Newsflash: Potential Introduction of Corporate Income Tax in Bermuda

Newsflash: Potential Introduction of Corporate Income Tax in Bermuda

The Government of Bermuda has issued a consultation paper titled “Introduction of Corporate Income Tax in Bermuda” (“Consultation Paper”). The Consultation Paper requests feedback from the public on the proposal to change the tax regime in Bermuda. The proposal set out in the Consultation Paper is to introduce an income tax on all multinational enterprises (“MNEs”) with an annual revenue of €750 million or more. The Consultation Paper is in response to the Organisation for Economic Co-operation and Development (“OECD”) Global Anti-Base Erosion Rules (“Globe Rules”) which envisages a two pillar solution to ensure that a minimum tax rate of 15% is collected in every jurisdiction.

Historically, the Government of Bermuda has utilised payroll taxes, customs duties and other taxes and fees to fund its annual operating budget. As such, the introduction of corporate income tax would be the biggest change to the Bermuda tax regime in almost 200 years.

The Globe Rules, which form the basis for the proposals contemplated in the Consultation Paper, will apply to all MNEs with an annual revenue of €750 million or more and will impose a top-up tax on any profits arising from a jurisdiction where the effective tax is below the minimum rate of 15%. More specifically, the proposals will apply to each tax resident entity and Bermuda permanent establishment that is part of the MNEs and does not qualify to be excluded. Excluded entities will include, amongst others, governmental entities, not-for profits, pension funds and investment funds.

According to the Consultation Paper, the corporate income tax (which may be introduced as early as January 2025) will be unlikely to increase the overall effective tax rate on profits earned by MNE’s in Bermuda in excess of 15% and will lessen the chance of other jurisdictions applying a top-up tax to the MNEs on profits earned in Bermuda.  

It is unclear how many Bermuda entities will fall within the scope of the corporate income tax changes due to the monetary threshold of €750 million or more. The Government of Bermuda has provided preliminary indications that the corporate income tax rate will be between 9% and 15%; however, there will be further analysis conducted in due course to determine the appropriate income tax rate.

It was also suggested that it is likely that the tax assurance certificates will cease to be economically beneficial due to the fact that any tax foregone in Bermuda will most likely become due in other jurisdictions in any event (pursuant to the Globe Rules). As such, the Government of Bermuda is considering whether amendments are necessary to the tax assurance legislation to ensure that tax can be collected from tax resident entities or Bermuda permanent establishments which are subject to the proposed Bermuda corporate income tax regime.

It is understood that this is the first public consultation and that a further consultation will take place later this year, which will contain more detailed information and proposals. To the extent that you have any questions, please contact the MJM Corporate Finance Department on [email protected].

The deadline by which responses and comments on the Consultation Paper are to be submitted is 8 September 2023. Persons wishing to comment should submit their responses to [email protected].