Bloomberg Tax Country Guide: Bermuda

1.        Overview

1.1. Government and Tax System

Bermuda is the oldest self-governing overseas territory of the United Kingdom, with a local democratically elected government responsible for internal affairs, and the U.K. retaining responsibility for external affairs, defense, and security.

Bermuda’s economy is primarily based on international business and the provision of financial services to that sector, and, to a lesser extent, tourism. As a jurisdiction, it ranks in the top three global re-insurance markets and has been a leader as a captive and non-captive insurance domicile since the 1950s.

In recent years Bermuda has witnessed an emerging trend of `special purpose insurers’ forming and the development of the `cat bond’ (catastrophe bond) market. Following the introduction of legislation initiated by the Bermuda Monetary Authority, Bermuda’s flexible regulatory regime has allowed the cat bond market to rapidly grow to represent a substantial portion of the value in the global market.

Bermuda is also renowned for providing international companies and high net worth families with the highest level of financial, administrative, trust, and fiduciary services. Bermuda is a democratic, politically stable, highly developed, and well-regulated offshore jurisdiction that has a reliable and capable judicial system with the benefit of the Privy Council in London as its highest court of appeal. Bermuda’s legal framework is comprised of local legislation, regulation, and case law. Case law of other commonwealth jurisdictions, while not binding, may also be given consideration by a Bermudian court in particular circumstances.

Bermuda does not tax personal income, corporate income, or capital gains. Government revenue is raised through a variety of measures including, but not limited to, payroll tax, customs duty, stamp duty, land tax, passenger tax, corporate registration fees, permit fees, and license fees.

1.2. Currency 

Bermuda’s currency is the Bermudian dollar.

2.         Corporate Tax

2.1. Residence

There are no income or capital gains taxes on corporate entities in Bermuda and there is no defined concept of residence for tax purposes.

However, registered entities engaged in certain activities are required to demonstrate a substantial economic presence in Bermuda.

2.2. Tax Base—Resident Corporations

There are no income or capital gains taxes on corporate entities in Bermuda.

2.3. Tax Base—Nonresident Corporations

There are no income or capital gains taxes on corporate entities in Bermuda.

2.4. Permanent Establishments—Domestic Law Definition

The concept of permanent establishment for tax purposes has no relevance because there are no income or capital gains taxes on corporate entities in Bermuda.

2.5. Permanent Establishments—Treaty Definition

Bermuda has not entered into any income tax treaties because it does not impose any income or capital gains taxes.

2.6. Permanent Establishments—Creation via Performance of Services

The concept of permanent establishment for tax purposes has no relevance because there are no income or capital gains taxes on corporate entities in Bermuda.

2.7. Tax Year—Default Taxable Year 

There is no income tax year because Bermuda does not impose any income or capital gains taxes.

2.8. Tax Year—Reference Year for Computation of Tax 

There is no reference year for computation of income tax because Bermuda does not impose any income or capital gains taxes.

2.9. Tax Year—Filing Deadline 

As Bermuda does not impose any taxes on corporate income and capital gains, there is no corporate income tax return.

Every exempted company shall no later than January 31 of each year, submit to the Registrar of Companies an annual government fee based on its “assessable capital” (i.e., its authorized share capital and share premium account). The annual government fee is payable on a sliding scale calculated by reference to the assessable capital of the company as at August 31 of each year or, if the company is newly incorporated after that date, as at the date of the filing of the Memorandum of Association. Assessable capital does not include contributed surplus. Share premium is the amount paid for shares upon issue by the company in excess of the par value.

Entities that are subject to the economic substance requirements must file an annual economic substance declaration with the Registrar (on a deadline as yet to be prescribed). The declaration must include the following minimum information for the relevant financial period:

• whether or not the entity is carrying on a relevant activity, and the type of relevant activity carried on or undertaken by the entity;
• whether the entity is engaging in high-risk IP activity;
• whether the entity will outsource the relevant activity and to whom;
• the CIGA that are undertaken in Bermuda with respect to the relevant activity;
• the gross income for the relevant financial year;
• the premises in Bermuda;
• the name(s) and physical address(es) of the director or directors (company), manager or managers (limited liability company), general partner or general partners (partnership), who are ordinarily resident in Bermuda;
• the holding entity, the ultimate parent entity, the owner or the beneficial owner of the entity;
• the operating expenses and assets for the relevant financial year;
• the number of full-time employees; and
• such other information as may reasonably be required by the Registrar.^[1]

An entity that is nonresident for these purposes but that carries on a relevant activity, must provide to the Registrar for each relevant financial period, the jurisdiction in which it claims to be resident for tax purposes together with sufficient evidence to support that tax residence.² The Registrar must provide to the competent authority the information provided to him by the non-resident entity relating to the jurisdiction in which the entity claims to be resident for tax purposes together with evidence to support that tax residence. The competent authority must provide any such information to the foreign competent authority of the relevant EU member state or other jurisdiction in which the nonresident entity claims to be resident for tax purposes, and in which a holding entity, the ultimate parent entity, an owner, or the beneficial owner, of the nonresident entity is incorporated, formed, registered or resident.^[2]

2.10. Tax year—Schedule for Tax Payments or Deposits 

Bermuda does not impose any taxes on corporate income and capital gains.

2.11. Statute of Limitations 

As Bermuda does not impose any taxes on corporate income and capital gains, there is no applicable statute of limitations.

2.12. Intercompany Dividends 

Bermuda does not impose any taxes on corporate income.

2.13. Corporate Tax Rates—Standard Rates 

There are no taxes on corporate income and capital gains in Bermuda.

2.14. Corporate Tax Rates—Special Reduced Rates or Regimes

There are no corporate taxes in Bermuda.

2.15. Taxation of Corporate Capital Gains 

There is no tax on corporate capital gains in Bermuda.

2.16. Treatment of Losses From Business Operations 

As Bermuda imposes no taxes on corporate income and capital gains, the concept of losses for tax purposes has no relevance in Bermuda.

2.17. Taxation of Dividends Paid to Nonresident Corporations

There is no withholding tax on dividends in Bermuda.

2.18. Taxation of Interest Paid to Nonresident Corporations

There is no withholding tax on interest in Bermuda.

2.19. Taxation of Royalties Paid to Nonresident Corporations

There is no withholding tax on royalties in Bermuda.

2.20. Taxation of Payments for Services Provided by Nonresident Corporations 

There is no withholding tax on services in Bermuda.

3.         Personal Taxes

3.1. Domicile and Residency Requirements

In Bermuda, the concepts of domicile and residency are irrelevant for tax purposes as there is no personal income tax. However, there is a payroll tax levied on income from employment and self-employment.

3.2. Tax Base for Residents

There is no personal income tax in Bermuda. However, there is a payroll tax levied on income from employment and self-employment.

3.3. Tax Base for Nonresidents

There is no personal income tax in Bermuda. However, there is a payroll tax levied on income from employment and self-employment.

3.4. Individual Tax Rates

There is no personal income tax in Bermuda.

3.5. Individual Returns, Filing Dates, and Payment

As there is no personal income tax in Bermuda, there are no income tax returns or payments. However, there is a payroll tax levied on income from employment and self-employment.

¹ Economic Substance Act 2018 §5.

² Economic Substance Act 2018 §5A, as inserted by Economic Substance Amendment Act 2019 §3.

³ Economic Substance Act 2018 §6, as amended by Economic Substance Amendment Act 2019 §4.