Economic substance regime now falls under Cita
Recent amendments to Bermuda’s economic substance regime have transferred regulatory responsibility from the Registrar of Companies to the Corporate Income Tax Agency.
The Economic Substance Amendment Act 2026 and the Economic Substance Amendment Regulations 2026 were enacted on March 31.
Together, they clarify and strengthen the existing regulatory framework established under the Economic Substance Act 2018.
Previously overseen by the RoC, oversight and enforcement of the Act now rests with Cita, which makes perfect sense as economic substance is an international tax-driven regulatory measure.
Cita is Bermuda’s specialised tax regulator, and consolidating economic substance regulation under one roof with Bermuda’s other tax regulatory regimes will ensure that the island’s economic substance regime is administered by a regulatory team with a focus and expertise on international tax.
The powers granted to Cita under the Act, which were previously held by the RoC, include the ability to:
- Conduct inspections during working hours with reasonable notice
- Request and review documents and information
- Enter and inspect business premises
- Issue formal compliance notices
- Require co-operation and assistance from entities under review
The substantive compliance requirements of entities which are in scope of the economic substance regime remain unchanged following the introduction of the Amendments.
The Act continues to apply to registered entities (other than non-resident entities), including limited companies, limited liability companies, partnerships, and certain foreign entities operating within the jurisdiction.
Deadlines to file Economic Substance Declarations are also unchanged. In-scope registered entities must submit their ESD via the RoC portal within six months of the end of their financial year.
In-scope entities, other than certain local entities which benefit from reduced economic substance requirements, must continue to demonstrate that:
- They are managed and directed in Bermuda
- Core income-generating activities take place in Bermuda
- They maintain an adequate physical presence on the island
- They employ suitably qualified full-time staff locally
- They incur adequate operating expenditure in Bermuda
Entities engaged in relevant activities, being banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and service centre, intellectual property, and holding entities, must remain vigilant in meeting these criteria.
In-scope entities should also be mindful of the enforcement framework as it relates to notices, fines and penalties.
Cita may impose default fines ranging from $100 to $500 per day, for certain breaches of the Act. For example, this fine can arise when an ESD is filed late with the RoC.
Following the identification of a breach of the Act, via an inspection or otherwise, Cita may issue escalating notices:
- First notice: issued upon initial non-compliance
- Second notice: issued if non-compliance persists after the first notice period
- Third notice: issued where continued failure remains after the second notice
Failure to comply with these notices can result in significant financial civil penalties:
- First notice: $7,500 to $50,000
- Second notice: $25,000 to $100,000
- Third notice: $50,000 to $250,000
If Cita proposes to impose a civil penalty, it will first issue a warning notice stating the proposed amount and its reasons for imposing the penalty.
The entity in receipt of a warning notice will also be advised that it has a right to make a written representation to Cita regarding the warning notice within a specified period, which the legislation provides shall not be less than 28 days.
Cita will decide within three months whether the penalty will be imposed. It will then issue a decision notice, which the entity may appeal to the Supreme Court.
If any person knowingly provides false information to Cita or wilfully obstructs Cita in the exercise of its powers under the Act, it can result in criminal fines and/or imprisonment.
Additionally, Cita holds the authority to apply to the court where an entity fails to comply with a third notice, further escalating enforcement action.
Entities retain the right to appeal certain decisions, including the imposition of fines or penalties.
Having expertise in this area, Appleby can guide clients through their economic substance obligations in this evolving regulatory landscape.
First Published in The Royal Gazette, Legally Speaking column, April 2026
