Update – Corporate Income Tax Act 2023
About Brian Holdipp
Brian Holdipp is Counsel in the firm’s corporate practice group. His practice encompasses many areas of general corporate and commercial law, with specialist expertise in securities, joint ventures, corporate restructurings and cross-border financings. Mr. Holdipp also advises on partnerships.
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Following rounds of consultation with the public and affected industry stakeholders, the Bermuda Government on 8 December 2023 tabled historic legislation with the laying of the Corporate Income Tax Act 2023 (the “Act”).
The corporate income tax rate has been set at 15%.
It will be effective for fiscal years beginning on or after 1 January 2025, providing multinational enterprises time to transition and make the necessary adjustments.
The Act will apply to each tax resident entity and Bermuda permanent establishment that is part of an MNE Group and does not qualify to be excluded. Excluded entities under the Act include, amongst others, governmental entities, non-profit organisations, pension funds, investment funds and real estate investment vehicles.
Subject to certain exceptions, an MNE Group is in scope of the provisions of the Act if, with respect a fiscal year, it has annual revenue of EUR 750 million or more in the consolidated financial statements of the ultimate parent entity for at least two of the four fiscal years immediately prior to such fiscal year.
Where corporate income tax is chargeable to a Bermuda Constituent Entity Group under the Act, the amount of corporate income tax chargeable to a Bermuda Constituent Entity Group for a fiscal year shall be 15% of the net taxable income of the Bermuda Constituent Entity Group, less tax credits applicable under the Act (foreign tax credits) or as prescribed by regulation by the Minister of Finance (qualified refundable tax credits).
The liability of a Bermuda Constituent Entity for tax pursuant to the Act will apply notwithstanding any assurance given pursuant to the Exempted Undertakings Tax Act 1966.
Qualified refundable tax credits (QRTCs) will be incorporated into the new corporate income tax regime to provide incentives for investment by international companies. While being careful to state that QRTCs are currently under development, the Premier suggested that investments in areas such as infrastructure, education, healthcare, innovation and housing would benefit the Island.
Given the additional revenues that are expected to accrue to the Government after the implementation of the corporate income tax, the newly empanelled Tax Reform Commission has been charged to recommend changes to the tax system that would allow Bermuda to maintain its competitiveness and also reduce the cost of living and the cost of doing business.
The institution of the corporate income tax fulfils Bermuda’s agreement to participate in the global minimum tax initiative which is set to become an international standard. Moreover, the Act has been designed to uphold Bermuda’s value proposition and continued compliance with existing commitments to the OECD (Organization for Economic Co-Operation and Development) and EU (European Union) thereby ensuring that the jurisdiction’s highly-prized reputation for quality is maintained.
Author: Brian Holdipp