Bermuda has long been considered a reliable place to maintain corporate registration for U.S. companies with worldwide income. U.S. tax rates are higher for domestic corporations than foreign corporations, and this disparity can amount to billions of dollars in additional tax liability for U.S. multinationals that their foreign competitors do not have to absorb. Incorporating in Bermuda is a simple paper transaction of filing documents, paying fees and arranging for a mailbox. There is no requirement to hire a local registered agent or maintain an office in the country, and many companies that incorporate in Bermuda continue to operate a main office in the United States.
The United States currently taxes the worldwide income of multinational companies incorporated in any of the 50 states. Other countries choose to tax only the domestic income of its corporations while exempting income generated from outside the country; still others tax domestic income but only a percentage of foreign income. Bermuda is one of a handful of countries that has no corporate income tax at all, on either domestic income or foreign income. As explained in the 2002 "New York Times" article "U.S. Corporations Are Using Bermuda To Slash Tax Bills," this effectively means that when a company incorporates (or reincorporates) in Bermuda its "income from outside the United States becomes exempt from American taxes." The company would still have to pay corporate taxes on income from sales in the United States but all other sales worldwide would face no tax assessment at all.
However, in an effort to combat what it terms "inversion" (corporations reincorporating offshore while maintaining primary operations in the United States) Congress adopted new tax regulations under the "American Jobs Creation Act of 2004." The legislation applies certain tests to determine whether the reincorporation was done just to avoid U.S. taxation, and, if so, it taxes the company as if it were still incorporated in the United States. It is important to keep abreast of the legislative climate and future trends when making incorporation decisions with tax benefits in mind.
Bermuda's geographical location makes it a popular business centre and ideal place to incorporate. It is only 90 minutes by air from New York, with regular flights to other major U.S. cities. In fact, over two-thirds of the Fortune 100 companies maintain a presence on the island.
Bermuda is a self-governing territory of the United Kingdom and bases its legal system on its parent, with a final appeal to the Privy Council of the House of Lords in England. Its familiar political and social environment makes it a more attractive business climate than other less stable countries with governments and legal systems less comparable to those of the United States.
Bermuda has historically favoured collaboration between businesses and government. Government regulation of business activity is light as compared to other jurisdictions, making operations less burdensome.
When a decision is made to register a corporation doing business in the United States in a foreign country, the reputation of that country becomes important in maintaining the confidence of shareholders. Bermuda enjoys a superior reputation for a stable legal system and a regulatory environment that is conducive to business. The SEC and major U.S. stock exchanges deal with companies incorporated in Bermuda on regular basis without some of the shifts in investor confidence experienced by corporations registered elsewhere.
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