The Bermuda House of Assembly has passed the Economic Substance Amendment Act 2019 (ESAA), exempting entities that are tax resident in a qualifying jurisdiction from the substance requirements of the Economic Substance Act 2018.
The amendment was passed in the House on Friday and is expected to be passed by the Senate on June 26, according to law firm Conyers.
Under the existing rules Bermuda does not exempt entities that are resident in another jurisdiction for tax purposes from economic substance requirements. Curtis Dickinson, Bermuda’s minister of finance, told the House that this “puts Bermuda at a serious commercial disadvantage relative to all of our competitors.”
It could mean up to 20% of Bermuda registered entities are “forced to relocate from Bermuda to one of the other 2.2 jurisdictions (a subset of the EU's grey list encompassing many traditional offshore centres) simply because those other jurisdictions have the certainty of a tax residency exclusion,” Dickinson told the House. This represents about $14,000,000 in government fee revenue and between $30 million and $40 million in service provider fees, he said.
Bermuda had committed to establish an economic substance framework for collective investment funds that was acceptable to the EU as part of the deal that removed the jurisdiction from the EU’s blacklist in May. ESAA is the fulfilment of that commitment.
It had been placed on the blacklist of “non-cooperative jurisdictions in tax matters” on March 12, with its Economic Substance Regulations submission judged to fall short of rules set by the EU Code of Conduct Group in December 2017. Bermuda always maintained the problem had been a technical omission in the submission, and acted quickly to resolve the matter.
There are other areas of divergence between Bermuda and the Crown Dependencies and Overseas Territories which will be dealt with in due course, Dickinson added.
Economic Substance Amendment Act 2019, Curtis Dickinson