Bermuda releases public consultation for CIT administrative provisions

Executive Summary

On 7 August 2024, the Government of Bermuda began a first public consultation (pdf) (First Public Consultation) concerning corporate income tax administrative provisions. The four-week First Public Consultation period runs from 7 August to 5 September 2024.

In December 2023, the Bermuda Parliament passed legislation enacting a 15% corporate income tax (CIT) regime that will become effective for tax years beginning on or after 1 January 2025. The CIT will apply to Bermuda Constituent Entities (BCEs) that are part of multinational enterprise (MNE) groups with annual revenue of €750m or more.

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

The First Public Consultation is intended to provide stakeholders with a summary of the proposed taxpayer compliance framework to administer the CIT and obtain feedback from interested parties.

Detailed discussion

Bermuda tax portal and registration deadline

A central online portal will be developed to manage interactions between Bermuda entities and the Agency. The portal will manage entity registration, filing of the CIT return, processing of installment payments, communications and/or enforcement activities undertaken by the Agency, and access to technical guidance and compliance aids.

BCEs will be required to register via the portal and provide entity-specific information to receive a Taxpayer Identification Number (TIN). In addition to basic information, it is expected that information regarding the parent entity and the broader related group will be required to be provided.

The government anticipates that existing BCEs will be required to register on or about 31 March 2025. Newly formed BCEs will have 60 to 90 days post-formation, or other event causing the entity to meet the requirements to be treated as a BCE, to register with the Agency. Further consideration is being given as to whether certain non-BCEs may be required to register, including MNE Groups with a limited international footprint under Section 13 of the CIT, excluded entities described in Section 10 of the CIT, and less-than-80%-owned entities described in Section 9 of the CIT.

Annual filing requirement

BCEs will file annual CIT returns by the 15th day of the 10th month after the fiscal year-end. The return will include all the particulars required by the prescribed form, which will be issued in future guidance. Failure to file a return in accordance with the procedures and timeframe will generally result in the assessment of penalties or sanctions. The return must be signed by a responsible person within the company or group, generally an officer or other person who is authorized to sign on behalf of the company.

Amended tax returns will be permissible under circumstances to be outlined in future guidance. Consideration is being given to reduced requirements for "nil" returns for entities not in scope due to certain elections made within the CIT.

It is anticipated that a three-year statute of limitations will apply for the Agency to raise inquiries into tax returns and a seven-year record retention policy will be expected.

Installment payments

BCEs must make advance payments toward their expected tax liability prior to the due date for the tax return each year. Failure to remit installment payments will generally result in assessment of interest charges.

The first installment is due by the 15th day of the 8th month after the beginning of the fiscal year and will constitute 50% of the expected tax liability for the year. A safe harbor provision will apply and will be computed on an annualized income approach. The second installment is due by the 15th day of the 12th month and will bring combined total installments to 90% of the expected liability. The final payment to fulfill the entire tax obligation for the tax year must be made no later than the tax return's due date.

Interest and penalties

Overpaid tax that is refunded to the taxpayer will accrue interest at a published rate from 90 days after the return is filed. BCEs may also elect to apply the overpayment to future tax periods.

Underpaid tax will accrue interest at a published rate plus 150 basis points. Any accrued interest will be calculated from the date of the required installment payment.

Civil penalties will be levied for late returns, failure to retain records and other circumstances that the government deems appropriate.

Request for comments

The Bermuda government invites public comments or requests for further clarification on the administrative proposals presented in the First Public Consultation. Comments received after 5 September 2024 may not be considered. The First Public Consultation states that a second public consultation is intended to commence later in 2024 and will contain draft legislation incorporating the results of the First Public Consultation.

Implications

The First Public Consultation provides a broad proposal on how the CIT will be administered, including filing and registration requirements and proposed due dates. Multinational groups with Bermuda operations should carefully review the First Public Consultation and consider submitting comments to the Bermuda government.