Foreign Sales Corporation (FSC) jurisdictions.

That advice was given by Mr. Charles Goulding, Dover Corporation's international tax director, at a seminar marking the launch of Bermuda's local FSC association.

And it has been heeded, says the association's chairman, Mr. John Swain, senior manager of corporate banking at the Bank of Bermuda.

At the time of the local association's inaugration, Bermuda hosted 90 FSCs.

Since then an additional 85 have been incorporated, swelling the Government's coffers with registration and annual corporate fees and also providing revenue for local management companies and more often, the local legal firms.

"It is impressive that of the 7,000 international companies domiciled in Bermuda, 175 of those emanate from one industry that has been in existence for five years,'' said Mr. Swain.

Worldwide, there are estimated to be between 4,500 and 5,000 FSCs of the commission or ownership type.

Bermuda was a late entry into the FSC market. Although the concept of FSCs was introduced as a new tax incentive to replace Domestic International Sales Corporations (DISCs) in 1984, Bermuda did not become an approved jurisdiction for the domicle of FSC's until 1988.

DISCs, which provided tax exemption for exports, became obsolete because of GATT disapproval of US subsidies for domestic companies.

A FSC became one of the US's export stimulants -- part of the US Congress' deficit reduction agenda.

A FSC is defined as a company that is incorporated outside the US, which is given special treatment under US tax law because it promotes the export of US-manufactured equipment. The latter must be more than 50 percent made in the US and used predominantly outside the US.

"FSCs have worked to the extent that the European aircraft manufacturing consortium Airbus is protesting because Boeing is getting a significant price advantage over Airbus,'' said Mr. Swain.

"The US needs to increase its exports and while it can do that through legitimate incentives, it will continue to support the FSC concept,'' he said.

Until Bermuda signed the USA/Bermuda Tax Convention in 1988, other qualifying jurisdictions successfully wooed potential FSCs -- US manufacturers, processors, growers and other service providers -- and captured the dominant share of the market.

The US Virgin Islands was the original base for 80 percent of all FSCs, although, unlike Bermuda, it has a franchise tax, a sliding scale tax based on sales that has an effect on FSCs' profitability.

One of the conditions laid down by Congress stipulated that FSCs could only be set up in qualifying jurisdictions. Bermuda became one of the 30 approved jurisdictions for the domicile of FSC's in 1988 as a result of the USA/Bermuda Tax Convention. The majority of other qualifying jurisdictions are not true competitors as they are not low or zero tax havens.

Mr. Donald Malcolm, senior associate with local law firm Conyers, Dill and Pearman (CD&P) said that Bermuda's FSC association has worked hard to transfer FSCs from the US Virgin Islands to Bermuda.

"However, rather than transferring FSCs, more entities are choosing to start up in Bermuda, rather than the US Virgin Islands.

"It is possible to wind up a USVI FSC and start again here. The Companies Act has been changed recently to allow companies to continue from one jurisdiction into another as the same entity.

"You can continue the same company with no gap in between. Bermuda is flexible from this point of view,'' said Mr. Malcolm.

Codan Services is a unit of the law firm CD&P, providing FSC management services. The law firm has largely cornered the market in aircraft leasing ownership FSCs, having handled the large majority of the approximately 65 transations completed to date worldwide. Mr. Swain predicts the industry will extend to handle more capital equipment leasing FSC activities.

Mr. Malcolm, representing CD&P, has been the one of the protagonists in the FSC field, having also chaired the BIBA taskforce on FSCs.

Since the local association's initiation seminar, Bermuda International Business Association (BIBA) has worked with Mr. Malcolm on a study scrutinising how Bermuda can enlarge its share of the FSC market and become the preferred jurisdiction for corporations wishing to form a FSC.

BIBA interviewed decision-makers at existing FSCs and formed a comparative study of opinons of FSCs approved jurisdictions.

Praise was showered on Bermuda to the detriment of its competitors such as Barbados and the USVI, with respondents saying professional services in Bermuda were superior and they preferred its stability.

The FSC industry will continue to increase in the view of Mr. Swain.

New US exporting companies will always be created, which will eventually have viable FSC operations,'' he said.

The Bermuda FSC Association meets on a monthly basis and strives to ensure Bermuda has a strong representation at the US FSC/DISC Association. Bermuda will be one of the sponsors at the American association's next annual meeting to be held in November on the West Coast -- a way of communicating Bermuda's viability as a FSC domicile to 40,000 corporations.

The local association is composed of 23 members, drawn from the three banks, law firms and management companies -- an addition of nine members since its start.

The local association is planning a FSC conference next year, mindful of the lucrative knock-on effects of luring blue-chip corporations to the Island.

Mr. Donald Malcolm.