Bermuda has taken a big step towards positioning itself as the offshore jurisdiction of choice for Islamic finance after entering into an avoidance of double taxation agreement (DTA) with Bahrain.

The DTA represents a reciprocal arrangement between Bahrain and Bermuda not to tax the repatriated income that an individual or corporate resident of one country has earned in the other country, and which has already been taxed. Bermuda's TIEA provisions within the DTA with Bahrain were said to include standard means to ensure due process is followed in tax information requests to Bermuda, including, for example, provisions to protect the confidentiality of information provided, as well as anti-fishing provisions to ensure that requests for information from Bahrain are relevant to ongoing tax investigations being conducted by Bahrain's authorities.

Paula Cox, Bermuda's Deputy Premier, said that the DTA puts Bermuda in an ideal position to capitalise on Islamic finance's growing interest in using offshore locations to structure investments.

"We are seeing an increase in local service providers expanding their offerings to Middle East and North African markets utilising the Kingdom of Bahrain as a gateway jurisdiction, in addition to offering Middle Eastern clients convenient access to Bermuda," she said. "Many local service providers have extensive experience of Islamic structured finance, including both conventional and Shari'iah investment funds. Moreover, it is likely that the global market for Islamic insurance, or takaful, will continue to grow, opening exciting possibilities for Bermuda reinsurers."

Kerry Lefebvre, managing partner of Conyers Dill & Pearman's Dubai office, said that there is already a high level of interest in these areas given Bermuda's experience in aviation assets. "Bermuda continues to take steps to position itself as a key jurisdiction for Islamic finance product offerings," she said. "Bermuda's reputation as a premier jurisdiction for aircraft registration and finance has enabled it to position itself as the jurisdiction of choice for sukuk and other Shari'a compliant structures using aircraft as an asset base." 

While Cayman is still the very much in the lead when it comes to the offshore Islamic finance transactions  having played a part in most offshore-structured sukuks issued over the last 12 months. Even so, lawyers ALB spoke to agreed that market share in still up for grabs.

"With BVI being such a popular jurisdiction for Asian clients, Cayman being a mecca for funds, and Bermuda and Jersey both having a strong regulatory environment and reputation, each of these jurisdictions are well placed to develop their Islamic finance market over the coming years," argues Frances Woo, managing partner of Appleby in Hong Kong. "The demographics of Singapore and Labuan, and their close geographical location to Malaysia, a centre of Islamic finance, also place these jurisdictions in a strong position to capture the Islamic finance market."