TEN years ago Bermuda was still drunk on the unprecedented success of its conversion from a tourist haven to an international business centre.
Scores of bankers and insurance brokers zipped down its narrow streets on expensive Vespa scooters and tills in local bars rang with money being spent by rich guest workers.
But the UK overseas territory’s status as a hub of international business could become a thing of the past.
The global recession has taken its toll on an economy that relies heavily on financial services. More than 40 per cent of Bermuda’s GDP comes from financial services, compared to just six per cent from tourism. Businesses largely comprised of insurance and reinsurance firms generate more than 70 per cent of Bermuda’s tax revenue.
But of most concern is the long shadow being cast by proposals to introduce tough new anti-tax haven legislation. Bermuda’s status as the biggest reinsurance base outside the US hinges on its zero rate of capital gains tax. Now that the US has become serious in its long-mooted intention to clamp down on tax havens, the future looks increasingly uneasy. New European legislation will also make it more difficult for firms trading in the EU to be domiciled in a country without a formal double taxation treaty.
Last week insurer XL Capital, domiciled in the Cayman Islands but headquartered in Bermuda, became the latest in a slew of companies to begin the process of switching its place of incorporation to Europe.
Ireland, with a competitive 12.5 per cent corporation tax, is one of the most popular reincorporation destinations, with Switzerland, offering 8.5 per cent corporate tax rate, another.
Companies that have moved or are in the process of moving include Accenture, TBS International, Willis Group Holdings, Foster Wheeler, Weatherford International, Warner Chilcott, Tyco International, VistaPrintCovidien, Ingersoll-Rand and Cooper Industries.
Firms domiciled in Bermuda will also be casting anxious glances south to the fortunes of other UK overseas territories. Turks and Caicos was recently granted an emergency $85m (£52m) bailout by the UK government and the Cayman Islands is desperate for a similar loan after fears it could be technically bankrupt. While the Bermudian economy is more robust, the fate of its Caribbean cousins will not help its cause.
With tourism numbers continuing to fall and building projects across the island on hold, Bermudians will be hoping their financial future does not disappear like so many planes into the infamous Bermuda triangle.