Bermuda Parliament to consider corporation tax

The Bermuda Government will introduce a corporate income tax bill to implement the global minimum tax agreement within the next nine months, it was announced on Friday.

The Government made the announcement on Friday in its annual Throne Speech. It comes after Government recently launched its second round of consultation on the measure, which was described as “the most fundamental tax reform in Bermuda’s history”.

The move also follows consultation with the re/insurance sector and the broader business sector. Re/insurers are likely to form the largest segment of international companies with more than €750 million in annual revenues who would be liable to pay the tax, which is likely to be set at 15% of annual net income.

The Government also announced that the Bermuda Business Development Agency (BDA) will be restructured from a marketing/ development agency to an investment promotion agency.

On the corporate income tax, the Government said: “In October 2021 a global agreement was reached to make material changes to the global tax system. It was agreed that a minimum tax would be imposed on large multinational enterprises with over 750 million euros of global revenue.

“Almost 150 countries agreed a framework that would subject such entities to a minimum 15% effective tax rate, applied to the profits in every jurisdiction in which they have a corporate footprint.

“After two successful rounds of consultation with the public and particularly with affected industry stakeholders, during this Session the Legislature will be invited to consider an historic Corporate Income Tax Bill to implement the Global Minimum Tax agreement in Bermuda.”

The Throne Speech, which was read by the Governor, Rena Lalgie, said work would also be done developing refundable tax credits which would provide incentives for international companies in Bermuda to invest in projects that would boost the economy and infrastructure. These amendments would follow passage of the principle Act.

In the past, the Government has said the tax credits could be used to encourage training and employment of Bermudians.

It added: “The implementation of the global minimum tax in Bermuda will be the most fundamental tax reform in Bermuda’s history, and additional revenues that may accrue to the Government must be balanced by a reduction in existing taxes and customs duty to ensure that Bermuda remains competitive and retains our thriving international business sector.

“To that end, the establishment of a new Tax Reform Commission enabled by an Act of the same and passed in the Legislature in 2020 will fulfil the Government’s commitment to examine existing taxes and make recommendations for the changes necessary to reduce the cost of living and the cost of doing business in Bermuda.”

Although the measures are generally supported by re/insurance community, some uncertainty remains over the tax.

The Opposition One Bermuda Alliance flagged up some concerns over the tax, with Shadow Finance Minister Senator Douglas De Couto warning that some companies could leave Bermuda and that revenue from the tax could be uneven due to the volatility of re/insurers’ earnings.

“The tax income can change a lot from year to year and will be hard to budget around,” said De Couto in an opinion piece published in Bermuda’s news media last week. “In some years we may get very little tax income, and even on average the tax income may be less than we hope. The Government must operate with a radically increased level of fiscal discipline to cope with this.

“Our economy and financial stability are at risk if we don’t properly handle the changes required to our tax system. It will be incredibly complicated and expensive to implement this new tax and related changes to our tax system, which are at least as complex as anything the Government and the Civil Service has done previously.”

He added: “We cannot count on a steady stream of tax income every year. A large part of Bermuda’s international business is property and casualty (re)insurance. Those companies can all lose a lot of money in the same year because of massive catastrophe events such as hurricanes or terrorist attacks.

“And for tax purposes, those companies can count the losses for multiple years, not paying taxes until the losses are earned back. One bad loss year for companies can turn into multiple bad tax years for Bermuda.”

The Throne Speech also unveiled plans for the restructuring of the BDA, which was created in 2013.

It said: “The Bermuda Business Development Agency (BDA) has operated as a marketing agency and concierge for new business for some years and has a record of promoting the best that Bermuda has to offer the global community. The competition for foreign, direct investment is evidenced by the number of jurisdictions creating agencies with such a goal as their single remit.

“Driven by the Board of the BDA and endorsed by the Ministry of Economy and Labour, the organisation will pivot now from a marketing/ development agency towards an investment promotion agency or IPA.

“This transition will commence in earnest with a view to its completion to coincide with the new fiscal year, 2024/25.”