Bermuda corporation tax rate could be between 9% and 15%

Bermuda is considering imposing a corporate income tax rate on multinationals of between nine and 15 percent, according to a consultation paper released yesterday.

Approximately 2,000 of the 16,000 international companies registered in Bermuda could meet the standard of having revenue of more than 750 million euros or $825 million along with the other requirements of the global minimum tax regime, according to a report in The Royal Gazette newspaper.

The launch of a consultation on a corporate income tax was announced yesterday by Bermuda Premier David Burt. He was accompanied by leaders of Bermudas international business organisations, including the Association of Bermuda Insurers and Reinsurers and the Bermuda International Long Term Insurers and Reinsurers association.

Any such tax would not come into effect before 2025.

At a press briefing yesterday, Burt said: "“The scale of these international tax changes has not been seen for nearly a century, and the rapid pace of the proposed implementation of these rules will have a significant impact around the world.

“Therefore it would be evident that Bermuda finds itself at a pivotal point and must consider how we can adapt to these impending changes to global tax rules.

“Bermuda’s current consumption-based tax system was developed in the 1800s and reflected the expected scope and nature of expected economic and business activity, given our size and other factors.”

Companies affected by the proposed tax would include multinational companies (MNEs) with their primary domicile in Bermuda and subsidiaries (PEs) of multinationals established in Bermuda, provided the parent company owns more than 80% of the subsidiary.

The definition would likely cover virtually all the major international re/insurance companies in Bermuda.

The consultation paper said a MNE or PE would be exempt if it could prove it was tax resident in another jurisdiction based on the location of its central management and control. Governmental entities, not-for-profits, pension funds and investment funds would also be exempt.

MNEs in the initial phase of their international activity would also be exempted.

Companies would be taxed based on their financial statements, and there would be deductions allowed for net operating losses carried forward and other generally accepted adjustments.

The paper said: “The Bermuda corporate income tax rate would be established at a level which Is unlikely to result in an overall effective tax rate on profits learned in Bermuda in excess of 15%; and  mitigates the potential for top-up tax payable to other jurisdictions on profits earned in Bermuda.”

IT added: “The Government of Bermuda will conduct further analysis to determine the appropriate corporate income tax rate, but currently believes a rate within a range of 9 to 15% may be appropriate to address the policy considerations previously noted.

“The Bermuda corporate income tax would be reduced by foreign taxes to mitigate the potential for double taxation of profits earned in Bermuda (e.g. to the extent that profits earned in Bermuda are subject to both foreign taxes and Bermuda corporate income taxes).”

The paper said applicable foreign taxes would include US income taxes, withholding taxes, US federal excise tax on insurance and reinsurance premiums, and other taxes collected in lieu of an income tax.

Foreign tax credits may be also permitted for foreign income taxes imposed on a direct or indirect parent of a Tax Resident Entity under another jurisdiction’s controlled foreign corporation (“CFC”) regime, equal to the CFC taxes paid or accrued by the direct or indirect parent on Bermuda profits.

Bermuda would also consider offering tax credits (QRTCs) for policy initiatives such as local recruitment and training incentives, capital investment in Bermuda infrastructure and research and development.

The initiative has come about following an agreement in October 2021 by 135 countries to reform international tax rules aimed at ensuring MNEs pay a minimum level of income tax.

The OECD’s Global Anti-Base Erosion (GloBE) rules are intended to ensure that income earned by an MNE is subject to an effective tax rate of 15% in every jurisdiction in which the MNE operates.

Under the proposals, jurisdictions would be entitled to levy a top up tax on entities which paid less than the effective 15% rate on a global basis.

The paper said the Bermuda Government considered and rejected two other approaches to the corporate income tax.

It said it ruled out  “retention of the status quo” in which Bermuda corporate entities are exempted from a tax on profits and in which no effort would be made to “mitigate top-up taxes that would be levied by other jurisdictions on profits earned in Bermuda”.

It said: “Given that the ‘status quo’ approach does nothing to assuage concerns regarding the potential for double taxation in Bermuda and would be anticipated to erode Bermuda’s competitive position, the Government viewed this as an unattractive alternative.”

The Government also rejected implementing a top up tax regime, known as a QDMTT, of its own, in which top up taxes determined under GloBE rules on profits earned in Bermuda would be collected in Bermuda.

The paper said: “While there are certain merits to this alternative, the QDMTT provisions provide less flexibility and do not provide an effective platform for the introduction of certain policy driven design features which are common in many other countries.”

In an initial response to the news, Hannover Re chief executive Clemens Jungsthöfel told analysts:  "We've been expecting this development. We are looking into this, but it is really too early to say what impact that would have .. there is some tax implication, but we are looking into the detail."

Bermuda-registered Hiscox CEO Aki Hussain also told analysts the move could move Hiscox closer to a 15% effective tax rating, adding the company expected Bermuda to continue to push to be an attractive jurisdiction from a tax and regulatory perspective.