BERMUDA Law and Practice Contributed by: Natalie Neto, Rachel Nightingale and Tyson Oladokun, Walkers
inclusion rule with respect to any constituent entity of the MNE group located in Bermuda; • the de minimis exemption, which is where the average revenue is less than EUR10 million and the average net taxable income (or loss) is less than EUR1 million; • elections to treat <80% owned entities as BCEs; • elections to enable entities to determine the com - position of a BCE Group; • elections to determine financial accounting net income or loss in accordance with an approved accounting standard; • elections relating to investment entities (see 2.3 Special Incentives ); and • transaction-specific elections. The tax rate is then applied to the extent that the BCE Group has net taxable income, and available foreign tax credits and other permitted tax credits are deduct - ed to determine the final tax liability. 2.2 Technology Investments The CIT Act was designed to align with the OECD’s Pillar Two framework rules (the “GloBE Rules”). The objective is to reduce the amount of top-up tax pay - able to other jurisdictions, to prevent double taxation of profits earned in Bermuda, rather than to provide industry-specific tax incentives. There are no special incentives under the CIT Act spe - cifically for technology investments. Relief may arise through the tax credit framework or underlying finan - cial accounting treatments. 2.3 Special Incentives The CIT Act has a number of industry-specific provi - sions. International Shipping Income Exclusion This exclusion is contained in Section 36 of the CIT Act and operates as a statutory adjustment to a BCE’s financial accounting net income or loss, by exclud - ing a BCE’s income (or loss) derived from qualifying international shipping activities, which could poten - tially create opportunities for Bermuda’s economy and preserve its reputation as a shipping and mari - time headquarters jurisdiction. The provisions under the CIT Act align to the equivalent provisions under
the GloBE Rules. To qualify for the exclusion, the BCE must have its strategic or commercial management in Bermuda. This requirement aligns closely with Bermu - da’s economic substance rules for entities conduct - ing the relevant activity of “shipping business”, which applies to operators of ships in international waters. Investment Funds Investment funds have special treatment under the CIT Act. The subsidiaries of investment funds that are UPEs are excluded from corporate income tax. Most funds will not form part of a consolidated group for accounting purposes and would therefore be excluded or, to the extent that they do form part of a consolidated group, can usually avail themselves of the exemptions and exclusions such that corporate income tax will not apply. In particular, the taxable distribution method election may be used where a BCE owns an interest in an investment entity or an insurance investment entity and enables the treatment of the BCE’s ownership interest as generating taxable income that is distributed to the investors rather than being taxed at the entity level. Tax Credits for Insurance Industry These include substance-based tax credits that were designed for (re)insurers to reward tangible on-island presence, thereby boosting jobs and local spending, and incentivising economic substance for international businesses, especially those tied to the (re)insurance sector. The credit is refundable within four years and can therefore be used to reduce tax liability. If it is not used in full by the fourth year, then it is refunded in full. BCE Groups with a least one entity licensed as an insurer under the Insurance Act 1978 will qualify. The BCE Group must derive over 50% of its Bermuda rev - enue from these insurance activities. The job-based component provides an uplift for eligible payroll tax expenses for employees who do not require a Ber - muda work permit, and benefits for investment in training-related expenditures. It is based on the total number of full-time eligible employees for a fiscal year, starting at 0% for groups with fewer than 20 employ - ees and increasing to up to 50% for groups with 150 or more employees. The expense-based benefit is calculated based on eligible Bermuda expenses,
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