BERMUDA Law and Practice Contributed by: E Scott Swainson, Katrina Dickson and Erik Gotfredsen, Wakefield Quin Limited
Avoidance Most properties are conveyed by separate instrument, so that each qualifies for the lower stamp duty bands on the relevant part of the consideration for a portfolio acquisition. There are rules limiting tax minimisation by “splitting” (ie, transferring property interests via an unnec - essary series of transactions that have no valid justification save tax avoidance – such as trans - ferring partial shares in the same land as part of a series of transactions). Where a transaction is covered by two heads of duty, the higher head of duty will apply. Evasion Tax evasion is a criminal offence, namely con - spiracy to defraud the public purse. Penalties may be applied for late or non-payment. 8.3 Municipal Taxes Property Taxes – Commercial Properties Corporation tax is payable for businesses locat - ed within the City of Hamilton boundaries, and is levied on the annual rental value of the subject property. There are owner and occupier portions of such tax, which are both generally passed on to the tenant. Land taxes are levied at 9.5% of the ARV for commercial properties. Other Levies The tenant also commonly bears any levies for piped water and private sewers. 8.4 Income Tax Withholding for Foreign Investors No Direct Taxation The government of Bermuda does not directly tax income or capital gains.
US Taxpayers Local banks may levy a withholding tax on inter - est paid to US customers. They may also levy a deemed withholding tax on interest charged on a mortgage granted by them to a US customer (this is seemingly to reflect tax deemed denied on loans that would otherwise be made by a US bank). Local banks are often reluctant to loan funds to US individuals due to such complica - tions. Rents or Licence Fees Rental income is not currently taxed. However, a foreign land owner seeking approval to rent licensed land will pay a licence fee equal to hotel occupancy tax on the rental income over the term (ensuring that the hotel industry may compete on a level footing with such persons). Payroll Taxes Employers and employees of Bermuda entities pay payroll tax on salary, bonuses and benefits in kind. Where the shareholders of a local com - pany play an active management role in a com - pany (eg, as a director or acting as a de facto director), dividends or distributions to them are deemed to be the proceeds of their employ - ment and subject to payroll taxes. This does not apply to non-managerial shareholders (simple equity investors) nor to the profits generated by exempted companies doing business overseas. 8.5 Tax Benefits Benefits and Deductions As the government of Bermuda does not (direct - ly) tax income or capital gains, there are no typi - cal tax benefits (in the form of depreciation, etc) to holding real estate. Land Tax as a Wealth Tax Property taxes form an important source of gov - ernment revenue and are charged in bands at
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