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Effective from January 2025 Bermuda introduces corporate income tax

Bermuda's introduction of corporate income tax, effective from January 2025, specifically targets businesses within multinational enterprise groups (MNEs) generating annual revenue of EUR750 million or more.


Aligned with the OECD-sponsored Pillar Two international agreement for a global minimum corporation tax, endorsed by over 140 nations in October 2021, this move signifies a pivotal shift in Bermuda's tax landscape.

Characterized by the government as the "most fundamental tax reform in Bermuda's modern history," a comprehensive three-stage consultation on the proposed tax was conducted throughout 2023. Initially facing challenges due to the substantial alteration to the global tax system, Bermuda has strategically positioned itself to maximize benefits upon the legislation's full implementation. The government asserts that the tax will qualify as a 'covered tax' under relevant rules, mitigating top-up tax payments to other jurisdictions concerning profits earned in Bermuda.


Refinements to the draft legislation, initially presented for consultation in November 2023, include the exclusion of allowances for foreign tax credits (FTC) related to specific foreign taxes of non-Bermuda entities connected to income earned by Bermuda entities. Notably, this entails the elimination of FTC for US taxes paid by US persons on Subpart F/global intangible low-taxed income inclusions from Bermuda entities functioning as controlled foreign corporations (CFCs). Additionally, a limited two-year election has been introduced to exclude specific income of a Bermuda entity, classified as a CFC for US federal income tax purposes, from the Bermuda tax base.


With an intricate framework boasting 24 interrelated elections, the new regime necessitates careful consideration. The Bermuda Ministry of Finance has released additional guidance, including a frequently asked questions document, shedding light on scoping determinations, interpretations of provisions, election processes, tax loss determinations, and economic transition adjustment computations.


This legislative enactment carries substantial repercussions for MNEs operating in Bermuda, particularly within the insurance and reinsurance sectors, according to tax advisors EY. They recommend that multinational groups with a Bermuda presence evaluate the impact on deferred tax accounting and consider the implications of the enactment on determinations governed by the OECD Pillar Two rules.


Contacts


If you require assistance in relation to the above and/or would like to discuss anything further, please do not hesitate to contact info@act.london or your usual A.C.T. contact.

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