New economic substance requirement exemptions based on tax residency
Bermuda entities that are tax resident in another jurisdiction may now seek an exemption from economic substance requirements. On Friday, 28 June 2019 Bermuda adopted the Economic Substance Amendment Act 2019, which creates an exemption for entities registered in Bermuda that are tax resident in an acceptable jurisdiction. The amendment brings Bermuda’s economic substance legislation in line with other jurisdictions, including the BVI and the Cayman Islands, whose economic substance legislation already includes this exemption. (See the updated table in our economic substance overview and comparison article).
Any entity claiming to be tax resident outside Bermuda will be required to provide relevant information to the Registrar of Companies to show that the entity is tax resident in an acceptable jurisdiction. Such jurisdiction must not be included on Annex 1 to the European Union (EU) list of non-cooperative jurisdictions for tax purposes.
Entities seeking exemption should note that the information received by the Bermuda authorities will be provided to the foreign competent authority of the relevant EU member state or other jurisdiction in which the non-resident entity has its holding entity, its ultimate parent entity, an owner or beneficial owner, or where the relevant non-resident entity claims to be resident for tax purposes.
Draft guidance notes on what evidence is required to support such an exemption have been provided to industry for comments. We will provide a further update on the guidance notes in due course.
Bermuda removed from EU ‘blacklist’
First published 22 May 2019
On 17 May 2019 the European Union (EU) confirmed the removal of Bermuda from the EU’s list of non-cooperative jurisdictions for tax purposes (also known as a ‘blacklist’). Bermuda was added to this EU list of non-cooperative jurisdictions in March 2019 as a result of a typographical error in its economic substance legislation, which error was subsequently rectified. Bermuda’s removal from the EU non-cooperative list demonstrates the jurisdiction’s ongoing commitment to co-operation with the EU on matters of taxation transparency.
The Economic Substance Act 2018 (ESA) and the Economic Substance Regulations 2018 (ESA Regulations) came into force in Bermuda on 31 December 2018. The ESA Regulations were subsequently amended on 22 February 2019 and again on 4 March 2019 (the ESA Regulations (as amended) together with the ESA Act, the ESA Laws). As of 1 July 2019, all Bermuda companies, limited liability companies and limited partnerships with separate legal personality engaged in “relevant activities” will need to comply with the ESA Laws, and will need to file an annual economic substance declaration in 2020 demonstrating their substantive economic connection to Bermuda.
The Bermuda Government is due to issue guidance notes on the ESA Laws to assist with their interpretation and a further update will be provided once this guidance is available.
For more information on any aspect of this briefing please contact any member of the Marbury team.
Related: Overview: Economic Substance in Bermuda