Executive summary

The Public Consultation for the Tax Credits Act 2025, issued on 4 September 2025, provides a framework for new tax credits that interact directly with Bermuda's corporate income tax regime. The centerpiece of the proposal is a two-part substance-based tax credit (SBTC) targeted at regulated insurers, expected to be the most significant proposed credit for Bermuda's international business community.

The proposals also include a community development tax credit for charitable contributions and a utilities infrastructure tax credit for capital-intensive investment. The Government's approach with the utilities infrastructure credits aligns the Organisation for Economic Co-operation and Development (OECD) Pillar Two Global Anti-Base Erosion (GloBE) Rules substance carve-outs.

Background

In December 2023, the Bermuda Parliament enacted legislation introducing a 15% Corporate Income Tax (CIT) regime effective for tax years beginning on or after 1 January 2025. (See EY Global Tax Alert, Bermuda Parliament passes legislation to enact a 15% corporate income tax, dated 22 December 2023.)

The September 2025 Public Consultation follows the recommendations of the Bermuda Tax Reform Commission Public Report, published by the Ministry of Finance on 27 August 2025 and highlighting the importance of credits tied to substance, community and infrastructure development in maintaining competitiveness.

Substance-based tax credit for regulated insurers

The draft legislation introduces the substance-based tax credit to reward insurers that build genuine local economic substance through Bermuda groups with at least one regulated insurer, where the group derives more than 50% of its aggregate gross revenues from insurance activities in the fiscal year.

Eligible entities may receive the SBTC based on two components, which are combined to determine the total credit.

Job-based component

Based on qualified payroll expenses of eligible Bermuda employees and contractors, weighted by a "job-based factor" that considers:

• Headcount: Based on the total number of full-time eligible employees for a fiscal year, starting at 0% for groups with fewer than 20 employees and increasing up to 50% for groups with 150 or more employees
• Employment and training: Provides an uplift for eligible payroll expenses for employees who do not require a Bermuda work permit and benefits for investment in training-related expenditures
• Employment growth: Measures year-over-year growth in full-time eligible employees, capped at 200%

Adjustments are also made for stock-based compensation and the proportion of workdays performed in Bermuda, ensuring the job-based factor reflects both workforce size and local economic contribution.

Expense-based component

The expense-based benefit component is calculated on eligible Bermuda expenses, including premises, tangible assets, training, eligible services and other expenses, with the total component capped at 25% of the eligible payroll expenses and weighted by a graduated "expense-based benefit factor" that starts at 0% for the first US$1m of eligible expenses and increases to 50% for amounts of eligible expenses exceeding US$15m for a fiscal year.

The SBTC is subject to a transition factor, with full benefit phased in by 2027. Unused credits may be carried forward and applied over a three-year benefit period.

Observation: The SBTC proposals are designed to qualify as Qualified Refundable Tax Credits (QRTCs). Larger insurers may benefit significantly from the graduated expense component, while smaller groups will need to weigh whether incremental payroll or premises investments yield meaningful credits.

Community development tax credit

The draft legislation introduces a second credit, the community development tax credit, which provides a 25% credit for eligible charitable contributions, applicable across all industries. To qualify for this credit, businesses must meet a minimum threshold of US$300k in cash contributions over a three-year rolling period. Contributions must be directed to registered Bermuda charities with audited accounts, ensuring that at least 75% of the funds support Bermuda-based purposes. This credit is designed to encourage businesses to engage in charitable giving while supporting local initiatives.

Utilities infrastructure tax credit

The draft legislation introduces a third credit, the utilities infrastructure tax credit, which is intended to support critical infrastructure investment by groups under the oversight of the Regulatory Authority with respect to electricity generation and distribution, digital communications and fuel distribution. The credit is available to entities operating in these industries and is designed to support capital-intensive infrastructure development in Bermuda. This initiative is similar to the other credits in its intent to encourage locally anchored investment.

Form of credits

The proposed substance-based tax credit and the community development credit are intended to qualify as QRTCs, whereas the utilities infrastructure credit is treated as a nonrefundable tax credit. Corresponding adjustments to taxable income or loss for a fiscal year for QRTCs are described in the Second Public Consultation — Technical Amendments (See EY Global Tax Alert, Bermuda releases second public consultation for CIT technical amendments, dated 19 September 2025.) The classification of the different types of credits is expected to result in different treatments in the jurisdictional effective tax rate computation for the OCED's Pillar Two GloBE calculations.

Request for comments

The Consultation includes an illustrative draft legislation on which stakeholders are invited to comment. Additional amendments to the illustrative draft legislation may be made before the final Bill is submitted to Parliament for debate, including changes informed by feedback received through this Consultation. The consultation period runs through 25 September 2025.

Implications

The proposed Tax Credits Act would extend the Bermuda tax framework beyond companies within the scope of the 15% CIT — an important point from an OECD validation perspective. The SBTC proposals are particularly significant for global insurers, as the proposals directly link credits to on-island jobs, training and expenditure while providing a refundable mechanism to reduce effective tax liabilities and the overall cost of doing business in Bermuda.

Multinational groups with Bermuda operations should carefully assess the draft legislation, model potential benefits under different operating scenarios and consider making submissions before the 25 September 2025 deadline.