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Bermuda

Country Name: Bermuda
Currency: Bermudian Dollar (BMD) (1:1 peg with the US Dollar)
Primary Tax Authority: Bermuda Government – Ministry of Finance
Key Legislation:

  • Companies Act
  • Payroll Tax Act
  • Economic Substance Regulations
  • Tax Information Exchange Agreements (TIEAs) Act

Fiscal Authority Allocation

No Direct Taxes:
Bermuda operates as a tax-neutral jurisdiction with no direct taxes such as corporate income tax (CIT), personal income tax (PIT), or capital gains tax. The Bermuda Government primarily collects revenue through indirect taxes, payroll taxes, and various fees.

Corporate Income Tax (CIT)

No Corporate Income Tax:
Bermuda does not impose corporate income tax on businesses. Domestic and foreign companies operating in Bermuda are not subject to taxation on their profits, capital gains, or income, either locally or internationally.

Corporate Forms and Business Structure:

  1. Exempted Company: Exempted companies are not required to conduct business within Bermuda and are typically used for international operations. They benefit from tax neutrality, with no CIT imposed on their income.
  2. Local Company: Companies conducting business within Bermuda are taxed on payroll and some other indirect taxes, but they are also not subject to CIT.
  3. Branches of Foreign Companies: Foreign branches operating in Bermuda are not subject to corporate income tax on profits.

Exemptions and Incentives:

  • Tax-Neutral Status: Bermuda’s primary attraction for businesses is its complete absence of direct taxes. Exempted companies enjoy indefinite tax neutrality for income and profits derived from international business operations.

Goods and Services Tax (GST) / Value-Added Tax (VAT)

No VAT or GST:
Bermuda does not levy VAT, GST, or any similar consumption tax on goods and services.

Personal Income Tax (PIT)

No Personal Income Tax:
There is no personal income tax in Bermuda. Individuals, both residents and expatriates, are not taxed on salaries, wages, or any other form of personal income.

Additional Mandatory Contributions

Payroll Tax:
Bermuda imposes a payroll tax on employers, which is calculated based on the gross salaries and wages paid to employees. This tax is shared between employers and employees.

  • Employer Contribution: Varies based on the company’s size, typically between 7% and 10.75% of gross payroll.
  • Employee Contribution: 4% to 6% of gross salary.

Withholding Taxes

No Withholding Taxes:
Bermuda does not impose withholding taxes on dividends, interest, royalties, or payments made to foreign entities.

Transfer Pricing Rules

No Transfer Pricing Regulations:
Bermuda does not have formal transfer pricing regulations. However, as an international financial hub, companies in Bermuda are expected to comply with international standards in their home jurisdictions.

Special Tax Regimes

  • Exempted Companies: These companies are a cornerstone of Bermuda’s offshore business structure. They benefit from tax neutrality, and their activities are generally focused on international business sectors such as insurance, reinsurance, and investment funds.
  • Economic Substance Requirements: Bermuda introduced economic substance laws to align with OECD standards. Certain types of entities, such as insurance, banking, and finance companies, must meet economic substance requirements by demonstrating physical operations in Bermuda.
  • Insurance Sector: Bermuda is one of the world’s leading reinsurance and insurance hubs. The sector benefits from regulatory flexibility and tax neutrality, making it an attractive destination for global insurance companies.

Other Taxes

  • Customs Duty: Bermuda levies customs duties on most goods imported into the country, with rates generally ranging between 5% and 25%.
  • Property Taxes: Property taxes in Bermuda are based on the annual rental value (ARV) of the property and are collected at rates ranging from 0.8% to 19%. Properties with higher ARV values are taxed at higher rates.
  • Stamp Duty: Stamp duty is charged on property transfers, certain legal documents, and on certain insurance policies.
  • Land Tax: Bermuda levies land tax based on the annual rental value of the property.

Double Taxation Agreements (DTAs)

Bermuda does not have an extensive network of double taxation agreements (DTAs), but it has signed several Tax Information Exchange Agreements (TIEAs) with countries such as the United States, the United Kingdom, and Canada. These agreements facilitate the exchange of tax information to ensure compliance with international tax regulations.

Local Taxes

Local governments in Bermuda do not collect taxes. All revenue collection, including customs duties, property taxes, and payroll taxes, is managed by the Bermuda Government.

Compliance and Reporting

Economic Substance Reporting:
Under Bermuda’s Economic Substance Regulations, companies in certain sectors, such as insurance, banking, and finance, must demonstrate substantial business activities within Bermuda. Companies are required to submit annual economic substance reports to the Bermuda Monetary Authority (BMA).

Penalties for Non-Compliance:
Failure to meet economic substance requirements can result in fines, legal action, or being struck off the company register.

Recent Developments

Economic Substance Regulations:
In response to international pressure, Bermuda introduced economic substance laws to comply with OECD guidelines. These regulations require certain entities operating in Bermuda to demonstrate substantial physical presence and operations in the jurisdiction.

Insurance and Reinsurance:
Bermuda remains a global leader in the insurance and reinsurance sectors, with many large global companies setting up operations on the island. The tax-neutral environment and favorable regulatory framework continue to attract international insurers and reinsurers.

Digital Asset Business Act (DABA):
Bermuda has positioned itself as a friendly jurisdiction for blockchain and cryptocurrency companies. The Digital Asset Business Act (DABA) provides a regulatory framework for companies dealing with digital assets and cryptocurrencies, further enhancing Bermuda’s appeal for fintech companies.

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