BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale and Tyson Oladokun, Walkers
1.4 Applicable Corporate and Individual Tax Rates For In-Scope MNE Groups, the CIT Act tax rate is 15% of the BCE Group’s net taxable income for the relevant fiscal year, minus any applicable tax credits. Bermuda does not impose a general personal income tax; rather, Bermuda imposes payroll tax (payable by the employer and employee) on remuneration. Payroll tax is charged at progressive rates, with a tax cap of BMD1 million per person. For fiscal years 2025 and 2026, the top employer rate is 10%, applying to remu - neration of between BMD500,001 and BMD1 million, and the top employee rate is 12.5%, applying to remu - neration of between BMD500,001 and BMD1 million. 2. Corporate Tax Regime 2.1 Taxable Profits Corporate income tax is charged on the net taxable income of a BCE Group for each fiscal year. The first step is to calculate the financial account - ing net income or loss of each BCE, as reflected in the consolidated financial statements of the relevant MNE group in accordance with the applicable gener - ally accepted accounting standard (IFRS or GAAP) determined on an accruals basis. The amounts are aggregated at the BCE Group level in accordance with the provisions of the CIT Act. The next step is to calculate the taxable income or loss in accordance with the CIT Act, including: • applying adjustments for fiscal transparency (excluding the portion of the income or loss of a fiscally transparent entity from its own tax base and including it at the level of the relevant owner within the BCE Group); • adjusting for prior period errors and changes in accounting principles; • applying statutory adjustments, as set out in Parts 5–7 of the CIT Act; • adjusting for the impact of any exemptions and elections;
• applying adjustments to income or loss arising from the exclusion for qualifying international ship - ping activities (see 2.3 Special Incentives ); and • applying special rules to any Bermuda Permanent Establishments of non-Bermuda entities and flow- through entities owned by BCEs. The taxable income is then aggregated at the BCE Group level, and the net taxable income is calculated by deducting taxable losses and loss carry-forward deductions. Economic Transition Adjustment (ETA) The ETA allows entities to adjust their tax position by revaluing assets and liabilities to their fair market value as of 30 September 2023, over a ten-year period. It adjusts taxable income to exclude gains or losses that were accrued before the transition date but are recog - nised in accounting profit afterwards, thereby prevent - ing both double taxation and the taxation of historic, pre-tax profits. This ensures that the CIT Act applies only to economic income arising after the commence - ment of the regime. Tax Loss Carry-Forward Election The opening tax loss carry-forward election allows entities to carry forward losses incurred over a prior five-year period to offset future profits. There is an 80% limit on the use of tax loss carry-forward deduc - tions. This limit may not apply where an insurance company incurs a shock loss (an event with a prob - ability of 0.5% or less). Only losses arising under the CIT Act after the introduction of corporate income tax, including any permitted transitional losses, may be carried forward to offset future taxable income. Exemptions and Elections There are certain exemptions and elections (which may apply annually, for five years or on a one-off basis, depending on the specific exemption or elec - tion), including: • MNE groups with a limited international footprint (ie, constituent entities in five or fewer jurisdictions outside of Bermuda) where the total net book value of tangible assets of all constituent entities located outside Bermuda does not exceed EUR50 million and no parent entity is required to apply an income
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