Bermuda Special Purpose Vehicle: A Guide for Non-Residents

Why Use a Bermuda Company as a Special Purpose VehicleCopy link to section

A Bermuda special purpose vehicle suits transactions that need a clean, ring-fenced entity isolated from a sponsor and free of local tax leakage on the way through. The standard wrapper is an exempted company under the Companies Act 1981, owned and controlled by non-Bermudians and conducting its business outside the island, with a Delaware-style alternative available under the Limited Liability Company Act 2016. These vehicles sit at the centre of securitisations, insurance-linked securities, and asset-leasing deals, and the jurisdiction is recognised as a stable offshore centre for them.

This article explains how a Bermuda SPV is structured, taxed, regulated for substance, and wound down, and where its limits bite. It is most relevant to sponsors, originators, fund managers, and their counsel structuring a single-purpose entity for capital markets, project finance, or risk transfer.

Core Strengths of Bermuda for Ring-Fenced, Single-Purpose VehiclesCopy link to section

A Bermuda SPV can be incorporated with restricted objects, limiting its activity to the specific transaction. That lets counterparties and rating agencies confirm the entity is doing nothing else, which is the foundation of any ring-fenced structure.

For a classic securitisation "orphan" vehicle, the shares are held by the trustee of a Bermuda purpose trust, separating the SPV from the sponsor group. The trust deed can bar the trustee from selling the shares, amalgamating, redomiciling, or amending the constitution, putting the structural lockdown into a single document. Bearer shares are not allowed, but nominee registration supports this isolation without anonymous ownership.

Enforcement is creditor-friendly. Other than foreclosure, secured creditors may enforce contractual rights under the security documents without applying to a court or liquidator in an insolvency, which removes a common source of friction.

A few features make the vehicle deliberately unencumbered:

• No capital adequacy rules, risk-retention requirements, or Basel III considerations apply to a typical securitisation entity.
• No asset class or receivable type is prescribed, and there is no restriction on acquiring foreign receivables.
• A typical securitisation SPV is not regulated and needs no licence, provided originators and servicers do not operate from within the island and no public offering is made there.

A charge over the SPV's assets is valid without local registration, but recording it in the Register of Charges is advisable to secure priority.

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Tax Neutrality and Its Relevance to SPV Cash Flows and Investor ReturnsCopy link to section

The core appeal for cash-flow vehicles is the absence of local leakage. There is no tax on profits, income, dividends, or capital gains, and no requirement to distribute or limit on accumulating profit.

Critically for an SPV, no withholding tax applies to any payment leaving the entity. Dividends, interest, royalties, and service fees paid to non-resident corporations pass through without a Bermuda-level deduction, so investor returns are not eroded at source by the issuer's jurisdiction. There is also no stamp duty for exempted companies registered as international businesses.

Exempted entities can obtain a Tax Assurance Certificate, under which the government guarantees no future Parliamentary tax until 31 March 2035.

The one carve-out a structurer must check is the 15% corporate income tax, effective from 2025, on businesses that form part of a multinational group with annual consolidated revenue of €750 million or more. A standalone single-transaction SPV usually sits well below that line, but where the vehicle belongs to a large group, the assurance certificate does not shield it.

Structuring for Bankruptcy-Remoteness and Asset Isolation Under Bermuda LawCopy link to section

Bankruptcy-remoteness here is built from contract and structure rather than a dedicated statute. The objective is simple: keep the SPV solvent at all times so that liabilities can never exceed assets and the entity cannot be petitioned into winding up.

The toolbox used in practice combines several elements:

1. A restricted objects clause confining the SPV to the transaction.
2. Purpose trust share ownership, creating the orphan structure that detaches the SPV from any sponsor.
3. Limited-recourse and non-petition covenants, all contractual and enforceable under local law.
4. Fixed or floating charges recorded on the Register of Charges.

Bermuda law recognises mortgages, fixed and floating charges, and pledges as security types. Share security over the SPV is typically taken under a Bermuda-law share charge, because the shares are treated as local property, while security over the underlying assets is granted to a note or security trustee for the secured parties.

The transaction documents themselves are usually governed by English or New York law. This split, local law for the share charge and a familiar foreign law for the deal mechanics, is standard market practice and supports the high credit ratings that a properly constructed asset pool can achieve. The supporting framework draws on the Companies Act 1981 and the Trusts (Special Provisions) Act 1989 for the purpose trust.

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Bermuda SPVs in Securitisation and Structured Finance TransactionsCopy link to section

Almost all securitisations using a Bermuda vehicle involve assets originated abroad, and the law neither prescribes asset classes nor restricts the acquisition of foreign receivables. The vehicle buys an asset with a predictable cash flow and issues notes or preference shares to capital-markets investors, with repayment secured on the asset.

Where the securities are not listed on the Bermuda Stock Exchange, no local public disclosure applies. There are no investor-class limits under local law either, so long as no public invitation is made on the island and investors are neither resident nor carrying on business there.

The jurisdiction's distinctive niche is insurance-linked securities. Here the SPV is incorporated and licensed as a Special Purpose Insurer, a fully-funded entity whose insurance risk is backed by at least equal-value collateral and which deals only with sophisticated participants. The island hosts the majority of catastrophe bond issuance and is the dominant location for fully-collateralised risk transfer.

The Bermuda Monetary Authority regulates this market and continues to extend it. A Parametric Special Purpose Insurer class is targeted for addition to the insurance regulations by the end of Q2 2026, with technical guidance consultation to follow by Q3 2026. The regulator is also examining how tokenisation might intersect with the ILS sector.

Using a Bermuda Vehicle for Joint Ventures and Project FinanceCopy link to section

Exempted companies and LLCs both serve as joint-venture holding entities and project-finance vehicles. The LLC Act 2016 allows flexible economic arrangements such as profit-sharing and waterfall provisions on a Delaware model, which makes it familiar to US participants and counsel.

For corporate JV structures, the Companies Act 1981 permits share classes with differential economic and voting rights, shareholder agreements enforceable locally, and deadlock mechanisms. Active markets exist for shipping, aircraft, and container-leasing deals, sectors that naturally rely on these structures. Segregated accounts companies under the Segregated Accounts Companies Act 2000 can further ring-fence assets into discrete cells of one legal entity, which helps multi-tranche or multi-project arrangements.

There is a genuine weakness to weigh. The minimal treaty network, addressed in the section on limitations, can produce withholding-tax leakage in the project country when interest or dividends are repatriated from an operating subsidiary up to the SPV. Before committing to the structure, confirm the project country's domestic withholding rate on payments to a Bermuda-resident recipient.

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Single Fundraising Rounds and Note or Share Issuance Through an SPVCopy link to section

For a single raise, the mechanics are well worn: the SPV acquires a cash-generating asset and issues loan notes or preference shares to investors, with repayment secured on the asset and its income. For a securitisation, the regulator's consent to issue and freely transfer the shares and notes is usually obtained before closing.

Unlisted issues carry no local disclosure obligation, and listing on the Bermuda Stock Exchange is available for rated notes and ILS. That exchange is a recognised stock exchange under UK HMRC rules, which can assist certain UK investor categories. No local rule sets a minimum denomination or lock-up period for notes issued by an unlisted vehicle to non-Bermuda investors.

One limit matters in practice. Local law governs the SPV, not the offer to investors in their home countries.

No licence is needed for the issuance itself as long as originators and servicers stay outside the island and no public invitation is made there, and no withholding tax touches interest or dividends paid to non-resident investors.

Economic Substance Requirements and How They Apply to a Passive Single-Purpose VehicleCopy link to section

The Economic Substance Act 2018 and its regulations, operative since 31 December 2018, require entities carrying on a relevant activity to meet substance tests. How an SPV is treated turns entirely on what it actually does.

• Pure equity holding entity. A vehicle that only holds shares or equity participations and earns passive dividends and gains faces a reduced, minimum test: comply with the corporate governance rules under the Companies Act 1981 or LLC Act 2016, file an annual Economic Substance Declaration, and show adequate people and premises to hold and manage the participations. A registered office plus management by directors or a corporate service provider on the island can be adequate.
• Financing and leasing SPV. A vehicle that issues notes, lends, or leases assets falls under financing and leasing and faces the full test, including core income-generating activities performed locally.
• ILS / Special Purpose Insurer. Treated as insurance, so the full substance test applies.

In-scope entities must conduct their core income-generating activity on the island, though this can be outsourced to a third party or affiliate provided the work is actually done there. Established service providers routinely supply director and outsourcing services for this purpose. The declaration is filed with the Registrar of Companies within six months of the financial year-end, for example by 30 June for a 31 December year-end.

Two exclusions are worth noting. Investment funds and collective investment vehicles are generally not pure equity holding entities and, absent another relevant activity, fall outside the regime entirely. An entity that can prove tax residence in another jurisdiction not on the EU Annex I list is also out of scope.

The practical takeaway: a financing SPV that issues notes is not a "passive" entity for substance purposes and should be planned accordingly, with local core activity and director arrangements in place from the start.

Limitations and Constraints: Treaty Access, Counterparty Acceptance, and Cross-Border FrictionCopy link to section

The honest weakness is the treaty network. Because it levies no income or capital gains tax, the jurisdiction has entered no general income tax treaties and relies mainly on tax information exchange agreements.

The only substantive tax treaty is with the United States, in force since 1988, and it is confined to insurance enterprises; it does nothing for a generic SPV. The information exchange agreements with the US, UK, Canada, and others support transparency compliance but deliver no withholding relief. The consequence is direct: withholding tax on interest, dividends, or royalties flows from the asset or operating country to the SPV at that country's domestic rate, unreduced by any treaty.

That single point can make the jurisdiction the wrong choice. Where source-country withholding must be cut, Irish Section 110 companies and Luxembourg vehicles are frequently preferred, and some originating banks and investment-grade institutional investors require a treaty-enabled structure.

On reputation, the position is comparatively clean. The jurisdiction is not on the EU Annex I blacklist and does not appear on the FATF grey list, a status confirmed by the December 2025 EU AML high-risk-country update, which added the BVI and Bolivia but not this jurisdiction.

Transparency obligations are tightening. The Beneficial Ownership Act 2026 received Royal Assent on 28 September 2025 and came into force on 3 November 2025, with full Registrar enforcement from 1 June 2026, increasing KYC obligations for beneficial owners. The local definition of beneficial ownership does not yet fully meet FATF or EU standards, and reform continues ahead of the Caribbean FATF fifth-round mutual evaluation beginning in October 2026.

Banking access tends to follow the deal, not the flag. Major international custodians and account banks routinely serve rated securitisation vehicles here, and these roles are usually performed by transaction parties based outside the island; access is driven by structure and ratings, with the clean list status easing the worst friction.

Winding Down the Vehicle: Planning for a Clean Exit After the Purpose Is MetCopy link to section

A single-purpose vehicle that has been kept solvent throughout is straightforward to close. A members' voluntary liquidation, the route for a solvent company, needs a directors' statutory declaration of solvency, appointment of a liquidator, and a final distribution to shareholders.

For a dormant SPV with no creditors, administrative striking off by the Registrar is an alternative, subject to creditor-notice requirements. An orphan vehicle held through a purpose trust requires the trust to be wound down alongside the corporate dissolution, so the deed should already name the residual beneficiary or charitable destination.

The exit carries no local tax cost. Final distributions on wind-down attract no income, capital gains, or withholding tax, and no stamp duty applies to transfers of residual assets by an exempted company. A group SPV within the 15% CIT should confirm any gain or income recognised on winding down before completing dissolution.

Two operational points round out a clean exit. The annual government fee, payable to the Registrar by 31 January based on assessable capital, keeps accruing until the company is formally struck off, so timing the dissolution avoids a needless extra year. Where security is registered abroad, releasing those foreign charges must be sequenced with the local dissolution; this is a timing matter, not a legal obstacle, and an uncontested members' voluntary liquidation of a solvent vehicle generally completes within three to six months.

ConclusionCopy link to section

For a single-transaction vehicle that issues notes or holds assets and pushes cash to non-resident investors, this is a strong, neutral, creditor-friendly home: nothing leaks at the issuer level, the orphan-and-restricted-objects structure is well understood, and rating agencies are comfortable with it. The decisive variable is upstream of the SPV.

Run the withholding-tax math in the country where the underlying asset or operating subsidiary sits before you choose; if source-country withholding on interest or dividends is heavy and only a treaty would cut it, a treaty-access jurisdiction may serve the same deal better.

How Expanship Can Help Your Business in BermudaCopy link to section

Expanship sets up and administers exempted companies and LLCs used as special purpose vehicles, from drafting restricted objects and orphan trust arrangements to handling the regulator consents a securitisation issue requires. The same team supports the wider needs of a foreign-owned entity on the island, so the vehicle stays compliant from incorporation through to a clean exit.

• Incorporation of exempted companies and LLCs as single-purpose vehicles
• Registered agent and registered office services
• Economic substance classification, declarations, and tax registration support
• Ongoing compliance, annual fee, and beneficial ownership filings
• Accounting and bookkeeping for the vehicle's life cycle
• Introductions to account banks and custodians for rated structures

To scope a vehicle for your transaction, contact Expanship Bermuda.

Frequently Asked QuestionsCopy link to section