Corporate Income Tax (Penalty Provisions) Amendment Act 2025: Enforcement
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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On 21 March 2025, the Government tabled for debate a bill entitled The Corporate Income Tax (Penalty Provisions) Amendment Act 2025 (the “Amendment Act”) which contains proposed amendments to the Corporate Income Tax Act 2023 (the “Act”).
Once the bill is passed into law, the Act, as amended, will provide for civil and criminal penalties to ensure the due observance of the corporate income tax regime set out under the Act.
Civil Penalties
The Amendment Act introduces strict civil penalties for failures in registration, filing, and payment.
These penalties will be administered by the Corporate Income Tax Agency (the “Agency”).
Civil penalties can be imposed on Bermuda Constituent Entities, and where a penalty is imposed on a Bermuda Constituent Entity (“BCE”), each other BCE that is a member of that same In Scope MNE Group shall be jointly and severally liable for the penalty.
A BCE that does not register for tax without reasonable excuse will be liable to a civil penalty of up to BD$10,000. Where a filing BCE fails without reasonable excuse to file any return for a fiscal year by the applicable deadline, it will face a civil penalty at the greater of BD$3,000 per month or 5% of the unpaid tax per month, which in such case, is capped at 25% of the total tax due as of the filing deadline.
Where an understatement of tax is included on a tax return filed with respect to a Bermuda Constituent Entity Group and is attributable to (a) negligence, (b) careless, reckless or intentional disregard for the provisions of the Act (or any related regulations) or (c) a substantial understatement, a civil penalty of up to 20% on the understated amount shall be imposed, subject to provisions made for the deemed reductions of any understatement. A substantial understatement means an understatement which exceeds the lesser of 20% of the correct tax or BD$10 million. A civil penalty on all or a portion of an understatement will not be imposed if there was a reasonable cause for it and the filing BCE acted in good faith with respect to such understatement, including if it relied on the advice of duly qualified professional tax advisors.
A civil penalty of 0.5% of the amount of unpaid taxes of a BCE after the due date will apply in circumstances where the failure to pay occurs without reasonable excuse.
To balance enforcement with fairness, the Amendment Act prescribes that the conduct of the In Scope MNE Group shall be considered, including whether or not relevant guidance was followed, the amount of tax (if any) not paid when due, and whether or not the taxpayer provided any responses to enquiries by the Agency and the timeliness of such responses.
Moreover, prior to imposing a penalty, the Agency must also issue a warning notice to the BCE which indicates (a) the offence and rationale for the proposed penalty, (b) the amount of the proposed penalty, (c) that the all BCEs within the same In Scope MNE Group are jointly and severally liable for the penalty and (d) that the affected BCE has 28 days from the date of the warning notice to respond in writing to such notice.
Following the expiry of the 28-day response period, the Agency will be obliged to issue a decision notice in respect of such warning notice, which shall confirm whether or not a penalty has been imposed and, if so, the amount of such penalty.
Criminal Penalties
The Amendment Act imposes harsher penalties for intentional violations.
Directors, managers, or other similar officers of a body corporate, partners of a partnership and trustees of a trust who are complicit in such violations will be held personally liable if they consent to the commission of the serious offences described below.
A filing BCE which fails to file a return within six months of the due date commits an offence and any person guilty of such offence shall be liable on conviction on indictment to a fine up to BD$5 million or to up to six months imprisonment, or both.
Where a BCE (a) by intentional act or default evades or attempts to evade any payment of tax, (b) makes any false or misleading statement in writing with the intent to so evade or (c) by any fraud evades or attempts to evade any payment of tax, then the BCE commits an offence and a person guilty of such offence shall be liable on conviction on indictment to a fine of up to 100% of the tax evaded (or attempted to be evaded) or to imprisonment for up to five years.
Conclusion
The ongoing development of the Act, by way of the Amendment Act, demonstrates Bermuda’s intention to implement a strong enforcement framework to ensure compliance with the new tax regime, whilst striking the balance necessary to maintain Bermuda’s standing as a preeminent international financial centre. Please contact any member of MJM’s Corporate Team for further information or for assistance with Bermuda corporate income tax matters.