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Bermuda introducing Corporate Income Tax for Multinational Enterprise Groups

21 Feb 2024

At the end of December 2023, Bermuda’s Parliament passed draft legislation for the implementation of the Corporate Income Tax (CIT), that would apply to Bermuda based businesses within Multinational Enterprises (MNEs) with annual revenue of €750M or more.

The CIT will be determined based on a tax rate of 15% (subject to reductions for foreign tax credits) and is expected to apply to tax years starting on or after 1 January 2025.

The version of the CIT passed is available here.

Importance of review

Bermuda based businesses that form part of MNE groups must now consider the full impact of this legislation and whether they should make elections contained within the new legislation.

As part of the CIT rollout, Bermuda has introduced specific tax credits to bolster its economic objectives and to remain an attractive tax jurisdiction. The application of the specific tax credits is complex and professional assistance should be sought in all cases where the CIT applies.

Context of the new tax

In should be noted, however, that the CIT initiative exclusively affects large MNEs, aligning with Bermuda’s commitment to take part in the Global Minimum Tax framework, a global initiative gaining momentum. The Bermuda government has stressed that the new tax is not designed to capture local Bermuda businesses or any business not part of a large MNE.

Simultaneously, the newly established Tax Reform Commission will assess the current tax regime of Bermuda, exploring potential restructuring avenues to alleviate the island's cost of living and business operations.

Renowned for its compliance and transparency, Bermuda stands as a fully cooperative tax jurisdiction recognised by the European Union. With 41 bilateral Tax Information Exchange Agreements (TIEAs) and over 125 multilateral treaty partners, the introduction of the CIT enhances Bermuda’s position among the OECD and the EU.

Background to CIT implementation

On August 2023, in response to the OECD Pillar 2 initiative, the Bermuda Government issued the First Public Consultation on a proposal to introduce the CIT that would apply to MNEs in Bermuda with annual revenues of €750 million or more.

Following the conclusion of the First Public Consultation, the government issued a Second Consultation Paper on 5 October 2023 which included:

  • a detailed outline on scoping determinations;
  • the computation of taxable income;
  • the availability of various elections;
  • confirmation that a 15% CIT rate is intended to be applied;
  • uses of losses;
  • foreign tax credits; and
  • an affirmed commitment to develop credits that would constitute qualified refundable tax credits (QRTCs) under OECD Pillar 2.

On 15 November 2023, the Bermuda Government issued a Third Public Consultation and proposed draft legislation for CIT applicable to Bermuda MNEs with annual revenues of €750 million or more. This approach aims to minimise top-up taxes levied on Bermuda MNEs which operate in other jurisdictions. The CIT legislation is intended to become effective for tax years on or after 1 January 2025, providing MNEs the time to make any transition adjustments.

Moreover, the Bermuda Government, under the Third Public Consultation, developed a robust package of QRTCs to keep Bermuda an attractive place for investors. Investments by corporations that meet these QRTCs requirements will benefit Bermuda through the development of the workforce and investments in key areas targeted by the Bermuda Government, including sustainability, infrastructure, housing, and innovation.

The publication of the finalised CIT passed by Bermuda’s Parliament can be found here.

Frequently Asked Questions document issued by the Bermuda Government provides guidance on technical provisions, with updates expected in 2024 and can be accessed here.

Information on the official press releases, consultation papers, legislations and guidance notes can be found here.