How Reinsurers Help Hedge Funds Shelter Taxes

It’s not the warm waters that have attracted so many corporations to places like Bermuda, the British Virgin Islands and the Cayman Islands. It’s how these havens help keep profits from tax collectors. To prevent U.S. companies from shifting earnings offshore, Republicans in the U.S. House of Representatives are weighing a 20 percent tax on payments made to offshore affiliates. This could hit the advantages that make the locations so attractive to people and companies looking to protect their money from the Internal Revenue Service.

A single number: zero. That’s the tax rate for corporations and capital gains in Bermuda, the Cayman Islands and BVI. And the locales have created friendly rules to help foreign firms set up shop. Bermuda in the past few years has given partnerships the same rights as companies, helping boost the number of asset managers registered there. Partnerships can "pay dividends, distribute capital, open and maintain bank accounts and acquire assets and net liabilities in any currency,” a Deloitte LLP report says. They also have court systems that are able to process disputes among investors.