Draft Bermuda corporation tax bill made public

The Bermuda Government has issued a draft bill on its proposed corporation tax as it launched its third consultation on the tax reform. 

The announcement comes days after it was estimated that around 1,400 Bermuda-based international companies may be affected by the proposed corporate income tax, which will be levied at a rate of 15% on companies operating in Bermuda that are part of multinationals with annual revenues of 750 million euros.  

It was also revealed the first round of legislation is likely to be debated by Bermuda’s Parliament next month and that the tax will be implemented from January, 2025. 

The Bermuda Government said that the proposed corporate income tax regime would reinforce Bermuda’s continuing commitment to global compliance and transparency and will maintain its international competitive positioning. Concurrently, Bermuda’s Tax Reform Commission was formally announced on Friday to review and draft proposals to adjust existing taxes to lower the cost of living and working in Bermuda.

The Ministry of Finance conducted two previous Public Consultations concerning the introduction in August and October, respectively.

The Government said: “As a result of consultation feedback, the current proposal would introduce a corporate income tax that would be a covered tax under the OECD’s GloBE rules. This approach aims to minimise top-up taxes levied on Bermuda MNEs in other jurisdictions where they operate. The CIT legislation is intended to come into force in its entirety in January 2025, providing MNEs time to make transition adjustments.

“The Government has proposed a statutory tax rate of 15% and is developing a robust package of Qualified Refundable Tax Credits (QRTCs) to maintain Bermuda’s attractiveness. Investments by corporations that meet the QRTC requirements will benefit Bermuda through development of the workforce, and investments in key areas targeted by the Government, including infrastructure, sustainability, innovation and housing.”

The consultation paper included a draft bill, adding certain aspects of the law will be clarified with guidance in 2023 and expanded in regulations intended to be published in 2024 and subsequent periods. 

“Further amendments to the draft legislation may be made prior to being tabled in Parliament, including those to address feedback provided in response to this consultation,” the Government said. “The legislation is expected to be debated in the House of Assembly in December 2023.”

David Burt, the Premier and Finance Minister, said: “As we enter this third consultation period, it bears repeating that this will be the most fundamental tax reform in Bermuda’s history.

 “The Government places enormous importance on hearing from industry stakeholders and the public as we further develop this legislation. The Government received significant feedback from the previous consultations, which is shaping the proposal into a comprehensive and robust regime that the Government can implement.”

The third consultation period begins on November 15, 2023. All comments should be submitted prior to the deadline of November 30, 2023.

On Friday, Burt announced the membership of the Bermuda Tax Reform Commission and also said an estimated 1,400 Bermuda-based international companies could be affected by the tax reform. 

In answer to questions in the House of Assembly from Opposition MP Scott Pearman, Burt said an estimated 10% of the 14,000 international companies could be affected, but emphasised this was an estimate and he would provide a more accurate number to MPs. 

He also said a tax working group was working on models which would generate more specific numbers which were to be provided to the Tax Reform Commission. 

Burt said the Commission was tasked with “determining any measures that may be taken to best enable a system of taxation and revenue collection that is equitable, effective, efficient, competitive and transparent; and prepare and submit its reports and recommendations”.

He said: “I am cautiously optimistic of the potential this material change in Bermuda’s approach to taxation may bring as it presents a real opportunity to significantly reduce the cost of living and the cost of doing business by eliminating existing taxes and Customs duties.

“Many successive governments have struggled with the challenge of tackling the cost of living in Bermuda and this Government is currently reforming our tax system which has the potential to significantly reduce our cost of living.

“The Commission will review data and other input from the Working Group as part of their deliberations and include these findings in their report and recommendations.”

He said the Commission would be asked to consider and recommend a set of policy options, with the aim of causing the Bermuda tax system:

· To share the payments and benefits fairly and equitably;

· To maintain, and if possible, enhance Bermuda’s global competitiveness;

· To broaden the tax base, reduce the variability of payments, and consider alternate forms of taxes;

· To reduce the impact of taxes on the cost of living in Bermuda and to consider how earners below a threshold of income might benefit from reduced taxes; and 

· To consider how the Government’s revenue management can be improved including appropriate guardrails and approaches to fiscal optimization

The Commission will be chaired by former PWC Caribbean region chief executive officer Darren Johnston, who is now chief operating officer of investment firm Orbis.

The other Tax Reform Commission members are:

● Albert Benchimol – the International Business Representative, who is the Former President and CEO of AXIS Capital Ltd. and currently serves as a Strategic Advisor

● Brian Holdipp– the Progressive Labour Party representative and who is currently corporate and finance counsel at law firm MJM

● Senator Douglas DeCouto JP – the One Bermuda Alliance’s Shadow Finance Minister

● Chris Furbert – the Bermuda Trade Union Congress pepresentative, who is currently president of the Bermuda Industrial Union,

● Jonathan Howesm representing the Bermuda Chamber of Commerce, who is the chief executive officer of Bermuda Press (Holdings) 

An additional member will be appointed later.

Burt said in answers to questions from Pearman that there was “complex modelling work” underway that would be submitted to the Commission which would provide specifics on how many companies would be affected. 

“That work is ongoing so anything I am providing is an estimate at this time rather than anything specific,” he said. 

He also revealed the data being used to estimate revenues had not been provided directly by individual companies. 

Among the provisions being covered in the scope of the third consultation, handling of losses and how they might be carried forward, treatment of local and foreign tax credits and handling of  restructuring and sales are all offered for discussion. 

You can find the consultation and draft bill here.