Executive summary

On 17 February 2025, the Government of Bermuda began a third public consultation (Third Public Consultation) concerning corporate income tax (CIT) provisions. The Third Public Consultation primarily addresses the administration of Bermuda's recently enacted CIT. The three-week consultation period runs from 17 February to 10 March 2025.

The Third Public Consultation is presented in three parts. An introduction is followed by an overview of the proposed Corporate Income Tax Administrative Regulations 2025 (the Proposed Regulations). The third part contains illustrative draft legislation for the Proposed Regulations.

Background

In December 2023, the Bermuda Parliament passed legislation enacting a 15% CIT regime that became effective for tax years beginning on or after 1 January 2025 (the Principal Act). (See EY Global Tax Alert, Bermuda Parliament passes legislation to enact a 15% corporate income tax, dated 22 December 2023.)

The CIT will apply to Bermuda Constituent Entities (BCEs) that are part of multinational enterprise groups with annual revenue of €750m or more (In-Scope MNE Group).

In July 2024, Parliament passed the Corporate Income Tax Agency Act 2024 (the Agency Act), which establishes a Corporate Income Tax Agency (the Agency) to administer the CIT regime.

On 7 August 2024, a first public consultation (First Public Consultation) related to CIT administrative provisions was released to provide stakeholders with a summary of the proposed tax compliance framework. (See EY Global Tax Alert, Bermuda releases public consultation for CIT administrative provisions, dated 15 August 2024.)

On 31 January 2025, a second public consultation (Second Public Consultation) related to enforcement provisions outlined a wide range of proposed civil and criminal penalties (the Proposed Penalties Act) related to the CIT. (See EY Global Tax Alert, Bermuda releases public consultation for CIT enforcement provisions, dated 5 February 2025.)

Detailed discussion

Together with the Proposed Penalties Act, the Proposed Regulations focus on terms and processes required for the orderly administration of the Principal Act. The Proposed Regulations cover four primary topics: (1) registration and general administration; (2) payment of taxes; (3) returns; and (4) enquires, assessments, clearance and disputes.

Registration and general administration

Part II of the Proposed Regulations grants the Agency the authority to prescribe the format of registration and electronic and non-electronic records. These records are to be treated as confidential by the Agency and appropriate safeguards will be installed.

The registration provisions impose timeframes for both existing and newly formed entities to register. Each BCE is required to register no later than the earlier of: 30 days prior to payment of any required installment payment; nine months prior to the original due date of the tax return; or 90 days following the formation, incorporation or registration of the BCE. Where a previously existing entity becomes a BCE for the first time, the BCE shall have 90 days to register. Following a change to information provided as part of the registration process, the BCE will have 90 days to update their registration. A failure to update will be treated as a failure to register, subject to the penalties provided in the Proposed Penalties Act.

The Agency will be entitled to use information shared by the Registrar of Companies for registration. An entity that identifies itself as a BCE on any declaration submitted to the Registrar of Companies will meet the requirements of the registration process unless it receives a notification that further details are required by the Agency. Entities that have not, for any reason, provided the required information via the Registrar of Companies must separately register. At any time, BCEs may voluntarily submit amendments of any details previously submitted in connection with registration.

Any BCE may submit a request to cancel its registration. The Agency will respect a cancellation request after confirming the entity has no tax due; it is not in default of any obligation or requirement of the CIT or the Proposed Regulations; and the cancellation will not prevent the collection of any tax that may become due.

Each Bermuda Constituent Entity Group (BCEG) must designate its Filing Bermuda Constituent Entity (FBCE) prior to the due date for filing a return or the payment of installments, whichever is earlier. The Agency has the authority to designate the FBCE if the group fails to proactively make a designation. FBCEs can be modified or revoked but will otherwise continue to be the FBCE once initially designated.

Payment of taxes

Two installment payments will be required prior to the filing of the tax return. BCEGs with fiscal years of greater than 32 weeks and less than 52 weeks are only required to make the first installment payment. BCEGs with fiscal years of 32 weeks or less will not be required to make installment payments. A de minimis rule will apply if the BCEG's tax for the fiscal year is expected to be less than US$10,000.

The first installment payment is due by the 15th day of the eighth month of the fiscal year. The amount of the installment payment is the lesser of 50% of the annual tax liability or an amount calculated under a safe harbor calculation. The safe harbor is 100% of the tax calculated as if the CIT tax liability was computed by reference to the profit and loss statement in the consolidated financial statements of the ultimate parent entity for the first six months of the fiscal year. For purposes of the safe harbor calculations, adjustments to Financial Accounting Net Income or Loss as required by the CIT will be computed by reference to the six-month financial statements. Certain adjustments, such as the economic transition adjustment, adjustments due to IFRS 17 or Long Duration Targeted Improvements, and certain prior period errors and changes in accounting principles will be limited to 50% of the full-year amount. Limitations, such as the 80%-of-taxable-income limitation related to the utilization of loss-carryforward deductions, for each fiscal year will apply to the amount calculated under this safe harbor method, rather than being based on a full year.

The second installment payment is the lesser of 90% of the annual tax liability or the safe harbor calculation less the amount of the first installment payment. The second installment payment is required to be paid by the 15th day of the 12th month of the fiscal year. The safe harbor for the second installment is calculated in the same manner as prescribed for the first installment, replacing the 100% of the tax calculated threshold with 120%, utilizing the profit and loss statement for the first nine months of the year, and prorating the annual adjustments for the specified items to 75% of the full year amount.

The methodology used to calculate installment payments shall be disclosed, along with necessary supporting calculations. The safe harbor method for the tax installments is elective with disclosure at the time of the filing of the tax return.

Payments should be made by the FBCE. Payments and refunds will be made in United States dollars unless the Agency has provided prior consent to pay in Bermuda dollars. Installment payments can be reallocated to other BCEGs within the same In-Scope MNE Group.

To the extent an underpayment arises, interest will accrue from the day after the date the installment or final payment was required to be received. Overpayments can be refunded or reallocated to future tax years or to other BCEGs within the same In-Scope MNE Group. Overpayments not reallocated will accrue interest after 90 days. The rates of interest applicable to both underpayments and overpayments are set out in the regulations.

Returns

BCEs are required to file a tax return for each fiscal year by the last day of the 10th month following the fiscal year covered by the return. The required filing date is a change from the date proposed in the First Public Consultation (i.e., proposing returns would be due by the 15th day of the 10th month after fiscal year-end).

Amendments to tax returns may be made within the prescribed timeframe as described in the Proposed Regulations, generally within three years of the due date of the original return. An amendment may be made after the specified timeframe by consent of the Agency.

The Agency can require the filing of a return where a return has not been filed. Furthermore, where obvious errors or omissions exist, the Agency will have the power to correct the return within three years of filing with notice provided to the taxpayer. A BCE has 90 days to reject the correction.

The taxpayer must retain documentation for a period of five years from the filing date of the tax return or final assessment.

Enquiries, assessments, clearance and disputes

Enquiries can be made within four years of the later of the original due date for the return or the actual filing date of the return and will not be extended unless through mutual agreement. No time period for enquiry will exist if a return has not been filed or fraud or intentional misstatement has occurred.

If a tax return has not been filed or has been filed with materially incorrect or incomplete information, the Agency can assess tax, interest and penalties by issuing a notice of proposed assessment. A FBCE will have 60 days from the date of the notice to challenge the findings. A final assessment will be provided, and the dispute resolution procedures will apply if necessary.

An FBCE may bring an appeal on behalf of the BCEG to the Supreme Court against any final notice of assessment. If the appeal is brought after 120 days of the final notice, the assessed tax must first be paid or guaranteed by letter of credit, bond or surety to proceed with the process.

Clearance procedures will be available if one or more members of a BCEG propose to discontinue, liquidate or otherwise dissolve and no members of the existing BCEG would be subject to tax in Bermuda following the transaction. The Agency may grant clearance for the BCEG to dispense with the requirement to file a return or make payments, assuming the BCEG meets the conditions required by the Agency, including the making all final payments of tax and filing a short-period tax return.

Request for comments

The Bermuda Government invites public comments and requests for further clarification on the administrative proposals presented in the Third Public Consultation. Comments received after 10 March 2025 may not be considered.

Implications

The Third Public Consultation provides a broad proposal on how the CIT will be administered, including filing and registration requirements, payments of tax, and enquiry and dispute processes. Multinational groups with Bermuda operations should carefully review the Third Public Consultation and consider submitting comments to the Bermuda government.