The increase in payroll tax in the last Budget will see a large increase in costs to exempted companies, according to a leading insurance publication.

Captive Insurance Company Reports' latest issue states that the removal of a cap of $250,000 has hit international companies on the Island hard.

"The big increase in cost will be to exempted companies with highly trained professional staffs,'' the article states.

Earlier this year in the June issue of the same monthly publication an article said that the Bermuda Government was perceived as a `threat' to captive owners because of the high cost of work permits and immigration. The latest issue says that payroll taxes, which were increased to 12.75 percent for employers in the last Budget, had only been hiked by a small percentage and were still lower than the burden of payroll taxes in most domestic domiciles.

But CICR added: "However the biggest change in Bermuda is in how exempted companies are being hit. Previously, payroll taxes applied to `deemed' annual income per person, with a cap. Now it is being applied to total compensation of salaries, bonuses, housing, and the like.

"The cap was previously $250,000. (With Bermuda rents reaching high levels of a tight market, employers typically offer housing as a benefit to expatriates).'' It adds that previously the exempted companies could choose to be taxed as local companies and take advantage of the lower basis for payroll taxes, but all companies across the board will face the same levies.

The report says that the "official'' reason given for this is in response to the Organisation for Economic Cooperation and Development (OECD) pressure.

"To avoid punitive sanctions from the OECD, the Bermuda government cannot allow different treatments of exempted companies and local companies,'' it said.

In the same issue CICR said that it had received complaints about controversial comments in their June issue which compared Bermuda to the Bahamas, where there was a mass exodus of captives due to a change in Government and regulations.

The strongly worded piece also branded the Bermudianisation of the work force as "anti-business measures'' and said companies had been in talks with the Government but to "little avail''.

The latest issue of CICR defended its position. It stated it had received "comments seriously disagreeing with the opinions expressed in our June issue''.

Warning about payroll tax hike "In that issue we reported that new immigration requirements might lead to increased costs. In turn we postulated this could raise the spectre of more migration of existing captives from Bermuda.

"We expressed an opinion that progress addressing these issues had been slow with the government. Some local sources disagree with these comments, believing we were much too strong in our comments and asserting that progress has been good. Time will tell.'' There is also an editors note stating CICR received the published "Heard from Bermuda'' section of the international publication from "one of our sources in Bermuda''.

The editor defended the column saying: "It gives some good information that should interest captive owners who want to track the business climate in Bermuda.

"The owners may also want to see how this might impact the fees being charged by local managing companies to continue services in Bermuda. We are sure Bermudian captive managers are already well aware of these issues.''