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.