Some captives will be affected by CIT
The Bermuda Corporate Income Tax (CIT) will affect some Bermuda captives but it is not expected to impact the majority of companies in Bermuda.
A panel to discuss the BCIT was held at the Bermuda Captive Conference, moderated by Jennifer Masters, Senior Vice President – Bermuda Captive Leader, Brown & Brown with panelists Cheryl-Ann Lister, Senior Financial & Economic Advisor, Ministry of Finance, Government of Bermuda, Crystal Pittendrigh, Tax Director, PwC Bermuda, Sarah Robey, Tax Partner, KPMG in Bermuda and Donay Viljoen, Tax, Forvis Mazars in Bermuda.
The tax is due to come into effect in January, 2025 and will affect multinationals which have at least €750 million in revenues. It will not be clear how many captives will be affected until registration requirements are completed in early 2025.
Lister said that while the primary driver was the Organisation for Economic Co-operation and Development (OECD), organisations such as the G7, G10 and others, including Bermuda, became involved in lengthy discussions which concluded with an agreement in 2021 by 140 countries to abide by the Global Minimum Tax rate (GMT), later set at 15%.
The Bermuda Government assembled a group of tax experts to determine how to proceed in implementing the GMT with legislation passed in December 2023 that would impact companies falling under GMT Pillar 2. The regime allowed Bermuda to collect tax that would otherwise be paid in other jurisdictions.
What was clear from the panel discussion was that the impact of BCIT on Bermuda captives is complicated. There are many accounting nuances and adjustments that will need to be taken into consideration.
For example, the main adjustment is the Economic Transition Adjustment or the ETA. This is a tax adjustment that looks at the difference between the fair value and the net book value of all the assets and liabilities as at September 30, 2023. For captive insurers typically the items that give rise to these adjustments would be declared acquisition costs, prepaid expenses and adjustments to loss reserves.
It is expected that less than 500 multinationals will be subject to the GMT and it remains unclear how many Bermuda-based captives will be affected, with more clarity expected once registration requirements have been filed early in 2025.
As far as competing jurisdictions such as the Cayman Islands which are not implementing a GMT, the panel said this would not put Bermuda at a competitive disadvantage as, where applicable, the tax would still have to be paid, just not to the Cayman regulator. Companies in Bermuda subject to the CIT may also see their taxes reduced in other areas, such as payroll tax.
While companies subject to the CIT will be expected to make payments in 2025, Lister said the BMA would continue to engage with Bermuda’s international companies and captives. Further consultations are planned with a view to making adjustments on issues such as filing deadlines to ensure they are staggered so as not to coincide with other filing obligations in the US and UK.
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