Bermuda Corporate Income Tax: Response to OECD’s Global Minimum Tax

Bermuda Corporate Income Tax – Introduction

The Bermuda Government is consulting on the introduction of a corporate income tax, a significant policy shift driven by the OECD’s Pillar Two global minimum tax rules, known as the GloBE Rules.

This move aims to align Bermuda with international tax standards and mitigate the impact of top-up taxes under the GloBE framework.

Key Aspects of the Proposed Corporate Income Tax

Purpose and Context

The proposal responds to the GloBE Rules, which apply a top-up tax when the effective tax rate in a jurisdiction is below 15%. The new tax regime in Bermuda is designed to ensure that taxes paid by Multinational Enterprise Groups (MNEs) in Bermuda are accounted for under the GloBE Rules.

Proposed Tax Rate

The Bermuda Government is considering a corporate income tax rate between 9% and 15%, aiming to avoid exceeding an overall 15% effective tax rate for MNEs operating in Bermuda.

Scope and Exemptions

The tax would primarily affect Bermuda businesses that are part of MNEs with annual revenue exceeding €750M.

Certain sectors, such as not-for-profit groups, pension funds, and investment funds, would be exempt from this corporate tax.

Tax Credits and Refunds

Provisions for tax credits and qualified refundable tax credits, as defined in the GloBE Rules, will be included in the new tax regime.

Impact on Local Economy

Most Bermuda entities, especially those with annual revenues below €750M, will not be affected by the new tax.

The Bermuda Tax Reform Commission is exploring restructuring existing tax regimes to reduce living and business costs on the island.

Consultation Process

Initial Consultation

The first consultation period runs from August 8 to September 8, 2023. Interested parties can submit comments through the government’s website or through legal contacts in Bermuda.

Second Detailed Consultation

A more comprehensive second consultation is planned for later in the year to address specific aspects of the proposals, including scope, tax computations, and transitional matters.

Implications for Bermuda and Global Business

Alignment with International Tax Standards

The introduction of a corporate income tax in Bermuda marks a shift towards global tax compliance standards.

Potential Impact on Global Business

The new tax regime will affect how MNEs structure their operations and tax strategies, particularly those with significant activities in Bermuda.

Balancing Local and International Interests

Bermuda’s government must balance the new tax regime’s implications for the local economy with international tax obligations.

Conclusion

Bermuda’s potential introduction of a corporate income tax signifies a notable adaptation to the global tax landscape, particularly in response to the OECD’s GloBE Rules.

It also highlights the increasing international pressure on tax havens to comply with global minimum tax standards, and it underscores the need for MNEs to reassess their tax strategies in light of evolving international tax policies.

Bermuda Corporation Income Tax – Final thoughts

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