Navigating Bermuda's New Corporate Income Tax: Insights from Bermuda Captive Conference

The Bermuda Captive Conference panel titled "Fiscal Horizons: Exploring the Effect of Corporate Income Tax in Bermuda" provided an in-depth exploration of Bermuda's recent adoption of the Corporate Income Tax Act (CITA) and its expected influence on businesses operating within the jurisdiction. As explained in the session, the Act, signed into law on December 27, 2023, mandates a 15 percent corporate income tax for applicable Bermuda-based entities beginning in 2025. This legislation aligns Bermuda with the global minimum tax initiative, known as GloBE Pillar 2, which is designed to level the global tax playing field by setting a universal 15 percent minimum tax rate. According to panelists, CITA will apply specifically to Bermuda entities that belong to multinational enterprise groups generating annual consolidated revenues of €750 million or more in 2 of the 4 preceding fiscal years.

Key Scope and Timing Requirements

Panelists highlighted the scope and timing requirements, underscoring that Bermuda constituent entities are defined to include Bermuda tax-resident entities or permanent establishments in the country. Entities captured under the CITA framework will need to follow a structured schedule for compliance. As outlined in the session, companies will be required to submit tax returns within 12 months of their fiscal year-end, with tax payments split into 3 installments: 2 advance payments covering 45 percent of expected liabilities due in the 8th and 12th months, followed by a balancing payment upon filing. Initial registrations are due by March 31, 2025, while new entities must complete registration within 60–90 days of formation. These provisions ensure that in-scope entities adhere to timely compliance, promoting financial stability and regulatory alignment under the new tax regime.

Transitional Adjustments To Support Compliance

The panel discussed how the Bermuda CITA regime incorporates various transitional adjustments designed to smooth the shift to the new tax structure. To accommodate differences in accounting standards and minimize operational disruption, entities may elect several mechanisms.

• Economic transition adjustment. Enables Bermuda entities to conduct fair-value adjustments on assets and liabilities, ensuring balance as they enter the CITA framework.
• Opening tax loss carryforward. This adjustment provides a deduction for eligible losses incurred before the tax regime's effective date, cushioning entities against any immediate tax impact.
• International Financial Reporting Standard 17 (IFRS 17) and Accounting Standards Update (LDTI) adjustments. Acknowledging the significant adjustments resulting from new IFRS and LDTI accounting standards, this option allows Bermuda entities to amortize these changes over a decade.
• Realization principle election. This election option, modeled after GloBE rules, offers entities the ability to calculate taxable income based on realized gains and losses rather than volatile fair value adjustments.

Bermuda-Specific Tax Provisions

Beyond the standard features of the GloBE framework, CITA includes provisions tailored to Bermuda's unique tax landscape. The panelists highlighted the tax transparency election, allowing entities to designate investment vehicles as either transparent or nontransparent in terms of flow-through for GloBE and Funded National Investment Levy purposes. Bermuda also permits offsetting of overseas taxes, encompassing upstream taxes (such as controlled foreign corporation taxes, global intangible low-taxed income taxes, and taxes on dividends) and downstream taxes (like withholding taxes on income). According to panelists, these features contribute to a flexible tax system, mitigating instances of double taxation for Bermuda-based entities operating globally.

Proposed Administrative Framework for Compliance

The session also covered Bermuda's planned administrative measures to facilitate CITA compliance. As of August 7, 2024, Bermuda's Ministry of Finance opened a consultation to shape administrative provisions that simplify and enhance CITA compliance. Plans include an online portal that will streamline registration, filings, payments, and general communication. According to the session, Bermuda entities, even those exempt from CITA, must submit an annual declaration confirming their tax status, a requirement intended to increase transparency and consistency in reporting. Panelists detailed the staggered payment schedule, in which entities must remit 50 percent of estimated liability by the 8th month of the fiscal year, 90 percent by the 12th month, and any remaining balance at the filing deadline. Late filings or payments will incur interest and penalties.