Global Daily Tax News, Bermuda Maintaining Guidance On New Corporate Tax Law, (Mar 15, 2024)

The Bermuda Government has released technical guidance for corporate entities on the territory's new corporate income tax regime, which is to be introduced for financial years from January 1, 2025.

The territory has released answers to frequently asked questions regarding its plans in a regularly updated guidance document.

The Corporate Income Tax Act 2023 was enacted on December 27, 2023, and includes an explanatory memorandum setting out the provisions included in each Section of the Bill.

The legislation provides for the introduction of a 15-percent income tax rate on Bermuda businesses that are part of a multinational group with annual revenue of EUR750m or more, in line with the threshold for inclusion under the global minimum tax, proposed by the OECD under Pillar Two of its two-pillar international tax reform plan.

The Government is currently preparing a package of Qualified Refundable Tax Credits (QRTCs) and has also tasked the Tax Reform Commission to analyze Bermuda's existing regimes to ensure they remain internationally competitive, to reduce the cost of living, and the cost of doing business in Bermuda. These have yet to be announced, as of March 2024, despite the release of the territory's Budget last month.

The FAQs set out the rules regarding elections that corporations may make under various provisions of the Act. Such elections will be made through the corporate income tax return, which has yet to be finalized.

Elections may also be made on a separate form, Form CT-ELP, before the corporate income tax return is filed.

Among other things, other FAQs discuss matters relating to loss carryforwards; specific issues concerning Bermuda permanent establishments; issues regarding transfer pricing adjustments and taxable adjustments; the treatment of permit companies under the Act; accounting issues; and how the revenue threshold should be calculated for purposes of determining whether a group is taxable.

The guidance also explains the Limited International Footprint Exclusion, which is available for five years, subject to conditions. As explained in the guidance, Section 13 of the Act excludes an MNE Group from being an "In Scope MNE Group", and therefore takes it out of the scope of CIT, if the group meets the jurisdictional footprint and the tangible asset value requirements and if no MNE Group constituent entity is required to apply an Income Inclusion Rule to any Bermuda entity that is a constituent entity of that MNE Group.

The conditions for the Exclusion, as set out in the law, are as follows:

• the MNE Group has constituent entities located in five or fewer jurisdictions outside the reference jurisdiction;

• the sum of the net book values of tangible assets of all constituent entities located in all jurisdictions other than the reference jurisdiction does not exceed EUR50m; and

• no parent entity is required to apply an Income Inclusion Rule with respect to any constituent entity of the MNE Group located in Bermuda.