Mar 2024
With its well-respected regulatory regime and highly regarded professional services industry, Bermuda continues to be an ideal location for the creation of an international philanthropic or charitable structure. Companies and high net worth families and individuals will find a range of tax efficient, flexible vehicles available for the establishment of charitable or philanthropic entities.
Bermuda has seen an uptick in interest in the incorporation of tax efficient philanthropic structures. The objects of a Bermuda entity can be crafted, with input from onshore counsel, to suit onshore tax planning requirements.
A Bermuda-based charity may take the form of:
- a trust
- an unincorporated association
- a company limited by guarantee or by shares
- a company established by way of a private act of the Bermuda legislature
It has been common practice in recent years to establish most philanthropic or charitable entities as companies limited by guarantee, as many people are more familiar with the corporate concept (e.g. directors, board meetings, annual general meetings).
Pursuant to the Companies Act 1981 (the “Companies Act”), a company, either limited by guarantee or shares, may be established with charitable objects.
Section 5 of the Companies Act provides that a company limited by guarantee may only be formed if “its purpose is to promote art, science, religion, charity, sport, education or any other social or useful purpose and its profits, if any, and other income is to be used in promoting its purposes and no dividends are to be paid to its members”. The memorandum of association of such a company would specify the charitable or philanthropic objects of the entity and any action outside the scope of such objects would be an ultra vires act by the company.
Companies limited by guarantee have several beneficial characteristics. Where bye-laws allow for straightforward amendments to governance, the company structure allows for flexibility and growth that can be advantageous for many philanthropic endeavours. Further, a company limited by guarantee can be incorporated relatively swiftly. This entity is particularly useful when dealing with foreign jurisdictions where trust structures are not recognised.
There are no restrictions on Bermuda entities transferring non-Bermuda situs assets out of the jurisdiction. Where assets are transferred to a foreign conduit of a Bermuda registered charity no taxes are payable in Bermuda. Some Bermuda charities do establish charitable companies in the United States and Canada but are careful to avoid a conduit relationship so that tax deductions are not jeopardised in the non‑Bermuda country.
Government regulation of international charities in Bermuda is minimal. Almost all regulation exists at the establishment or incorporation stage. For exclusively charitable entities the Charities Act 2014 imposes various ongoing obligations on charities and charity trustees. These legislative steps fortified Bermuda’s international reputation as a safe and responsible jurisdiction. Philanthropists and donors alike can feel secure in their decisions to either establish or support structures created under Bermuda law.