As Bermudian businesses continue to grapple with a 15% corporate tax becoming effective January 2025, Premier David Burt told this publication that reducing other costs of doing business on the Island is the government’s priority to remain competitive long term.
In doing so, the Premier added that the view from very early on was that revenue from the corporate income tax “should not be broadly revenue accretive, but … used to reduce existing taxes, which factor into our cost of living”.
For example, businesses on the Island are subject to payroll tax, which is specific to Bermuda. Its tax system is largely consumption-based with custom duties or taxes on imports, which raises the cost of living and cost of doing business on the Island.
“To be longer term competitive, we want to reduce our costs of doing business in Bermuda, so that companies can even have more of an impetus to continue to set up and expand operations here in Bermuda versus other jurisdictions,” he said during an interview with this publication on the sidelines of the Bermuda Risk Summit.
Last year, news emerged that Bermuda was evaluating a 15% corporate income tax in 2025 under the OECD’s global minimal tax rule. This rule would apply to Bermuda companies that are part of global franchises and have revenues of more than EUR750mn ($793mn).
During Q4 2023 earnings, a list of Bermudians including Arch, RenaissanceRe and Everest disclosed provisions considering the looming tax.
For its implementation, the government has already set up a tax reform commission, which was empowered under the law to make recommendations for changes in the tax system.
As discussions are underway, Burt said he couldn’t speculate what the outcome would be.
But he added that the government has specifically indicated expectations that “companies that are in scope for the global minimum tax would not be paying some of our domestic taxes, specifically the ones that are imposed directly on companies, and that is the payroll tax”.
The payroll tax is currently the jurisdiction’s largest revenue source, according to the Premier. Regulators are also working on putting in place qualified refundable tax credits.
Meanwhile, the government is ramping up administrative efforts to accommodate corporate tax, which the Island has no prior experience in collecting or implementing.
Burt said the government started the work before the legislation was put in place in December.
“Shortly we're going to be in recruiting, we've allocated budget so far as making sure that we procure the IT systems, on human resources,” he said. “We’ll be up and running, ready in January.”
Burt said that the chatter around Bermuda’s tax advantages has been “often overhyped”, as so many companies on the Island will not be impacted by the change.
“From a return to shareholder perspective, yes, there's some [impact],” he noted. “But it's also important to note that many of our companies already had elected to be US taxpayers or taxpayers or tax residents in other European jurisdictions, while still operating and maintaining that regulatory and international headquarters here.”
And for those companies with a long-standing history in Bermuda, they are there because of the regulatory environment and intellectual capital, the Premier said, adding that there are many companies that set up shop in the past five years who chose not to be tax residents of Bermuda.
While some jurisdictions have decided not to comply with the OECD rules, Burt says in the long term, doing so will benefit Bermuda companies, as it clears the long-hanging uncertainty over the jurisdiction’s corporate tax.
“That's why the companies love operating from here,” he said. “Because we're talking about global companies; if you're in a jurisdiction that is running afoul of global norms, that cannot be good for a long-term investment.”
During his remarks at the Bermuda Risk Summit, the Premier said that he hoped the implementation of the new tax system will remove the “ridiculous moniker” of the Island being a tax haven.
Before the decision, regulators and a group of experts looked at multiple options around the OECD tax reform. According to the Premier, the general view was that not doing anything would be “more damaging” to the international companies in Bermuda.
“Because not only would they be subject to the taxes that already exist [in Bermuda], but they would still have to pay that 15%,” he said.
“But it would be more complex because rather than paying it to one jurisdiction, they would be having to pay it to France and Germany and the other places which have signed on to the global minimum tax agreement.”
International business accounts for around 28% of Bermuda’s GDP, according to government figures.
In Q4 2023, Bermuda had 75% more company registrations than it did the year before.
“That just goes back to the issue of when uncertainty is removed,” Burt said, which in turn reflects more willingness to “make long-term decisions, to bet on a jurisdiction that has always been a successful long-term bet for insurance companies”.