Bermuda may be looking better and better in its battle for international business with the Cayman Islands.The government of the Cayman Islands on Wednesday announced it will, for the first time, impose a payroll tax — but only on expatriate workers.Work permit holders there, who make $20,000 (Cayman dollars) a year or more, will soon have to pay nearly ten percent of their earnings in tax, no matter how high their salary is — a move that could bring in about $50 million in revenue to the Cayman government.At the same time, the Cayman government plans to no longer require employers to make a five percent contribution to expat employees’ pensions. And employers will not be obligated to pay any of the payroll tax.If an employer chooses to pay half of the payroll tax, the rate of taxation will be 9.52 percent of the employee’s gross salary. If they do not pay any of the money they save from not contributing to the person’s pension, then the rate of taxation will be 14.28 percent.Cayman Premier McKeeva Bush, who called the tax a “community enhancement fee”, said he did not want to impose the tax, but “had no choice” because the UK was demanding a sustainable budget.While both British Overseas Territories, Cayman, unlike Bermuda, needs UK approval to pass its budget.The leader of Cayman’s opposition party said that instituting the tax would have serious implications for the country — implications that could work to the benefit of Bermuda.Over the last six months, there has been increased rhetoric regarding the cost of setting up shop in Cayman versus here in Bermuda. And earlier this month, as reported in The Royal Gazette, the CEOs of three major re/insurance companies here spoke out saying that the temporary increase in Bermuda’s payroll tax two years ago caused the loss of Bermudian jobs and “a rupture of trust” between Government and the industry.Speaking at a CEO round-table organised by the Bermuda Insurance Journal magazine, XL Group’s Mike McGavick, Endurance Specialty Holdings’ David Cash and Hiscox Bermuda’s Charles Dupplin agreed that the damage was done when the Bermuda Government assured the industry there would be an opportunity for discussion before any increase in the tax, but that did not happen.Mr McGavick added that in talks after the two percent tax increase, leaders from the insurance industry informed Government that it would lead to a “silent exodus” of jobs from Bermuda — and that’s exactly, what they say happened.“The comments made a few weeks ago by CEOs of the three larger companies having a presence in Bermuda were significant in that it was the first time I can recall such a strong public message being sent by that sector,” said Ronnie Viera, President of the Bermuda Chamber of Commerce whose members include both local and international businesses.“We have our own issues to deal with rather than worry about what Cayman are doing,” he said. “One thing our Government needs to do and do so urgently, is give absolute assurance that the tax burden on the international business sector will not be increased further so as to retain existing business and hopefully attract new business to the Island.”Brad Kading is the President and executive director of the Association of Bermuda Insurers and Reinsurers (ABIR), which represents 22 major international insurers and reinsurers. He said while he cannot speak on the specifics of the Cayman proposal, he can speak to what such a higher payroll tax would do to Bermuda.“Payroll taxes are an extremely sensitive issue,” Mr Kading said. “If proposed here, a higher payroll tax would directly affect the number of employees ABIR members would have in Bermuda.“There is clear evidence of employee reductions since the last payroll tax increase. A tax that only applies to expat workers would be viewed as detrimental to the success of our businesses in Bermuda and would also affect our employment of Bermudians. Such an approach would be counterproductive for the health of the local economy.”Bermuda’s payroll tax is 14 percent — higher than Cayman’s proposed 9.52 percent, but only slightly lower than if the employer chooses not to pay half — 14.28 percent. That would be the highest rate of Cayman’s main offshore financial centre competitors.Many argue the new tax could put a strain on Cayman companies because in order to recruit top talent, they might feel pressured to keep contributing to employees’ pensions and contribute to the payroll tax — costing them more.George Hutchings, chairman of the Association of Bermuda International Companies (ABIC), which represents more than 110 international companies incorporated in Bermuda, said costs like that are something employers will look at and compare.“Operational costs are one of the key considerations in making the choice of where the business and jobs are located,” Mr Hutchings said. “Any domestic increase in costs, be it from payroll taxes, health insurance premiums, operational costs, etc, will make a domicile less attractive to new business and may well result in the loss of some of the existing business. Applying any cost increase on a selective basis would serve to only further alienate the targeted party.”This newspaper approached several businesses that have operations in both Bermuda and the Cayman Islands — businesses like Digicel, KeyTech, Butterfield Bank and LOM.A spokesperson for Butterfield said the company is “currently evaluating the potential impact of the proposed legislation on our employees and our business, and is not in a position to provide comment at this time”.Bryan Dooley, a portfolio manager for LOM Asset Management, told The Royal Gazette the Cayman tax should be relatively helpful to Bermuda as business might have a better shot at attracting and retaining key onshore talent.“I believe that professionals look at the whole package before relocating and certainly less or no income taxes are a big draw, especially for higher earners or those coming from high tax jurisdictions,” he said.