BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale and Tyson Oladokun, Walkers
Bermuda’s Corporate Income Tax Act 2023 (as amended) (“CIT Act”) applies to in-scope Bermuda companies, limited liability companies, overseas com - panies registered in Bermuda that meet the definition of “Bermuda Permanent Establishments” (see further below), partnerships and similar arrangements. To be caught by the CIT Act, an entity must be a Ber - muda Constituent Entity (BCE) that is a constituent entity of an In-Scope MNE Group and either a Ber - muda Tax Resident Entity – ie, an entity incorporated, formed or organised in Bermuda, unless the entity is tax resident in another jurisdiction under the laws of that jurisdiction based on its location of management and control; or • a Bermuda Permanent Establishment – ie, a fixed place of business in Bermuda through which the business of a non-Bermuda Tax Resident Entity is wholly or partly carried on in accordance with Article 5 of the OECD Model Tax Convention (ie, a permanent establishment, branch or agency). For these purposes, an “In-Scope MNE Group” is a group that meets the relevant revenue threshold of EUR750 million or more in annual revenues in at least two of the four fiscal years immediately preceding the fiscal year in question and is a multinational enterprise group comprising an ultimate parent entity and one or more entities located in another jurisdiction. A “group” is defined for the purposes of the CIT Act as: • a collection of entities that are related through ownership or control such that the assets, liabili - ties, income, expenses and cash flows of those entities are included in the consolidated financial statements of the ultimate parent entity (UPE), or are excluded from the consolidated financial statements of the UPE solely on size or materiality grounds, or on the grounds that the entity is held for sale; or • an entity that is located in one jurisdiction and has one or more permanent establishments located in other jurisdictions, provided that the entity is not part of another group as described directly above.
Only groups that are made up of one or more BCEs (a “BCE Group”) and are part of an In-Scope MNE Group are subject to corporate income tax under the CIT Act. Under the CIT Act, the charge to tax is imposed on the net taxable income of a BCE Group, not on each BCE on a standalone basis. All BCEs that are members of the same In-Scope MNE Group are aggregated, and a single corporate income tax computation is calculated for that BCE Group. One of the members of the BCE Group is designated as the filing entity. However, each BCE is jointly and severally liable for the tax charge - able to the BCE Group. 1.2 Use and Taxation of Transparent Business Structures The typical use cases for transparent business struc - tures would be: • investment holding structures in investment fund and insurance groups; • joint ventures; or • corporate holding structures where investors or shareholders want look-through treatment for tax and accounting purposes, such as where the entity is a holding or feeder vehicle rather than an operat - ing entity. Their use is largely dictated by, and aligned to, the investors’ or shareholders’ home country tax rules. Under the CIT Act, where an entity is considered fis - cally transparent, its income, expenditure and profits or losses are treated as those of its parent company, rather than being taxed at the entity level offering the look-through treatment. The BCE shall be regarded as fiscally transparent for a fiscal year to the extent its financial accounting net income or loss has been allocated to its owner, and the portion allocated shall be excluded from the determination of the amount used to compute financial account net income or loss. 1.3 Tests for Determining Tax Residence To be caught by the CIT Act, an entity must be a BCE (see 1.1 Corporate Forms and Their Tax Treatment ).
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