Class 3A, 3B or 4 where more than 20% of net premiums written is from risks that are unrelated to the business of the owners. This includes 1) reinsurers writing third-party business, 2) insurers writing direct policies with third-party individuals, 3) single-parent, group or association agency, or 4) joint venture captives.);
• A Class 3A insurer (Small commercial insurers whose percentage of unrelated business represents 50% or more of net premiums written or net loss and loss expense provisions and where the unrelated business net premiums are less than $50 million);
• A Class 3B insurer (large commercial insurers whose percentage of unrelated business represents 50% or more of net premiums written or net loss and loss expense provisions and where the unrelated business net premiums are more than $50 million);
• A Class 4 insurer (large commercial insurers underwriting direct excess liability insurance and/or property catastrophe reinsurance risks);
• Special Purpose Insurers (SPI) (licensed as either restricted or unrestricted. A restricted SPI may conduct special purpose business with specific cedents approved by the BMA. While unrestricted SPIs may transact with any cedent if the cedent is rated A- or higher, in terms of its financial strength, by A.M. Best or an equivalent rating from a rating agency recognised by the BMA).
• Collateralised Insurer (an insurer that carries on special purpose business but is not a "Special Purpose Insurer". Collateralised Insurers write business on a fully collateralised or fully funded basis).
• A Class IIGB Insurer (an insurer which intends to carry on general business in an innovative manner, but outside of the regulatory "sandbox" approach used for Class IGB ; and
• Class IGB insurer: A body corporate is registrable as a Class IGB insurer where that body corporate intends at the time of its application for registration, to carry on general business in an innovative and experimental manner (sandbox stage).

A life insurer may be registered as a long-term insurer. Long-term business insurers fall into one of five classes, depending upon the total sums insured or amounts or annuity per annum.

• Class A Insurer: A single-parent long-term captive insurance company underwriting only the long-term business risks of the owners of the insurance company and/or affiliates of the owners Class B Insurer: Multi-owner long-term captive insurance company, owned by unrelated entities, underwriting only the long-term business risks of the owners and affiliates of the owners and/or risks related to or arising out of the business or operations of their owners and affiliates.
• Class C: where that body corporate has total assets of less than $250 million and is not registrable as a Class A, Class B, or Class C insurer.
• Class D: where that body corporate has total assets of $250 million or more, but less than $500 million and is not registrable as a
• Class A, Class B or Class C insurer.
• Class E insurer: where that body corporate has total assets of more than $500 million and is not registrable as a Class A, Class B, Class C or Class D insurer. Class IILT insurer: where that body corporate intends, at the time of its application for registration, to carry on long-term business in an innovative manner, but outside of the regulatory 'sandbox' approach used for Class ILT.
• Class ILT insurer: where that body corporate intends at the time of its application for registration, to carry on long-term business in an innovative and experimental manner (sandbox stage).  

Important requirements of the Insurance Act for registered non-life insurers include the following:

• maintenance of minimum capital and solvency thresholds;
• maintenance of a principal office in Bermuda;
• maintenance of a head office in Bermuda for Classes 3A, IIGB 3B, 4, IILT, C, D and E and collateralised insurers;
• appointment and maintenance of a principal representative in Bermuda (i.e., a company or individual resident in Bermuda who represents the insurer);
• preparation of a declaration of compliance to the BMA on an annual basis confirming whether or not the insurer meets criteria for registration;
• appointment of an auditor approved by the BMA; and
• preparation of statutory financial statements for each financial year, which must be annually audited and filed with the BMA.

Regulation and supervision of insurers in Bermuda is calibrated by reference to the class of insurer involved — this is known as a "risk based approach". Bermuda therefore imposes higher standards on its Class 4 and Class 3B insurers than its Class 1 insurers.

The Class 4s have the highest capital requirements and more stringent solvency requirements and must disclose ceded reinsurance.

There are also additional financial reporting requirements tied to loss of capital and restrictions on large dividend distributions.

Banking and deposit business

The carrying on of banking and deposit business in or from within Bermuda is regulated by the Banks and Deposit Companies Act 1999, as amended (the "Banks and Deposit Act").

Any person proposing to carry on a deposit-taking business in or from within Bermuda must be a company incorporated in Bermuda and be licensed under the Banks and Deposit Act unless that person is exempt (i.e., the Government of Bermuda, the BMA, a public authority, licensed credit unions, or licensed insurers or investment businesses which take deposits in the course of their licenced business). There are three classes of licence, each of which requires the licensee to provide certain minimum services to the public in Bermuda.

They are:

• a banking licence (required #to offer certain minimum services to the public in Bermuda, including Bermuda dollar current accounts; payment of cheques, drafts and orders; Bermuda dollar savings and deposit accounts; overdrafts and loan facilities in Bermuda dollars; Bermuda dollar mortgage loans on real property in Bermuda, foreign exchange services; and credit and debit card facilities (collectively, "high street" services);
• a restricted banking licence (not required to offer all high street services but can only provide services to digital asset businesses and digital issuer licensed or authorised by the BMA and casinos licensed under the Casino Gaming Act 2014 as well as persons that not ordinarily resident, incorporated, registered or formed in Bermuda; and
• a deposit company licence, which does not authorise the licensee to accept deposits of money on current account or otherwise on terms which require repayment on demand. Some of the vital requirements under the Banks and Deposit Act for banks and deposit companies are as follows:
• minimum initial net assets of not less than (in the case of a bank) $10 million, (in the case of a restricted bank) $5 million and (in the case of a deposit company) $1 million;
• provision of quarterly funding and prudential information reports to the BMA;
• maintenance of minimum capital ratios of which comply with Basel III regulatory minimum requirements;
• reporting of large exposures to the BMA (i.e. a risk of incurring a loss in excess of 10 percent of capital) and, where the exposure risk is comprised of a loss that may exceed 25 percent of capital, the prior consent of the BMA must be obtained; and
• preparation of financial statements for each financial year, which must be audited (by an auditor approved by the BMA) and filed with the BMA annually.

The Basel III regime, a comprehensive set of reform measures designed for the banking sector, became effective in Bermuda on January 1, 2015. The BMA's reporting framework for banks and deposit companies was revised in 2017 based on the Basel III framework. There are also other non-Basel-related reporting requirements that are either required for all licensees or unique to a licensee dependent on their risk profiles. Trust business 

The carrying on of trust business in or from within Bermuda is regulated by the Trusts (Regulation of Trust Business) Act 2001, as amended (the "Trusts Act"). Any person that proposes to carry on trust business in or from within Bermuda is required to be licensed under the Trusts Act unless that person is exempt from the requirement to be licensed pursuant to an exemption order made by the Minister.

There are two types of trust licences:

• an unlimited trust licence, which authorises the licensee to carry on trust business and to solicit business from the public generally. This type of licence may only be granted to a company; and
• a limited trust licence, which does not allow the licensee to act as sole trustee and restricts it to holding trust assets not exceeding $30 million in the aggregate unless the BMA agrees to a higher aggregate amount. This is available for a partnership or an individual.

Important requirements of the Trusts Act for a person carrying on trust business include the following:

• filing with the BMA of (in the case of company) audited financial information and (in any other case) annual accounts, not later than four months after the end of each financial year and certifying to the BMA annually that it has complied with all requirements of the
  Trusts Act or indicating any failure to do so; and
• maintenance of minimum net assets of (in the case of a company) $250,000 and (in any other case) $25,000.

Investment business

The carrying on of investment business in or from within Bermuda is regulated by the Investment Business Act 2003, as amended (the "Investment Act"). Any person that proposes to carry on investment business in or from within Bermuda is required to be licensed or registered under the Investment Business Act unless that person has been designated as non-registerable.

There are two types of licence:

• A "standard" licence, under which a person may carry on one or more investment activities (subject to any limitations imposed by the BMA). The licence will specify which activities may be carried out; or
• A "test" licence, under which a person may carry on one or more investment activities for a defined period and subject to any restrictions imposed by the BMA).

In addition to licensed persons, the framework also accommodates two classes of registered persons, being:

• Class A Registered Person: a Bermuda formed or incorporated entity that does not maintain a place of business in Bermuda and is licensed, authorised or registered to carry on investment business by a recognised regulator in one or more foreign jurisdiction. Each Class A Registered Person is required to appoint an individual as its senior representative, to serve as a point of contact in Bermuda;
• Class B Registered Person: for persons specified by the Minister in the Investment Business (Class B Registered Persons) Order 2022. This includes those that provide services exclusively to institutional or sophisticated private investors or those that provide services privately to 20 or fewer clients and any time and do not solicit investment from the public.

Important requirements of the Investment Business Act for licensed persons carrying on investment business include the following:

• maintenance of adequate systems of control and records to facilitate compliance with the Investment Business Act;
• maintenance of clients' assets separately from its own;
• preparation of annual financial statements and accounts; and
• filing with the BMA of (in the case of company) audited financial information and (in any other case) its annual accounts, not later
  than four months after the end of its financial year.

Funds business

The operation of an investment fund or overseas investment fund (as defined) in or from Bermuda is regulated by the Investment Funds Act 2006, as amended (the "Investment Funds Act"). The Investment Funds Act repealed the Bermuda Monetary Authority (Collective Investment Scheme Classification) Regulations 1998. Under transitional provisions in the Investment Funds Act, funds approved under the CIS Regulations are taken to be authorised under the Investment Funds Act.

The Investment Funds Act was amended in late 2010 to include fund auditors as an additional service provider subject to regulation as well as to introduce additional rules for fund administrators, in particular, change of control rules requiring prior approval on any proposed change of control and the requirement that fund administration business be conducted by at least two individuals ("four eyes" criterion), which following subsequent amendments to the Investment Funds Act are now contained in the Fund Administration Provider Business Act 2019.

Any person that proposes to operate certain types of funds (i.e., a unit trust fund, a mutual fund company or a partnership fund) must be registered or authorised under the Investment Funds Act.

There are four classes of authorised fund:

(1) an institutional fund;
(2) an administered fund;
(3) a specified jurisdiction fund; and
(4) a standard fund.

Exemptions from requirements may be obtained by application to the BMA.

There are four types of funds which may apply to be registered with the BMA, as an alternative to authorisation:

(1) Private Fund (funds that have a maximum of 20 investors with no promotion to the general public); 
(2) Professional Closed Fund (closed-ended funds, such as private equity funds meeting certain conditions);
(3) Professional Class A Fund (funds only open to qualified participants that have appointed a suitable investment manager and meets certain other conditions); or
(4) Professional Class B Fund funds only open to qualified participants that have appointed a suitable investment manager, auditor, administrator and custodian/prime broker and meet certain other conditions).

A registered fund generally has reduced reporting requirements as compared to an authorised fund.

A fund that does not qualify for registration will need to apply for authorisation under the Investment Funds Act.

Important requirements of the Investment Funds Act for authorised funds include the following:

• preparation of annual audited financial statements;
• appointment of an investment manager, an auditor and a fund administrator;
• ensuring that its property is entrusted to a custodian;
• compliance with the requirements of the fund rules and fund prospectus rules; and
• ensuring that its constitution contains certain provisions prescribed by the Investment Funds Act.

Money service business

The Money Service Business Act 2016, as amended (the "Money Services Business Act") regulates entities that wish to provide money transmission, bureau de change or check cashing services issuing, selling or redeeming drafts, money orders or traveller's cheques for cash, and payment services business.

A person shall not carry on money service business in or from within Bermuda, or carry on money service business as an agent for a person carrying on money service business in or from within Bermuda, unless such a person has obtained a licence from the BMA.

The Money Services Business Act is designed to apply only to those businesses specifically established to provide such money, services. They do not apply to businesses that provide similar services on an ancillary basis without charge, such as hotels cashing guests' personal checks or a retailer cashing a check for a customer. The Money Services Business Act also does not apply to BMA licensed banks and deposit companies.

The BMA has proposed to abolish the Money Service Business Act and replace it with new, broader, payment service provider legislation.

Corporate service provider business

A person must hold a licence issued by the BMA pursuant to the Corporate Service Provider Business Act 2012, as amended (the "Corporate Service Provider Act") in order to carry on corporate service provider business in or from within Bermuda. "Corporate service provider business" is defined in the Corporate Service Provider Act and includes:

• acting as a company formation agent, or agent for the establishment of a partnership;
• providing nominee services, including (without limitation) acting as or providing nominee shareholders;
• providing administrative and secretarial services to companies or partnerships;
• the performance of functions in the capacity of resident representative under the Companies Act 1981, Exempted Partnerships Act
  1992 and the Overseas Partnerships Act 1995; and
• providing any additional corporate or administrative services as may be specified in regulations.

The Corporate Service Providers Act includes a requirement for licensed undertakings to provide a Certificate of Compliance to the BMA annually, within four months from the end of its financial year.

Digital assets business

Bermuda has enacted the following key pieces of legislation relating to the carrying out of digital asset business:

• Digital Asset Business Act 2018, as amended ("DABA"), which provides for the licensing and supervision of digital asset business activities in Bermuda, along with associated codes of practice, statement of principles, a formal process to seek a license exemption application under DABA, client disclosure rules, cybersecurity rules, accounts rules and sector-specific anti-money laundering and anti-terrorist financing guidelines, specifically tailored to the digital asset business sector;
• the Digital Asset Issuance Act 2020, which regulates the conduct of digital asset issuances, in a similar manner to initial public offerings of shares;
• amendments to the Banks and Deposit Act, to provide for a special class of banking licence to promote the establishment of banking institutions offering services to the Fintech sector; and
• amendments to the Insurance Act, to create a special class of insurance regulatory sandbox licence to be issued by the BMA to innovative insurers, insurance managers and other insurance intermediaries, as well as the creation of a new class of innovative insurance company that companies can apply to register as, or mitigate from the sandbox into.

Under DABA, the definition of a "digital asset" is very broadly defined. The term covers anything that exists in binary format that comes
with the right to use it, and includes a digital representation of value that is:

• used as a medium of exchange, unit of account or store of value and is not legal tender, whether or not determined in legal tender;
• intended to represent assets such as debt and equity in the issuer;
• otherwise intended to represent any assets or rights associated with such assets; or
• intended to provide access to an application, service or product by means of distributed ledger technology.

Under DABA, the provision of the following activities to the general public as a business are captured under the definition of a "digital asset business":

• issuing, selling or redeeming virtual coins, tokens or any other form of digital asset;
• operating as a payment service provider business utilising digital assets;
• operating as a digital asset exchange;
• carrying on digital asset trust services;
• providing custodial wallet services;
• operating as a digital asset derivative exchange provider;
• operating as a digital asset services vendor; and
• operating as a digital asset lending or digital asset repurchase transactions service provider.

DABA provides for three classes of licences in order to offer a licensing framework that is suitable for the entire lifecycle of digital asset businesses:

(1) Class F licence, which is a full licence which enables the licensed undertaking to carry on one or more of the various categories of digital asset business for an indefinite period;

(2) Class M licence, which is a "modified" licence issued for a limited period (typically 12-18 months) to allow entities to transition from testing a proof-of-concept under Class T licence (described below) to becoming a (3) Class F licensee through the use of a regulatory "sandbox"; and

(3) Class T licence, which is a temporary testing licence used to evaluate a novel business model, a minimum viable product or service, or run a pilot in or from Bermuda.

Important requirements of DABA for digital asset businesses include the following:

• disclosing to a customer all material risks associated with its products, services and activities;
• filing an annual prudential return, cybersecurity report, audited financial statements and a certificate of compliance with DABA and Codes of Practice with the BMA within four months of the entity's financial year end;
• maintaining a surety bond, trust account or indemnity insurance for the benefit of their customers;
• appointing a senior representative who must maintain an office in Bermuda (except where such representative is approved by the BMA for purposes of a Class T licence); and
• maintaining a head office in Bermuda and to direct and manage their digital asset business from Bermuda (other than a Class T licensee).

Anti-money laundering/anti-terrorist financing

The Proceeds of a Crime Act 1997 and Proceeds of Crime (Anti-Money Laundering and Anti-Terrorist Financing) Regulations 2008, The Anti-Terrorism (Financial and Other Measures) Act 2004, the Financial Intelligence Agency Act 2007, the Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008 and the BMA's guidance notes on the Prevention of Money Laundering and Combating Terrorist Financing, and associated orders and regulations, as each is amended (together referred to as the "AML Legislation") comprise Bermuda's anti-money laundering regime.

Financial institutions that are subject to the AML Legislation (including the registered and licensed entities set out above) in Bermuda must ensure that they have systems and procedures in place to ensure that they comply with the AML Legislation, which include the following money laundering offences:

• concealing, converting, transferring or removing from Bermuda proceeds of criminal conduct;
• assisting another person to retain proceeds of criminal conduct;
• acquiring, possessing or using proceeds of criminal conduct;
• facilitating, raising, possessing or using funds for terrorism purposes;
• failure to disclose knowledge or suspicion of money laundering; and
• tipping off.

The current know-your-client standards include requiring regulated institutions to verify their clients', beneficial owners' (as defined), directors', authorised signatories' and persons purporting to act on behalf of the client's identity; designating a senior manager as compliance offer and designated a money laundering reporting officer to whom officers and employees of the organisation can report knowledge or suspicion of money laundering; implement training for staff to educate them about the AML Legislation, how to recognise money laundering and the compliance procedures maintained by the institution and record keeping requirements.

The Proceeds of Crime Regulations (Supervision and Enforcement) Act 2008 significantly expanded the list of supervised entities by requiring all businesses or funds that have been exempted or excluded under either the Investment Business Act or the Investment Funds Act to register with the BMA and provide details of the compliance officers appointed in accordance with anti-money laundering legislation.

Principal regulator

The BMA is the principal regulator responsible for the financial services sector in Bermuda. It is responsible for the licensing, supervision and regulation of financial institutions registered in Bermuda including those conducting insurance, banking, deposit-taking, trust, investment, funds and money service business in Bermuda. It is also the issuing authority for Bermuda's currency (the Bermuda dollar, which is pegged to the U.S. dollar), as well as providing a range of services and advice to the Bermuda government on company incorporations and on other financial and monetary matters.

The BMA is accountable to the Minister but it is otherwise independent of Government and under the direction of its own board of directors. The BMA is a member of the IAIS, the International Organisation of Securities Commissions and the Offshore Group of Banking Supervisors.

Common reporting standard

In order to address G20 concerns regarding the integrity of national tax systems, the Organisation for Economic Cooperation and Development ("OECD") was given a mandate to develop the Common Reporting Standard ("CRS"). In doing so, the OECD also produced Commentaries on the Model Competent Authority Agreement and the Common Reporting Standard.

CRS is intended to be the global standard for the automatic exchange of financial account information for tax purposes. Under the CRS, jurisdictions collect specified financial information from their custodial, banking, investment and certain insurance service providers (together, "Financial Institution(s)") and automatically exchange that information with partner jurisdictions on an annual basis.

CRS builds on the approach adopted by many jurisdictions for the implementation of the United States Foreign Account Tax Compliance Act ("FATCA").

The CRS outlines the financial account information to be reported and exchanged, the financial institutions that are required to report, the types of accounts covered (including those of individuals, trusts and corporate entities) and the due diligence procedures to be followed by financial institutions.

The primary legislation implementing the CRS in Bermuda is the International Cooperation (Tax Information Exchange Agreements) Act 2005 (the "TIE Act"). This provides the legislative framework for the exchange of information for tax purposes in relation to CRS.

The detailed provisions of the CRS are implemented by secondary legislation under the TIE Act, specifically the International Cooperation (Tax Information Exchange Agreements) Common Reporting Standard Regulation 2017, as amended (the "CRS Regulations"). The CRS Regulations, together with the TIE Act, being the "CRS Legislation".

The CRS Legislation brings into effect obligations requiring that certain Bermuda Financial Institutions have to report details of financial accounts to the Minister for exchange with other jurisdictions.

Economic substance

Bermuda is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting ("BEPS") and enacted the Economic Substance Act 2018, as amended and Economic Substance Regulations, as amended (together, the "ES Law").

The ES Law applies to any "relevant entity" that conducts any "relevant activity" in a "relevant financial period". A relevant entity that conducts a relevant activity must satisfy the economic substance requirements under the ES Law (the "ES Requirements") in relation to that relevant activity. If a relevant entity is carrying on more than one relevant activity, it must meet the ES Requirements with respect to each relevant activity that is carrying on. A relevant entity complies with the ES Requirements if:

(a) the relevant entity is managed and directed in Bermuda;
(b) core income generating activities ("CIGA") are undertaken in Bermuda with respect to the relevant activity;
(c) the relevant entity maintains adequate physical presence in Bermuda;
(d) there are adequate full-time employees in Bermuda with suitable qualifications; and
(e) there is adequate operating expenditure incurred in Bermuda in relation to the relevant activity.

A "relevant entity" which does not conduct "relevant activity" is required only to submit an annual declaration of that fact to the Registrar in Bermuda (the "Registrar"). An entity which is not a "relevant entity" is out of scope and has no obligations under the ES Law.

The ES Law applies to Bermuda "registered entities" being:

• companies incorporated or registered under the Companies Act, including a permit company and an overseas company;
• limited liability companies registered under the LLC Act;
• partnerships that are registered as exempted partnerships, exempted limited partnerships or overseas partnerships that have elected to have separate legal personality in accordance with section 4A of the Partnership Act.  

A "non-resident entity" is excluded from the definition of "registered entity" and is therefore not subject to the Bermuda ES Requirements. A "non-resident entity" means an entity which is resident for tax purposes in a jurisdiction outside Bermuda that is not in Annex 1 to the EU list of non-cooperative jurisdictions for tax purposes (the so-called "black list"). Non-resident entities will be required to make an annual declaration confirming whether or not they are conducting any relevant activities and, if they are, to provide sufficient evidence to the Registrar to support their tax residence in a jurisdiction outside Bermuda.

Each of the following activities, which have been identified by the OECD as "geographically mobile" is a "relevant activity" if carried on as a business under the ES Law:

• banking;
• insurance;
• fund management;
• financing and leasing;
• headquarters;
• shipping;
• distribution and service centre;
• intellectual property; and
• holding entity.

The registrar will consider that the above activities are being carried on as a business if the relevant entity earns gross income in respect of such activity during the relevant financial period. 

This guide gives a brief overview of important regulation that affects the financial services sector in Bermuda. It is a summary only, is not intended to be exhaustive and is no substitute for legal advice.