Key Takeaways
- Bermuda's tax neutrality and commercial standing can suit a non-resident company structured to trade goods between supplier and customer jurisdictions.
- Economic substance requirements apply to a Bermuda trading entity, so the structure must reflect genuine activity rather than a nominal presence.
- Transfer pricing, import duty, and VAT or GST exposure in the buyer and seller countries shape how margin is allocated and where tax actually arises.
- Counterparty due diligence and customs acceptance of a Bermuda invoice are practical factors that affect whether the structure works in day-to-day trade.
Using a Bermuda Company as an International Trading Company
A Bermuda international trading company can sit between a supplier in one country and a customer in another, buying and reselling goods or earning a fee for arranging the deal, while the goods themselves never touch the island. The vehicle is an exempted company incorporated under the Companies Act 1981, a class that cannot trade within the territory but may conduct international business without restriction. No special trading licence is needed where the goods move wholly outside the jurisdiction, and incorporation typically completes within one to three business days.
This structure attracts foreign owners chiefly for tax neutrality: no corporate income tax on trading profits (below the new large-group threshold), no VAT, and no withholding tax on outbound payments. That neutrality comes with real conditions and real weaknesses, the most serious being an almost non-existent tax treaty network and an economic substance regime that applies to trading activity in full.
This article sets out how the model works in practice, what substance and structuring it demands, and where the friction lies for a trader considering it. It is most relevant to a business owner or adviser already operating cross-border supply chains who is weighing an offshore principal or re-invoicing layer.
Why Bermuda Suits Cross-Border Goods Trading: Tax Neutrality and Commercial Standing
The appeal is straightforward. Trading margin accumulated in an exempted company is not reduced by corporate income tax, capital gains tax, or withholding tax on dividends, interest, and royalties paid out. The US–Bermuda Taxation Convention itself records that the territory "imposes no taxes whatsoever on income or business profits," which is why that treaty exists to exchange information rather than to relieve double taxation.
One caveat governs the headline. A 15% Corporate Income Tax took effect on 1 January 2025, but it reaches only entities within multinational groups whose global revenues meet or exceed EUR 750 million. A stand-alone SME trading company below that line stays outside the charge entirely, so confirm consolidated group revenue before relying on full neutrality.
Commercial standing is a genuine asset. The jurisdiction is a senior-tier offshore centre with a long record in insurance, reinsurance, and fund work, and counterparties generally treat it as credible and well-regulated.
The territory participates in the Common Reporting Standard. Financial account data on foreign-resident owners is reported annually to their home tax authorities, so expect no financial confidentiality from the structure.
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Acting as Principal, Intermediary, or Re-Invoicing Hub Between Supplier and Customer Countries
An exempted company can take three commercial roles, none of which requires a Bermuda licence for physical goods:
- Principal: the company buys title from the supplier and resells to the end customer, holding title through the transit window and booking the full margin.
- Agent or commission: the company earns a fee from supplier or buyer without taking title, with the fee accruing free of local tax.
- Re-invoicing or back-to-back: the company issues its own marked-up invoice to the customer and separately settles the supplier's invoice, keeping the spread.
In a re-invoicing model, the buyer's customs and VAT authorities apply duty and tax to the price on the company's invoice, since that is the last commercial invoice in the chain. That figure must therefore be a true arm's-length value, not a number chosen for convenience.
Two cautions sit over all three roles. A letter-box hub with no real decision-making on the island risks failing the substance test outright. And because there is effectively no treaty to reduce source-country withholding, a payer that taxes service fees at source (Brazil, India, and others do) will withhold on the fee or commission paid to the company, which absorbs that withholding as an unrecoverable cost. This is the single largest tax leakage in the model.
Economic Substance Requirements for a Bermuda Trading Entity
The Economic Substance Act 2018, operative from 31 December 2018, brings every Bermuda company carrying on a "relevant activity" into scope. A trading entity that procures goods from third parties and sells them on is most likely a Distribution and Service Centre business, one of the nine specified activities, which triggers the full substance test rather than the lighter test for pure holding companies.
There is no de minimis exception. Any gross revenue from the relevant activity, however small, puts the entity in scope.
To comply, the core income-generating activities must actually be conducted on the island. For a trading entity these typically include:
- Deciding what goods to source, transport, and store
- Managing inventory and related risk
- Making sourcing decisions
- Managing customer relationships
The Registrar of Companies administers the regime and assesses adequacy on a proportionate basis, judged against the nature, scale, and complexity of each business. Affected entities file an annual Economic Substance Declaration; failure escalates from financial penalties to notification of the owner's home tax authority and, ultimately, strike-off.
One exit exists. An entity that can prove it is tax-resident outside the territory falls out of scope as a "non-resident entity," but this depends on genuine foreign tax residence, not merely on where the owner lives.
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Where the Goods Never Touch Bermuda: Managing Title, Logistics, and Incoterms
There is no commercial seaport on the island and no free-trade zone, so goods move directly between the supplier's and buyer's countries. This is normal for the model, not a workaround.
The drafting that matters most is the moment of title transfer between the company and its counterparties, because it helps fix where a taxable supply occurs for VAT and GST in the buyer's jurisdiction. The chosen Incoterm then allocates risk and cost.
| Configuration | Effect on the Bermuda entity |
|---|---|
| EXW / FCA at supplier's premises | Entity bears freight cost and risk from origin |
| DAP to buyer's country | Entity may act as, or appoint, importer of record |
| DDP to buyer's country | Greatest import-duty and local-tax exposure for the entity |
| FOB / CIF | Hybrid risk splits |
The most tax-efficient pattern is usually to buy on EXW or FCA and sell on DAP, leaving the import-duty liability with the buyer. The reason to avoid being named importer of record is concrete: doing so in the buyer's country can create a VAT registration obligation and a taxable presence there. Since the company holds no warehouse, freight forwarding and customs brokerage have to run through appointed agents at origin and destination, with ICC Incoterms 2020 and the contract's governing law doing the legal work.
Trade Finance, Letters of Credit, and Working Capital for Goods Flows
This is where the model strains. The domestic banking market is small, served principally by Butterfield Bank, Clarien Bank, and HSBC Bermuda, all of which work with the international business sector but carry limited depth in commodity trade finance compared with Hong Kong, Singapore, London, or Geneva.
Documentary letters of credit and bank guarantees are available in principle. A Bermuda entity can be named beneficiary on an LC issued by a buyer's bank and can open a back-to-back LC in favour of its supplier, provided its own bank holds adequate issuance limits and the right correspondent relationships.
Correspondent banking is the friction to plan around. US dollar clearing runs through a US correspondent, and USD transactions touching high-risk commodity sectors or sanctions-adjacent counterparties draw enhanced due diligence. Major payment processors generally accept the jurisdiction, but high-volume, multi-currency goods traders making third-party supplier payments should expect onboarding scrutiny.
There is no export-credit guarantee scheme, no state trade-finance institution, and no commodity trading ecosystem on the island. For capital-intensive commodity flows, the banking infrastructure is a meaningful constraint, and shareholder loans or international bank lines booked through other centres often fill the gap.
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Transfer Pricing and Margin Allocation in a Tax-Neutral Trading Structure
There is no domestic transfer pricing law for sub-threshold trading companies and no local arm's-length rule dictating the margin the entity must earn. The risk does not disappear, though; it moves entirely to the counterparty jurisdictions.
Two pressures dominate. The supplier's country may deny a deduction or re-characterise margin if the sale price to the company is not arm's-length. The buyer's country may challenge the purchase price as artificially inflated, especially where it has CFC rules or anti-avoidance provisions.
OECD Transfer Pricing Guidelines apply in most supplier and buyer states, so the entity has to show genuine functions, assets, and risks that justify its margin under a FAR analysis. The most direct threat to the whole structure is CFC attribution in the owner's home country, where UK CFC rules, German Hinzurechnungsbesteuerung, US GILTI, or Australian CFC rules can tax the company's profits in the owner's hands regardless of the local zero rate.
Even without a domestic requirement, maintain contemporaneous documentation aligned with OECD BEPS Action 13 (Master File and Local File) to defend the margin where it can actually be challenged.
Import Duties, VAT, and GST Exposure in the Buyer and Seller Jurisdictions
The island levies no VAT, no GST, and no import duty on goods traded internationally that never enter it. The tax events occur elsewhere.
In the buyer's country, import duty is assessed on the transaction value under the WTO Customs Valuation Agreement, meaning the price paid to the Bermuda entity, not the supplier's cost. VAT or GST then applies to that customs value plus duty. If the entity is importer of record there, it may have to register for VAT, charge and remit it, and file returns, which is a direct compliance burden and a possible taxable establishment.
On the supplier side, exports are usually zero-rated for VAT, so paying the supplier generally creates no VAT obligation for the company in that country, though documentation rules still bite in places such as India.
Two further points deserve attention:
- Origin, not invoice: anti-dumping and countervailing duties follow the origin of the goods. Inserting a Bermuda invoice does not change origin or escape those duties.
- Valuation scrutiny: a re-invoicing hub invites buyer-country customs to test whether the declared value is inflated and to substitute another value, which is managed only through genuine arm's-length pricing and solid records.
Reputation, Counterparty Due Diligence, and Customs Acceptance of a Bermuda Invoice
The compliance markers are favourable. The territory was removed from the EU list of non-cooperative jurisdictions in May 2019 and does not appear on the current EU Annex I list. It sits on neither the FATF blacklist nor the grey list, and the OECD Global Forum rates it "Largely Compliant," the second-highest grade.
Perception is a different matter. The jurisdiction is associated with insurance, reinsurance, and funds rather than goods trading, so a Bermuda invoice in a commodity chain can prompt due diligence questions from sophisticated buyers, particularly listed companies running supply-chain compliance programmes. This is reputational friction, not a legal bar.
Onboarding can be slow. Banks and large counterparties will ask for the certificate of incorporation, memorandum of association, registers of directors and shareholders with UBO information, and evidence of substance; beneficial ownership is reported to government but not published. Customs authorities in buyer countries accept the territory's commercial invoices as valid documents, provided they meet local import requirements, and the entity must run its own OFAC screening when transacting in USD or through US banks.
Practical Limitations and Workarounds for Bermuda Goods Traders
Several constraints can outweigh the tax neutrality, and they should be priced in before incorporating.
- No treaty network. With effectively one double tax agreement, source-country withholding on fees and commissions goes unrelieved. Where flows touch high-withholding states (Brazil 15 to 25%, India 10 to 20%, China 10%), the net margin shrinks, and Singapore or Ireland would actively reduce that drag.
- Substance cost. The Distribution and Service Centre classification requires real decision-making, staff, and premises on one of the world's most expensive islands. For modest volumes the running cost can be disproportionate.
- Banking depth. Structured trade finance such as pre-export finance, receivables discounting, and warehouse receipt financing is better supported in Singapore, Hong Kong, or London.
- CFC exposure. An owner resident in the UK, Germany, the US, Australia, or Japan may see the trading profit taxed at home, erasing the advantage. Local tax advice in the owner's country is essential first.
A common response is a dual-entity structure: an operating subsidiary in a treaty-rich, trade-friendly jurisdiction such as Singapore, the Netherlands, or the UAE handles trading and banking, while a Bermuda holding entity holds residual value. Groups nearing EUR 750 million in consolidated revenue must also factor the 15% CIT into the analysis.
Structuring Contracts, Currency, and Risk Across Multiple Jurisdictions
Trading contracts here most often run under English law or New York law, and Bermuda courts apply English common law principles. The island can serve as an arbitration seat, though London, Singapore, and Hong Kong are the more usual choices for trade disputes.
Currency handling is flexible. There are no exchange controls on exempted companies, and while the local dollar is pegged 1:1 to the USD, trading contracts are routinely written in USD, EUR, GBP, or any currency, with the functional currency set to match the dominant trading currency.
As principal, the entity is simultaneously party to a purchase contract, a sales contract, and freight and logistics contracts, each carrying its own jurisdictional risk. Back-to-back contracts should be drafted so the payment obligation to the supplier is timed to receipt of payment from the buyer, which protects working capital. The entity also remains legally responsible for export controls, import licences, and dual-use rules in each relevant country, even though the island imposes none on goods it never handles.
One structural advantage is real. As the world's third-largest reinsurance market, the territory makes marine cargo, trade credit, and political risk insurance readily available, which directly supports a trader managing goods-in-transit and counterparty risk.
Conclusion
For a sub-threshold trader, a Bermuda company delivers genuine tax neutrality and strong reputational standing, but only where real decision-making is sited on the island and the supply chain avoids high source-country withholding. The combination of no usable treaty network, full economic substance for distribution activity, and thin commodity banking means the model rewards margin accumulation far more than capital-intensive physical trading.
The decisive question to settle before incorporating is whether the owner's home country applies CFC rules; if it does, the profit may be taxed there anyway, and a treaty-rich operating jurisdiction paired with a Bermuda holding layer will often serve better than a single trading entity on the island.
How Expanship Can Help Your Business in Bermuda
Expanship sets up and runs Bermuda exempted companies used as international trading vehicles, from incorporation and substance planning through to annual filings, and supports the wider needs of a foreign-owned entity established there.
- Incorporation of your exempted company under the Companies Act 1981
- Registered agent and registered office on the island
- Economic substance assessment, classification, and tax registration support
- Ongoing compliance, including annual returns and the Economic Substance Declaration
- Accounting and bookkeeping aligned to OECD documentation standards
- Introductions to local banks and payment providers
To discuss whether this structure fits your trading flows, contact Expanship Bermuda.
Frequently Asked Questions
A stand-alone trading company generally pays no corporate income tax on its trading profit. The 15% Corporate Income Tax effective 1 January 2025 reaches only entities in multinational groups with global revenues of at least EUR 750 million, so confirm consolidated group revenue before relying on full neutrality.
No. There is no commercial seaport or free-trade zone, and goods move directly between the supplier's and buyer's countries, which is the normal mode of operation. Freight, warehousing, and customs brokerage are handled by appointed agents at origin and destination.
A company sourcing and reselling goods is typically a Distribution and Service Centre business, which triggers the full substance test under the Economic Substance Act 2018. Sourcing decisions, inventory risk management, and customer relationship management must be directed from the island, with an annual Economic Substance Declaration filed to the Registrar of Companies.
With effectively one double tax agreement, there is no treaty to reduce withholding tax that supplier or buyer countries impose at source on fees, commissions, or trade-related payments. For flows touching states such as Brazil, India, or China, that withholding is absorbed as an unrecoverable cost and reduces the margin retained.
Likely yes, in the buyer's country rather than on the island. Import duty applies to the transaction value on the Bermuda invoice, and if the entity acts as importer of record it may have to register for and remit VAT or GST there, creating a local compliance obligation.
It is generally credible, since the jurisdiction is off the EU and FATF lists and rated "Largely Compliant" by the OECD Global Forum. Expect onboarding due diligence, however, because the territory is associated with insurance and funds rather than goods trading, and commodity trade finance depth at local banks is limited.
Legal Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change, and the application of laws can vary widely based on specific facts and circumstances.
Readers should not act upon this information without seeking professional counsel tailored to their individual situation. Expanship and its authors disclaim any liability for actions taken or not taken based on the content of this article.
For specific advice regarding your business setup, compliance requirements, or any legal matters, please consult with qualified legal and tax professionals in the relevant jurisdiction.
