Bermuda’s Regulatory Evolution: From Tax Reforms To Beneficial Ownership

Corporate Income Tax Enacted

The introduction of corporate income tax, resulting from the initiatives of the Organisation for Economic Co-operation and Development (OECD), will result in the first major shakeup of the Island’s tax system since the 1800s.  If passed, the implementation would see the end of a tax exemption, the Exempted Undertakings Tax Protection Act 1966, that has been in place for more than five decades.

The 135 members of the OECD Inclusive Framework agreed in 2021 on a two-pillar solution to reform international tax rules to ensure that large multi-national groups (NMEs) pay a minimum level of corporate income tax.  In implementing a global minimum tax, the aim of the OECD is to reduce tax competition between countries, and discourage multinational corporations from profit shifting to low-tax domiciles to achieve tax avoidance.

The proposal will see the introduction of a 15 per cent tax applied to NMEs reporting more than Euro 750 million in global revenue in at least two of the previous four account periods in each jurisdiction that such NME operates.  Any new corporate income tax adopted would include provisions for certain tax credits and qualified refundable tax credits as defined in the OECD’s GloBE (Global Anti-Base Erosion) Rules.

Bermuda's Premier and Minister of Finance, David Burt, has stated that “Bermuda finds itself at a pivotal point and must consider how we can adapt to these impending changes to global tax rules. In response to the substantial changes in the global tax landscape, the Government is considering the implementation of a new corporate income tax regime as part of its work to address the Pillar 2 requirements agreed by the Inclusive Framework.” He added that any new corporate income tax adopted would also include certain tax credits supporting Bermuda’s economic goals and maintaining the jurisdiction’s global attractiveness.

Government estimates that of the 16,000 international companies currently registered in Bermuda, the proposed Corporate Tax legislation would impact approximately 2,000 companies. The Government said the taxes paid under the proposed Bermuda corporate income tax regime would be those which would be payable to other jurisdictions under the global minimum tax framework. Additionally, a number of sectors are exempt from the proposed Bermuda corporate income tax, including not-for-profit groups, pension funds and investment funds.

It is anticipated that further work will need to be carried out by the Ministry of Finance and the Bermuda Government before the corporate tax regime is made effective, including the creation of a body to collect the tax.

The corporate income tax is expected to become effective for the tax year beginning on or after 1 January 2025.

PIPA: Bermuda’s Data Protection Gets The Green Light

The implementation of the Personal Information Protection Act 2016 (PIPA) on 1 January 2025 will be the greatest change to data privacy law in Bermuda, bringing its regulatory environment into alignment with global trends toward increased protection for personal information.

PIPA is designed to protect the fundamental rights and freedoms of individuals relating to the use of their personal information, and places duties and restrictions on the use of such information by all organisations including public authorities. This legislation gives individuals rights and control to decide how their personal information is being used and shared. PIPA defines personal information as “any information about an identified or identifiable individual”. The legislation requires entities to ensure that any personal information used is accurate, relevant, and not excessive to the purposes for which it is used. This may be implemented by way of introducing measures and policies that address how data is collected, retained, and handled. Entities should carefully consider why data is being collected, whether its proportionate to the needs of the business, and disposal of personal information once it is no longer needed. 

The Public Access to Information Act 2010 (PATI) and concomitant regulations provides the public with access, subject to some restrictions, to their records held by public authorities. Together, the right to public access to information under PATI and the privacy rights enshrined in PIPA provide the core foundations of a robust and comprehensive information rights framework.

With the passage of the Amendment Act, all provisions of PIPA are due to come into force on January 1, 2025. The Amendment Act harmonises PIPA and PATI, codifying the access to public records, and providing for the efficient administration of both Acts. The Amendment Act also resolves certain conflicts and duplicate provisions found in PATI and PIPA ensuing, for instance, that there is a single definition of personal information. It also provides one legislative regime through which personal information may be requested or corrected, and gives PIPA, rather than PATI, priority as the route through which requests to public authorities for personal information will be managed. Other changes to the legislation have been included to ensure the efficient practical application of the laws such as giving the Privacy Commissioner six instead of three months within which to prepare year end annual reports under PIPA. 

The Act imposes offences for various actions committed by a person that acts in contravention of the Act, namely willfully or negligently. On summary conviction, an individual may be liable to a fine not exceeding $25,000 or to imprisonment not exceeding two years, or to both. On conviction or indictment, in the case of a person other than an individual, the body corporate may be liable to a fine not exceeding $250,000. The Act also clarifies that where an offence has been committed by a body corporate, and has been committed with the consent or negligence of any director, manager, secretary, or similar officer of the body corporate, or any person who was purporting to act in any such capacity, the individuals as well as the body corporate is deemed to have committed an offence. This means directors and managers must ensure appropriate policies are in place as any failure carried out by the organisation may render them personally liable.

When enacted, PIPA will provide strong safeguards for the collection, storage, handling and sharing of personal information, and its implementation will bolster Bermuda’s reputation internationally ensuring that the jurisdiction’s privacy laws are stringent and fair.

The Privacy Commissioner is likely to increase guidance on compliance
with PIPA, with much of the detail on required practical measures still awaited. The most important topic for many businesses and practitioners in Bermuda will be the extent to which the Privacy Commissioner recognises overseas jurisdictions as affording a level of protection equivalent to PIPA, thereby smoothing the international flow of personal information.

The regulators have shown an openness to technological innovation and working with organisations via the Pink ‘Sandbox’, which provides access to the Privacy Commissioner when developing new uses for personal information, in order to obtain their guidance on likely compliance and potentially a statement from them that the use complies with PIPA.

Beneficial Ownership Register Update

The recent ruling from the European Court of Justice in November 2022, which provided that privacy considerations must be balanced with the need for transparency for anti-money laundering or tax evasion purpose effectively invalidating full access to beneficial ownership registers by any member of the general public, has given rise to whether privacy should prevail over the desire for a public register of beneficial ownership. The judgement also recognised that, in addition to law enforcement, competent authorities and certain other entities, a person or organisation that demonstrates a “legitimate interest” should also have access to the beneficial ownership register.

Bermuda has maintained a central register with the Bermuda Monetary Authority (BMA) since the 1940s. The BMA has always cooperated with onshore regulators in any investigations, so the need for transparency for AML and criminal prosecution purposes has always been satisfied.

David Burt, Bermuda’s Premier, said in a ministerial statement: “Bermuda’s position remains firm. We have committed to publicly accessible registers within 12 months of the publication of the implementation review of the European Union’s fifth Anti-Money-Laundering Directive. Bermuda will then bring into effect the legislative framework to establish public access to beneficial-ownership data held in a central register, mindful of the recent European Court ruling that stated the privacy rights that may be infringed by a public register must be balanced by a legitimate interest test, for persons seeking access to that register.”

Investment Funds

The Investment Funds Amendment Act 2023, the Investment Fund Amendment Rules 2023, and the Investment Fund Offering Document Amendment Rules 2023, each came into operation on 28 September 2023, making various amendments (collectively, the Amendments) to the Investment Funds Act 2006, the Investment Fund Rules 2019, and the Investment Fund Offering Document Rules 2019, respectively. While the Amendments are not expected to materially change the day-to-day operations of most Bermuda funds, the Amendments introduced a number of changes of which operators of Bermuda funds should be aware, including:

• An express requirement to publish/make available to investors copies of an updated offering document forthwith when material changes are made to the fund’s offering document.
• A framework for the imposition of late fees in respect of non-compliance with annual filing and other time-bound requirements.
• Deadline extension application provisions in respect of the requirements to prepare financial reports and submit annual compliance filings.
• A requirement that the annual financial report of a Professional Class A Fund, Professional Class B Fund, or Professional Closed Fund, must contain the fund’s audited financial statements, which is consistent with the requirement that applies to authorised funds (whereas the financial statements included in the annual financial report of a Private Fund may be audited or unaudited).
• A requirement that the approved auditor of an investment fund immediately give written notice to the BMA of certain events (eg that the fund is insolvent or is likely to become insolvent or there is evidence to suggest fraud, theft, or misappropriation of assets) and provide a report to the BMA as soon as practicable thereafter.

Janice Gutteridge
Senior Associate. Janice practices in all areas of corporate and commercial law, advising a wide range of international and local clients. Janice’s primary areas of expertise are with respect to asset financings, particularly aviation and shipping financing, shipping and aircraft registration in Bermuda, and banking and finance transactions. Janice also has extensive experience advising on mergers and acquisitions of both local and international companies, the migration of corporate entities and partnerships into and out of Bermuda, partnership structures, including global restructuring projects involving Bermuda entities, the incorporation and establishment of Bermuda special purpose vehicles and establishing private trust companies. Janice joined CHW in 2007 and was admitted to the Bermuda Bar in 2008. Janice is a member of the WISTA Bermuda Branch and the Society of Trust and Estate Practitioners, Bermuda Branch. Janice is ranked as a Rising Star by IFLR1000 and by The Legal 500 in both of the corporate & commercial and banking, finance & capital markets categories.