Legislation requiring a "relevant entity" conducting "relevant activity" to report and maintain economic substance has been introduced in Bermuda.
The Economic Substance Act (2018) (the "ES Act") came into force on 31 December 2018 and was amended by the Economic Substance Amendment Act on 28 June 2019 and by the Economic Substance Amendment (No. 2) Act 2019 on 24 December 2019. The Economic Substance Regulations came into force on 31 December 2018 and were amended by the Economic Substance Amendment Regulations 2019 on 22 February 2019; the Economic Substance Amendment (No. 2) Regulations 2019 on 4 March 2019 and the Economic Substance Amendment (No. 3) Regulations 2019 on 24 December 2019 (collectively, the "ES Regulations" and together with the ES Act, the "ES Law").
Draft Guidance Notes on general principles relating to economic substance requirements in Bermuda were published on 28 May 2019 ("ES Guidance"). We anticipate the revised Guidance will be issued in January 2020.
This advisory provides an overview of key aspects of the Bermuda ES Law only and we would be happy to advise in further detail, if required.
Bermuda is a member of the OECD Inclusive Framework on Base Erosion and Profit Shifting ("BEPS") and enacted the ES Law in response to requirements for geographically mobile activities to have economic substance developed under BEPS Action 5, consistent with the European Union timeframe to have such requirements in place on 1 January 2019. Similar legislation has been enacted in all OECD-compliant jurisdictions with no or nominal tax, including the British Virgin Islands, the Cayman Islands, Guernsey and Jersey. The ES Law and ES Guidance were issued following consultation with the OECD, the EU and Bermuda stakeholders. International standards are continuing to develop and it is anticipated that the ES Law and ES Guidance will evolve and be subject to further clarification.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.