When I last wrote in April, we were entering the uncharted waters of lockdowns. Now many of us are beginning to re-emerge ready to reset and rebuild, though it will surely be a long road. In the meantime, we have been keeping busy in Private Client and Trust in Bermuda. Like many of our clients and the onshore firms we work with, our working environments have successfully become virtualised. The new media for interacting with our clients is functioning well, although, in our world of close relationships, virtual meetings are not ideal. We are all looking forward to seeing our fellow advisors and clients again soon.
Here are a few of the current hot topics in the Bermuda private client arena:
Bermuda has approximately 15,000 foreign-owned companies, many of which are now subject to the regime of the Economic Substance Act 2018. Notwithstanding the manner of the imposition of this legislation by Brussels, our legislators, the Registrar of Companies, the private sector and, most of all, our clients should be commended for their Herculean effort to meet this new challenge, for which the first filings were due (for some entities) on 30 June. This is a very recent example of the resilience of our business community pulling together.
In the private client and trusts context many of our client structures were impacted in three important ways. First, private trust companies (PTCs) were early on excluded from scope. PTCs generally do not carry on business for profit (or core income generating activities, to use the parlance of the Act) so income is not typically that of the PTC, but rather the trust(s) of which it acts as trustee.
Secondly, in Bermuda it is now clear that carrying on business as a holding entity is only in scope if the entity is a pure equity holding entity (PEHE). Thus if a Bermuda company owns a diversified portfolio of assets including debt instruments, bonds or real estate, then it will not be a PEHE and consequently is out of scope.
Thirdly, the ‘relevant activity’ of financing has proved sticky for some private entities. Currently, the legislation catches any entity which provides financing for which it receives any consideration. We have seen a number of client structures with intra group loans which carry interest rates for various reasons. This can mean that a private client company can be caught by substance requirements. We will see if the law will be amended to exclude what often are essentially private arrangements between family entities.
Finally, Bermuda is increasingly being promoted as a jurisdiction to establish family offices, and we have seen some families adopting a physical presence on the island for their key staff and advisors, effectively preempting economic substance requirements regardless of whether or not they are in scope. With an excellent reputation, first class infrastructure and prime location, this will be an interesting space to watch. If you or any of your clients have any questions on establishing a footprint in Bermuda, please let us know.