Taxes in Bermuda for Businesses in 2024: What You Need to Know

In 2024, Bermuda made significant changes to its tax policy, aligning itself with the global minimum tax requirements established by the OECD and international tax standards. For over a century, Bermuda has operated primarily under a consumption-based tax system, but the introduction of a Corporate Income Tax Act in 2023 marks a shift towards a more complex tax landscape. This change is part of Bermuda’s strategy to remain a compliant and competitive international financial center while addressing global tax challenges.

Corporate Income Tax in Bermuda

As part of the 2024 tax reforms, Bermuda introduced a 15% corporate income tax applicable to large multinational corporations (MNEs) with annual revenues exceeding €750 million. This tax, set to take full effect by January 2025, only applies to companies that fall within the scope of the OECD’s Global Anti-Base Erosion (GloBE) rules. Key aspects of the new corporate income tax regime include:

• Scope and Applicability: The corporate income tax is only applicable to Bermuda-based multinational groups that meet the revenue threshold. Smaller local businesses remain exempt from this tax.
• Qualified Refundable Tax Credits (QRTCs): Bermuda has introduced QRTCs as part of the CIT framework to incentivize investments in areas such as workforce development, infrastructure, sustainability, and innovation. These credits are designed to offset tax liabilities for qualifying corporations, making Bermuda a more attractive destination for strategic investments​.
• Corporate Income Tax Agency (CITA): The establishment of a dedicated Corporate Income Tax Agency in 2024 will oversee the administration and enforcement of the CIT regime, ensuring compliance with international standards and transparency obligations​.

Payroll Taxes

Payroll tax remains one of Bermuda’s primary sources of revenue. The payroll tax structure, updated in the 2023-2024 fiscal year, is progressive, with rates based on the level of employee remuneration. The tax is split between the employer and employee, with specific bands determining the percentage of remuneration that is taxable. Key points include:

• Tax Bands and Rates: Payroll tax rates are determined using a marginal or progressive tax structure. As of April 2024, remuneration bands are categorized into five groups, with rates ranging from 5.5% to 10.75% for employees and higher rates for employers.
• Payroll Tax Concessions: Certain industries, such as hospitality, can qualify for reduced payroll tax rates, but these concessions are reviewed periodically based on economic conditions and governmental priorities​.

Regulatory Compliance and Reporting

Bermuda’s regulatory framework has also been strengthened in recent years to meet international compliance and transparency standards. Companies must adhere to strict reporting requirements and ensure that their activities align with the newly implemented regulations:

• Economic Substance Requirements: All Bermuda-based entities engaged in “relevant activities” must meet economic substance requirements. This involves demonstrating substantial economic activity on the island, such as employing local staff, leasing office space, and conducting income-generating activities locally.
• Beneficial Ownership Reporting: All companies are required to maintain and report beneficial ownership information to the authorities unless they qualify for specific exemptions. This measure supports Bermuda’s commitment to global transparency and the prevention of tax evasion.
• AML and KYC Compliance: Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations apply to all financial services firms. Compliance includes regular audits, enhanced due diligence, and adherence to international reporting standards​.

Setting Up a Business in Bermuda

Establishing a business in Bermuda involves several key steps and costs:

• Business Registration: The registration process typically involves initial fees ranging from BMD 1,000 to BMD 5,000 (USD 1,200 to USD 6,000) depending on the entity type. Companies must register with the Bermuda Registrar of Companies and ensure compliance with all regulatory requirements.
• Annual Reporting and Fees: All companies must file an annual return and pay associated fees to remain in good standing. Late filing results in penalties that accrue quarterly. In addition, entities may be subject to ongoing regulatory fees based on their business activities.

Pros and Cons of Doing Business in Bermuda

Pros:

• Established reputation as a transparent and compliant financial center.
• No corporate income tax for local businesses, except for those that meet the MNE threshold.
• Robust legal system based on English common law.

Cons:

• High cost of living and doing business, including payroll taxes and compliance costs.
• Increased complexity in regulatory compliance, particularly for financial services firms.
• Limited applicability of tax benefits for small and medium-sized enterprises.

Conclusion

The 2024 tax reforms in Bermuda, particularly the introduction of the corporate income tax, represent a significant shift in the jurisdiction’s approach to taxation. While the CIT only affects large multinational enterprises, the increased compliance burden and evolving regulatory landscape mean that businesses must stay informed and strategically plan their operations to maximize benefits.