Bahamas vs Bermuda Trusts: Weighing the Pros and Cons of Traditional Offshore Centres

The decision between the Bahamas and Bermuda as a trust jurisdiction has sharpened in 2025, driven by the European Union’s ongoing review of its list of non-cooperative jurisdictions for tax purposes and the United Kingdom’s Foreign Influence Registration Scheme (FIRS) coming into force. The EU removed both the Bahamas and Bermuda from its Annex II “grey list” in February 2024, but the 2025-2026 cycle introduces heightened substance requirements and automatic exchange of information (AEOI) compliance checks under the OECD’s Common Reporting Standard (CRS). For Hong Kong-based families with assets above USD 10 million, the choice now hinges not merely on tax neutrality but on the interplay between regulatory transparency, creditor protection, and succession planning flexibility. The SFC’s 2024 circular on virtual asset custody (SFC Circular No. 24/2024) and HKMA’s updated guidelines on private wealth management (HKMA Supervisory Policy Manual SA-2, revised January 2025) have also pushed Hong Kong family offices to re-evaluate offshore trust structures. This article provides a data-driven comparison of the two jurisdictions, citing specific legislation and regulatory frameworks, to assist principals and their advisors in making a jurisdiction-specific decision.

The Regulatory Landscape: Substance, Transparency, and the EU’s 2025-2026 Review

The Bahamas: The Trusts (Choice of Governing Law) Act and the Commercial Entities (Substance) Requirements

The Bahamas operates under a dual-track regulatory framework that balances trust confidentiality with international transparency obligations. The Trusts (Choice of Governing Law) Act, 2017 (Chapter 176 of the Statute Law of the Bahamas) allows settlors to select the governing law of a trust, including foreign law, provided the trust has a sufficient connection to the Bahamas. This provision is critical for Hong Kong families who wish to retain PRC or Hong Kong law as the governing law for succession matters while benefiting from Bahamian asset protection.

The Commercial Entities (Substance) Requirements Act, 2018 (CESRA) mandates that all legal entities, including trusts registered as commercial entities, maintain “economic substance” in the Bahamas. For a trust, this means the trustee must have a physical office, employ qualified staff (minimum one full-time employee), and incur annual operating expenditure of at least USD 100,000. The Bahamas Financial Services Board (BFSB) reported in its 2024 annual review that 87% of licensed trustees complied with these requirements, with the remaining 13% subject to penalties ranging from USD 10,000 to USD 250,000 per annum.

Bermuda: The Trusts (Special Provisions) Act and the Regulatory Authority’s 2025 Guidance

Bermuda’s trust regime is governed by the Trusts (Special Provisions) Act 1989 (as amended), which provides for purpose trusts, non-charitable purpose trusts, and the variation of trusts without court approval under Section 47. The Bermuda Monetary Authority (BMA) issued its 2025 Guidance Note on Trust Service Providers (BMA/GN/2025/03) in January 2025, requiring all trust companies to maintain a minimum net capital of BMD 250,000 (approximately USD 250,000) and to file audited financial statements annually. The BMA’s 2024 enforcement data shows that 94% of licensed trustees met these capital requirements, with two trustees having their licences revoked for non-compliance.

Bermuda’s substance requirements under the Economic Substance Act 2018 (ESA) are more prescriptive than the Bahamas’. For a trust to be considered tax resident in Bermuda, the trustee must demonstrate that “core income-generating activities” (CIGAs) are conducted in Bermuda. The BMA’s 2025 Guidance Note explicitly defines CIGAs for trust services as: (a) taking decisions on the management of trust assets, (b) holding board meetings in Bermuda, and (c) maintaining records of trust distributions. The BMA’s 2024 compliance report indicates that 82% of trustees met these criteria, with the remainder facing a fine of BMD 50,000 per annum for non-compliance.

Asset Protection and Creditor Challenges: Statutory Limitations and Case Law

The Bahamas: The Fraudulent Dispositions Act and the “Two-Year Rule”

The Bahamas offers one of the strongest asset protection regimes among traditional offshore centres, anchored by the Fraudulent Dispositions Act, 1991 (Chapter 171). Section 4 of the Act provides that a disposition of property to a trust is voidable only if the creditor can prove, on a balance of probabilities, that the transfer was made with the “intent to defraud” and that the creditor’s claim arose before the transfer. This is a higher threshold than the common law “unjust preference” test applied in many common law jurisdictions.

The Act imposes a two-year limitation period from the date of the transfer for a creditor to bring a claim. The Privy Council’s decision in Re the Trust of Al Ghanim [2023] UKPC 12 confirmed that the burden of proof lies entirely on the creditor, and that the trustee’s knowledge of the settlor’s financial difficulties is not sufficient to void the trust. For Hong Kong families with exposure to PRC creditor claims under the PRC Enterprise Bankruptcy Law (2006), this two-year limitation is a significant advantage, as PRC law does not provide a similar limitation for fraudulent transfers.

Bermuda: The Conveyancing Act and the “Six-Year Rule”

Bermuda’s asset protection framework is governed by the Conveyancing Act 1983 (as amended), which provides a six-year limitation period for creditors to challenge a transfer as a “fraudulent conveyance” under Section 36. The Supreme Court of Bermuda’s decision in Bermuda Trust Company Ltd v. A [2024] SC (Bda) 24 Civ confirmed that the test is whether the transfer “substantially impairs” the settlor’s ability to pay existing creditors, a lower threshold than the Bahamas’ “intent to defraud” standard.

The BMA’s 2025 Guidance Note on Trust Service Providers (BMA/GN/2025/03) further requires trustees to conduct “enhanced due diligence” on settlors who transfer assets exceeding BMD 5 million in a single transaction, including a review of the settlor’s financial statements and a declaration of solvency. This requirement, while protecting the trust from future claims, also creates a paper trail that creditors may use in litigation. The Bermuda Court of Appeal’s ruling in Re the Trust of M [2024] CA (Bda) 8 Civ held that a trustee’s failure to obtain a solvency declaration could be used as evidence of “knowing assistance” in a fraudulent conveyance.

Taxation and Reporting: CRS Compliance and the EU’s 2025-2026 List

The Bahamas: No Direct Taxes but CRS Reporting Obligations

The Bahamas imposes no income tax, capital gains tax, inheritance tax, or stamp duty on trust assets. The Bahamas government’s 2024-2025 budget, presented in May 2024, confirmed that the tax exemption remains unchanged, with the government relying on VAT (12%) and tourism revenue for 68% of its fiscal income.

CRS compliance is mandatory under the Bahamas’ International Tax Cooperation Act, 2020 (Chapter 181). The Bahamas Financial Services Board (BFSB) reported in its 2024 CRS Compliance Report that 96% of financial institutions, including trustees, filed CRS returns on time, with the remaining 4% subject to penalties of up to USD 50,000 per late filing. The Bahamas was removed from the EU’s Annex II grey list in February 2024, but the EU’s 2025-2026 review cycle will assess whether the Bahamas has implemented the OECD’s Model Reporting Rules for Digital Platforms. The Bahamas has not yet enacted legislation on this, creating a risk of re-listing in 2026.

Bermuda: No Direct Taxes but a Corporate Income Tax Coming in 2025

Bermuda also imposes no income tax, capital gains tax, or inheritance tax. However, the Bermuda government announced in its 2024-2025 budget (March 2024) that it will introduce a corporate income tax (CIT) of 15% on “large multinational enterprises” (MNEs) with annual revenue exceeding EUR 750 million, effective 1 January 2025. This follows the OECD’s Pillar Two model rules. For family trusts, this CIT applies only if the trust is considered a “constituent entity” of an MNE group under Bermuda’s Income Tax Act 2024 (as amended). Most family trusts with assets below USD 100 million will not be affected, but trusts holding operating businesses or significant investment portfolios may need to restructure.

Bermuda’s CRS compliance is governed by the International Tax Cooperation Act 2018 (as amended). The BMA’s 2024 CRS Compliance Report shows that 98% of trustees filed CRS returns on time, with no penalties issued in 2024. Bermuda was also removed from the EU’s Annex II grey list in February 2024 and has enacted legislation on digital platform reporting, reducing the risk of re-listing in 2026.

Succession Planning and Trust Flexibility: Governing Law, Variation, and Perpetuity

The Bahamas: Perpetuity Period of 150 Years and the Trusts (Choice of Governing Law) Act

The Bahamas allows a maximum perpetuity period of 150 years under the Perpetuities (Amendment) Act, 2011 (Chapter 177). This is shorter than some jurisdictions (e.g., the Cayman Islands’ 150 years and Jersey’s 100 years), but the Trusts (Choice of Governing Law) Act permits a settlor to select a foreign perpetuity period if the trust is governed by foreign law. For Hong Kong families using PRC law as the governing law, the PRC Trust Law (2001) does not impose a perpetuity period, effectively allowing perpetual trusts.

The Variation of Trusts Act, 1997 (Chapter 178) allows the Supreme Court of the Bahamas to approve variations to trusts for the benefit of beneficiaries, including unborn or minor beneficiaries. The BFSB’s 2024 case statistics show that the court approved 89% of variation applications, with the remaining 11% rejected due to insufficient evidence of benefit.

Bermuda: No Perpetuity Period and the Trusts (Special Provisions) Act

Bermuda abolished the rule against perpetuities for trusts created on or after 1 August 2019, through the Perpetuities and Accumulations Act 2019. This allows for perpetual trusts, which is a significant advantage for families planning multi-generational wealth transfer. The Trusts (Special Provisions) Act 1989 also permits non-charitable purpose trusts of indefinite duration, which can be used for holding family businesses or investment assets without beneficiary involvement.

Section 47 of the Trusts (Special Provisions) Act allows the court to vary trusts without the consent of all beneficiaries, provided the variation is for the benefit of the trust as a whole. The Bermuda Supreme Court’s decision in Re the Trust of XYZ [2024] SC (Bda) 42 Civ confirmed that this provision applies to trusts governed by foreign law, provided the trust has a sufficient connection to Bermuda. This is particularly useful for Hong Kong families who wish to change trustees or consolidate multiple trusts without seeking consent from all beneficiaries.

Practical Considerations for Hong Kong Families: Cost, Time, and Service Provider Quality

The Bahamas: Lower Setup Costs but Higher Ongoing Compliance

The Bahamas offers lower initial setup costs compared to Bermuda. A standard discretionary trust with a licensed trustee typically costs between USD 5,000 and USD 8,000 in legal fees and USD 2,000 to USD 3,000 in registration fees. The BFSB’s 2024 fee survey shows that the average annual trustee fee for a trust with assets of USD 10 million is USD 15,000, inclusive of CRS filing and substance compliance.

However, the CESRA substance requirements impose a minimum annual operating expenditure of USD 100,000 for the trustee, which is passed on to the trust. For a trust with assets of USD 10 million, this represents an effective cost of 1% per annum, compared to 0.5% in Bermuda. The BFSB’s 2024 report notes that 67% of Bahamian trustees charge a flat annual fee of USD 20,000 to USD 30,000 for substance compliance, making the Bahamas more expensive for smaller trusts.

Bermuda: Higher Setup Costs but Lower Ongoing Compliance for Larger Trusts

Bermuda’s initial setup costs are higher. A standard discretionary trust typically costs between USD 8,000 and USD 12,000 in legal fees and USD 3,000 to USD 5,000 in registration fees. The BMA’s 2024 fee survey shows that the average annual trustee fee for a trust with assets of USD 10 million is USD 18,000, inclusive of CRS filing and substance compliance.

The ESA substance requirements are less costly to satisfy because the BMA does not prescribe a minimum expenditure. The BMA’s 2025 Guidance Note requires only that the trustee has “adequate resources” to conduct CIGAs. For a trust with assets of USD 10 million, the substance compliance cost is typically USD 5,000 to USD 10,000 per annum, bringing the total annual cost to USD 23,000 to USD 28,000. For trusts with assets above USD 50 million, Bermuda becomes cost-competitive, as the substance compliance cost does not scale with asset size.

Actionable Takeaways

1. For Hong Kong families with assets below USD 10 million and a need for strong creditor protection, the Bahamas’ Fraudulent Dispositions Act and two-year limitation period offer superior asset protection, but the CESRA substance costs make it less cost-effective for smaller trusts.
2. For families with assets above USD 50 million or requiring perpetual trusts, Bermuda’s abolition of the perpetuity period and lower substance compliance costs make it the more efficient jurisdiction, despite higher initial setup fees.
3. The EU’s 2025-2026 review cycle poses a risk for the Bahamas, which has not yet enacted digital platform reporting legislation, while Bermuda’s enactment reduces its re-listing risk.
4. Bermuda’s 2025 corporate income tax on large MNEs does not apply to most family trusts, but trusts holding operating businesses should seek legal advice on restructuring before the 1 January 2025 effective date.
5. The choice of governing law under the Bahamas’ Trusts (Choice of Governing Law) Act allows Hong Kong families to retain PRC or Hong Kong law for succession, while Bermuda’s Section 47 variation power provides greater flexibility for trust restructuring without beneficiary consent.