Section 911 Repeal May Have Repercussions For Bermuda

by Mike Godfrey, Tax-News.com, Washington

15 May 2003

Proposals to repeal the 911 tax exemption given to US citizens employed outside of the United States could have a serious impact on offshore jurisdictions such as Bermuda, a local tax expert has warned, forcing many firms to leave the island.

Section 911 exempts the first $80,000 of an employee's salary from income tax, provided the taxpayer has resided outside of the US for one complete tax year of 330 days within a twelve month period. However, the US Senate is seeking to repeal this fifty-seven year old law in order to help pay for other tax cuts in President Bush's economic stimulus plan.

Speaking to the Bermudan Royal Gazette recently, James Paul Sobo, president of tax consultants ETS Ltd said US firms are now faced with the prospect of having to increase salaries as an incentive for workers to stay in the jurisdiction, though ultimately it may be more efficient for the company to move away from the jurisdiction altogether said Sobo.

"Because of the bill they may have to re-think about the advantages of being in Bermuda," Mr. Sabo told the RG, continuing: "It may be of corporate advantage if they can't attract the right people at the right price. It could be that the savings made by the corporate tax would be offset by the personal tax saving, and this may affect some of the smaller companies who may decide to leave."

According to Sobo, those most affected by the repeal of Section 911 would be those earning between $100,000 and $120,000. An employee who earns $120,000 for example would forfeit $24,000 in take home pay as a result of the extra tax. As a result, the employee "will lose the tax benefit of staying in Bermuda and if the employee is going to have to pay this, they will look to the employer to make up the difference," commented Sobo.

In spite of this, American employees based in Bermuda still stand to make small savings on other contributions, said the tax consultant. For instance, around $5,000 can be saved in social security payments and between $1,500 and $3,000 on medicare contibutions.

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