Tax_and_substance_in_Bermuda

Bermuda Economic Substance Requirements

To establish if the Bermuda economic substance requirements will apply to any specific entity in respect of each financial year of the entity ("relevant financial period"), please answer the questions in the panel below.

This tool has been developed in response to the Economic Substance Act 2018 (as amended, the "Act") and the Economic Substance Regulations 2018 (the "Regulations"). It is therefore subject to any changes, guidance, the form of annual declaration and any supporting legislation being published.

This tool is only intended to be used as a quick reference guide and not as a substitute for professional advice. For advice on any specific circumstances, please contact a member of our Bermuda economic substance team.

Is the entity any of the following?

  • a company?
  • a limited liability company?
  • an exempted partnership with separate legal personality?
  • an exempted limited partnership with separate legal personality?
  • an overseas partnership with separate legal personality?

Is the entity resident for tax purposes in a jurisdiction outside Bermuda that is not in Annex 1 to the EU list of non-cooperative jurisdictions for tax purposes?

As of 14 November 2019, the EU list is composed of:

  • American Samoa
  • Fiji
  • Guam
  • Oman
  • Samoa
  • Trinidad and Tobago
  • US Virgin Islands
  • Vanuatu

Is the entity engaged in a relevant activity?

"Relevant activity" means carrying on as a business any one or more of the following:

Click the boxes below for a summary definition of each relevant activity.

  • BANKING

    An entity engages in "banking" if it engages in deposit taking business for which a licence is required in accordance with the Banks and Deposit Companies Act 1999.

  • INSURANCE

    An entity engages in "insurance" if it engages in insurance business in accordance with the Insurance Act 1978.

  • FUND MANAGEMENT

    An entity engages in "fund management" if it manages investments for funds and in respect of which a licence is required in accordance with the Investment Business Act 2003 or for which a licence would be required if such activity were taking place in Bermuda.

  • FINANCING AND LEASING

    An entity engages in "financing and leasing" if it provides credit facilities of any kind for consideration to any person (a "customer"), and for the purposes of this definition, (a) consideration includes consideration by way of interest; (b) the provision of credit may be by way of instalments for which a separate charge is made and disclosed to the customer in connection with (i) the supply of goods by hire purchase; (ii) financial leasing (excluding land and interests in land); or (iii) conditional sale or credit sale; and (c) where any credit repayable by a customer to a person is assigned to another person, that other person shall be considered to be the person providing the credit facility. Any activities falling within the activities of banking, insurance or fund management do not constitute financing and leasing.

  • HEADQUARTERS

    An entity engages in business as a "headquarters" if the entity engages in the general management and administration of its affiliates within or outside Bermuda.

  • SHIPPING

    An entity engages in "shipping" if it engages in any of the following activities involving the operation of a ship anywhere in the world other than in the territorial waters of Bermuda: (a) transporting, by sea, passengers or animals, goods or mail for a charge; (b) renting or chartering of ships for the purpose described in paragraph (a); (c) sale of travel tickets and ancillary ticket-related services connected with the operation of a ship; (d) use, maintenance or rental of containers, including trailers and other vehicles or equipment for the transport of containers, used for the transport of anything by sea; or (e) functioning as a private seafarer recruitment and placement service.

  • DISTRIBUTION AND SERVICE CENTRE

    An entity engages in business as a "distribution centre" if it engages in resale of goods purchased from a foreign affiliate.

    An entity engages in business as a "service centre" if it primarily provides consulting or administrative services to a foreign affiliate.

  • INTELLECTUAL PROPERTY

    An entity engages in "intellectual property business" if the entity engages in the exploitation of intellectual property assets (including non-trade intangible assets).

  • HOLDING ENTITY

    An entity engages in business as a "holding entity" if it is a pure equity holding entity. A "pure equity holding entity" is an entity which as its primary function acquires and holds shares or an equitable interest in other entities, performs no commercial activity and which (a) holds the majority of the voting rights in another entity; (b) is a shareholder, member or partner in another entity and has the right to appoint or remove a majority of the board of directors, managers or equivalent of that other entity; or (c) is a shareholder, member or partner in another entity and controls alone, under an agreement with others, a majority of the voting rights in that other entity.

Is the entity a local entity?

A "local entity" is a company to which the requirements of Part I of the Third Schedule to the Companies Act 1981 applies or a LLC to which the requirements of section 11 of the Limited Liability Company Act 2016 applies and, in either case, which carries on business only in Bermuda, and which is not a part of an MNE Group. A "MNE Group" is any Group that includes two or more enterprises for which the tax residence is in  different jurisdictions or includes an enterprise that is resident for tax purposes in one jurisdiction and is subject to tax with respect to the business carried out through a permanent establishment in another jurisdiction. A "Group" is a collection of enterprises related through ownership or control such that it is either required to prepare consolidated financial statements for financial reporting purposes under applicable accounting principles or would be so required if equity interests in any of the enterprises were traded on a public securities exchange.

Is the entity a pure equity holding entity?

A "pure equity holding entity" is an entity which as its primary function acquires and holds shares or an equitable interest in other entities, performs no commercial activity and which (a) holds the majority of the voting rights in another entity; (b) is a shareholder, member or partner in another entity and has the right to appoint or remove a majority of the board of directors, managers or equivalent of that other entity; or (c) is a shareholder, member or partner in another entity and controls alone, under an agreement with others, a majority of the voting rights in that other entity.