Bermuda consults on introducing corporate income tax on Multi-National Enterprises
On 8 August 2023 the Government of Bermuda launched a public consultation on its proposals to introduce a corporate income tax (“CIT”) in Bermuda the proposals for the new CIT regime are set out in the consultation paper (First-Public-Consultation.pdf (www.gov.bm)) (“Consultation Paper”). The initial consultation period will end on 8 September 2023.
If introduced, it is proposed that the CIT regime would be effective for tax years beginning on or after 1 January 2025.
The CIT would be relevant to tax resident Bermudan businesses or Bermudan permanent establishments that are members of Multinational Enterprise Groups with €750 million (approx. £648.1 million) or more in annual revenue (“MNE Group”). If enacted, the proposed CIT rate will be in the range of 9% to 15%.
Bermuda is considering introducing a CIT in response to the OECD Pillar Two GloBE Rules (“Pillar 2”). Under Pillar 2, MNE Groups will have a top-up tax imposed on their profits arising in a jurisdiction where the effective tax rate is below the 15% minimum rate. None of the taxes currently payable in Bermuda will be relevant in assessing whether there is a 15% minimum rate of tax in Bermuda for the purposes of Pillar 2. So, MNE Groups with a presence in Bermuda have potential exposure to double taxation in respect of their Bermudan activities. The Consultation Paper notes that the proposed Bermuda CIT should qualify as a relevant tax for Pillar 2 purposes and thus mitigate the amount of top-up tax payable in other jurisdictions in respect of profits in Bermuda.
The amount of taxable income that would be subject to CIT would be reduced by applicable foreign tax credits and qualified refundable tax credits as defined in Pillar 2. Foreign tax credits include non-Bermuda taxes such as income taxes (including federal, state and local income taxes), withholding taxes, US federal exercise tax on insurance and reinsurance premiums, and other taxes collected in-lieu of an income tax. The Consultation Paper notes that the exact CIT rate is subject to further analysis by the Bermuda government, the aim of the work is to establish a CIT rate that is unlikely to result in an overall effective tax rate exceeding 15% on profits arising in Bermuda, whilst mitigating the potential for top-up tax payable in other jurisdictions on profits arising in Bermuda.
The introduction of CIT will necessitate new tax compliance obligations. Entities within scope of the CIT will be required to file CIT returns and prepare CIT computations (the Consultation Paper suggests that tax computations will generally be prepared on a consolidated basis, to include all Tax Resident Entities and Bermuda PEs which are part of the MNE Group and subject to Bermuda CIT, but it will be possible to elect to file on an individual basis).
The Consultation Paper also notes that it is probable that the current Tax Assurance Certificates may cease to be economically beneficial, since any tax in Bermuda foregone by these certificates will likely become due in other jurisdictions (due to the Pillar 2 top-up taxes). The Government of Bermuda is therefore considering whether any amendments are necessary to the existing Tax Assurance Certificate regime in order to provide that tax may be collected in Bermuda from tax resident Bermudan companies and Bermudan permanent established which could be subject to the proposed Bermuda CIT regime.
As noted above, the proposals are subject to ongoing work by the Government of Bermuda and it is anticipated that there will be further consultation on the introduction of CIT in Bermuda.
