Bermuda was added to the EU’s list of non-cooperative jurisdictions for tax purposes on 12 March 2019. The Premier of Bermuda released a statement confirming that whilst Bermuda’s legislative framework is compliant today with the EU requirements a technical omission, now corrected, resulted in the breach of a mandatory deadline thus leading to the present inclusion in the non-cooperative list. The Premier reported that the UK government has stated “that Bermuda has legislated to address the issue identified. In light of this we expect Bermuda, and other compliant jurisdictions, to be removed from the list at the next available opportunity.” The next meeting of the EU’s Economic and Financial Affairs Council is scheduled for May 2019.
Whilst we await this EU reassessment, the economic substance legislation is in force and the compliance deadline remains 1 July 2019. Clients with Bermuda entities need to assess their structures and identify any potential compliance challenges.
All Bermuda companies, LLCs and partnerships (which have elected to have separate legal personality) are potentially within scope of this legislation if they are conducting a “relevant activity”. The relevant activities are banking; insurance; fund management; financing and leasing; headquarters; shipping; distribution and service centers; holding entity; and intellectual property.
An in-scope entity will be required to satisfy economic substance requirements by demonstrating that (i) it is managed and directed in Bermuda; (ii) the core income generating activities are undertaken in Bermuda with respect to relevant activity; (iii) it maintains adequate physical premises in Bermuda; (iv) there are adequate full time employees in Bermuda with suitable qualifications; and (v) there is adequate operating expenditure incurred in Bermuda in relation to the relevant activity.
As a trusted advisor to our clients, we have the specialized knowledge and in-depth understanding of the regime needed to navigate economic substance. We can provide you with an initial assessment memorandum on the scope and applicability of the substance requirements based on your specific structure. If you would like more information on initial assessment advice please contact Sally Penrose or Tim Faries.