ARTICLE
11 September 2024

10 Things You Need To Know About Bermuda's Impending Corporate Income Tax Regime

W
Walkers

Contributor

Walkers is a leading international law firm which advises on the laws of Bermuda, the British Virgin Islands, the Cayman Islands, Guernsey, Ireland and Jersey. From our 10 offices, we provide legal, corporate and fiduciary services to global corporations, financial institutions, capital markets participants and investment fund managers.
The regime primarily consists of the Corporate Income Tax Act 2023 ("CIT Act") and the recently passed Corporate Income Tax Agency Act 2024 ("Agency Act").
Bermuda Corporate/Commercial Law

Key Takeways

  • The Bermuda corporate income tax regime will come into effect on 1 January 2025.
  • The regime will not impact all Bermuda entities, but those that are part of a multinational enterprise group with global revenues in excess of EUR 750 million will need to assess their liability and available exemptions.
  • Walkers is advising clients on when the tax applies, how the rules operate, the regulatory framework and regulator liaison and filings.

Bermuda's Corporate Income Tax ("CIT") regime is set to come into force.

The regime primarily consists of the Corporate Income Tax Act 2023 ("CIT Act") and the recently passed Corporate Income Tax Agency Act 2024 ("Agency Act"). The Agency Act establishes the Corporate Income Tax Agency ("Agency"). The Ministry of Finance has also issued, and will continue to revise and update, CIT FAQs ("FAQs") with guidance on the application of the new regime.

In this advisory, we draw out the 10 most important things you need to know about the CIT regime.

1. When will CIT become effective?

CIT will be effective with respect to in scope entities for fiscal years beginning on or after 1 January 2025. A central portal will be made available by the Agency and in scope entities will be required to register by 31 March 2025. In scope entities will then have to file a CIT return by the 15th day of the 10th month after fiscal year end (i.e., October 2025 for most entities).

2. What level of CIT will be applied?

The CIT Act imposes a CIT of 15% of net taxable income on those entities liable to pay CIT.

3. Why is CIT being imposed?

CIT has been imposed in response to the Organisation for Economic Co-operation and Development's global anti-base erosion model rules (Pillar Two) (the "GloBE Rules").

The purpose of the GloBE Rules is to impose a minimum tax of 15% on profits on all multinational enterprise ("MNE") groups with global revenues in excess of EUR 750 million on income within each jurisdiction in which they operate.

The intention of the CIT regime is to impose tax only to the extent that a liability would have otherwise been triggered and payable by the MNE group in another jurisdiction under the GloBE Rules.

4. Who is liable to pay CIT?

CIT will be chargeable to any Bermuda Constituent Entities ("BCEs") that are part of an in-scope MNE group. A BCE is a Bermuda Tax Resident Entity or a Bermuda Permanent Establishment, that is a constituent entity of an in-scope MNE Group.

An in-scope MNE group is any group that has with respect to any financial year beginning on, or after, the CIT's commencement date:

(a) annual revenue of EUR 750 million or more in the consolidated financial statements of the ultimate parent entity;
(b) for at least 2 of the 4 financial years immediately preceding the 2025 financial year.

Because of the size of these thresholds and the exclusions mentioned below, it is anticipated that the majority of Bermuda entities will not be in scope of the CIT regime.

5. What exemptions and credits are available?

In scope entities should familiarise themselves with available elections and exemptions which align those available under the GloBE rules. In particular, the international shipping income exclusion, which provides for an exclusion of a constituent entity's income derived from international shipping under the GloBE rules, is included at section 36 of the CIT Act.

Of particular interest is the "opening tax loss carry forward" election. Broadly, this permits in scope entities to carry forward losses incurred over a prior 5 year period, such that those losses are applied as an offset to future profits. The FAQs provide worked through numerical examples of how this is to be calculated.

Section 13 of the CIT Act sets out circumstances in which an MNE group shall not be treated as an in scope MNE group where:

(a) it has a limited international footprint;
(b) it meets tangible asset value requirements; and
(c) no MNE group constituent entity is required to apply the income inclusion rules to any Bermuda entity that is a constituent entity of that MNE Group.
The section 13 exemption is available for five financial years.

The CIT regime will allow for deductions of certain foreign tax credits with the government intending to introduce qualified refundable tax credits that will be determined by reference to local substance based initiatives.

6. Will tax assurances be honoured?

To date all exempted entities are eligible to apply for a tax assurance under the Exempted Undertakings Tax Protection Act 1966, which provide assurances against the application of taxes enacted in Bermuda legislation on the subject undertaking until 31 March 2035.

In scope MNE group entities should be aware, solely as it relates to corporate income tax, that section 4(4) of the CIT Act states:

"A Bermuda Constituent Entity's liability for tax pursuant to this Act shall apply notwithstanding any assurance given pursuant to the Exempted Undertakings Tax Protection Act 1966."

In-scope entities will therefore not be able to rely on such assurance as against a liability for CIT.

7. What are the responsibilities of the Agency?

The Agency will be responsible for the administration of the CIT Act and the collection of tax receipts including, without limitation:

(a) aiding and providing support to taxpayers;
(b) administering the processes and procedures for the filing of tax returns and the calculation of taxes owed;
(c) reviewing and auditing (where appropriate), tax returns and ensuring compliance with the CIT Act and any regulations thereunder; and
(d) prosecuting any enforcement action relating to the CIT Act or regulations.

8. What are the Agency's powers and functions?

Additional powers and functions assigned to the Agency under the Agency Act include:

(a) issuing determinations on the application of the CIT Act or regulations thereunder;
(b) conducting and concluding settlement negotiations on disputes between the Agency and a taxpayer; and
(c) requiring a person to furnish information as the Agency may reasonably require to discharge its functions under the Agency Act or the CIT Act.

Interestingly, the power to require the provision of information permits the Agency to request information from any person, and does not limit its powers to only those required to pay CIT.

9. What is the Agency's constitution?

The Agency will be governed by a board of directors consisting of a Chairman and 6-10 additional directors, each of which shall be appointed by the Minister ("Board"). Board members must have significant experience in at least one of the fields of accountancy, law, taxation or financial services.

10. What does the compliance framework look like?

The Ministry of Finance published a public consultation entitled, "Introduction of Corporate Income Tax Administrative Provisions" on 7 August 2024 (the "Consultation"). The Consultation provides a summary of the proposed taxpayer compliance framework (the "Administrative Provisions"), public feedback on the proposals is requested by 5 September 2024.

Key points relating to the proposed Administrative Provisions include:

(a) the development of an online portal for interactions between Bermuda entities and the Agency;
(b) entities will be required to register via the portal pursuant to prescribed procedures and timeframes;
(c) entities will be assigned a taxpayer identification number on registration via the portal;
(d) filing Bermuda Constituent Entities will be required to file a corporate income tax return for the Bermuda Constituent Entity Group, adhering to prescribed requirements;
(e) filing BCEs will be required to remit instalment payments prior to filing their corporate income tax return;
(f) payment of total tax liability will be due on the deadline for filing the return;
(g) Bermuda entities will be required to provide certain information relevant to determine their status for corporate income tax purposes upon filing their annual declarations; and
(h) the Agency will have the power to raise enquiries into returns.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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