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The introduction of corporate income tax is underway in Bermuda.

The proposed tax is expected to take effect in 2025 and will apply to groups with annual revenue of EUR750 million, in line with the OECD's Pillar Two global minimum tax rules.


Although Bermuda's economy is primarily driven by reinsurance rather than financial services, it still plays host to various investment funds, asset managers, family offices, trusts, and other private client structures. While Bermuda is home to 15 of the world's largest reinsurance companies, the impact of the new minimum corporation tax will not be as significant as in some other financial centres. Bermuda did express concerns about the implementation timeline and the potential effects on the financial services sector when it signed the OECD's two-pillar plan in 2021.


Currently, government spending in Bermuda mainly relies on payroll taxes and duties, as there is no corporation tax regime that aligns with the OECD's definition for calculating jurisdictional effective tax rates under the global minimum tax framework. This means that multinational enterprise (MNE) groups with a presence in Bermuda might face double taxation, with top-up taxes payable to other jurisdictions and local taxation in Bermuda without any reduction in the top-up tax payable elsewhere. The consultation policy eliminates the option of maintaining the status quo or adopting a Qualified Domestic Minimum Top-Up Tax (QDMTT) favoured by other low-tax jurisdictions like Ireland.


Instead, the impact of the new tax will be softened by allowing credits for various foreign taxes and qualified refundable tax credits as defined by OECD rules. This will help reduce the net corporate income tax payable by MNEs and maintain Bermuda's global appeal, as stated by the Ministry of Finance. The consultation paper specifies that the tax level set is not expected to result in an overall effective tax rate on profits earned in Bermuda exceeding 15 percent, and it mitigates the potential for top-up taxes in other jurisdictions on profits earned in Bermuda. While the government plans to conduct further analysis to determine the appropriate rate, it currently believes a rate between 9 to 15 percent may be suitable.


Additionally, the government has tasked the Tax Reform Commission with exploring the possibility of restructuring Bermuda's existing tax regimes to lower the cost of doing business and attract more MNEs.


Finance Minister David Burt, who also serves as Premier, commented, "Our goal is to attract and retain businesses in Bermuda, increase foreign investment, create more employment opportunities, expand the workforce, and maximize our local economy's potential." This initial consultation process will end on 8 September.


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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