Bermuda has made important amendments to its Economic Substance legislation following continued dialogue with the EU Code of Conduct group and the OECD over the last 6 months.
The most significant changes in the Economic Substance Amendment (No.2) Act 2019 and the Economic Substance Amendment (No. 3) regulations 2019 (the Amendment Legislation), which came into force on 24 December 2019 are related to:
Holding entities – the definition of a holding entity has changed significantly to the point that it now only includes ‘pure equity holding entities’.
To bring it in line with other jurisdictions, Bermuda has revised the definition of a holding entity. To fall into this new definition, an entity’s sole function must be to acquire and hold shares or equitable interest, it must perform no commercial activity and the shares or equitable interests held must be a controlling stake in another entity.
This means that an entity which is not a pure equity holding entity and carries on another commercial activity, that is not a relevant activity, will now fall out of scope of the economic substance legislation.
Shipping – there has been a change to the definition of ‘shipping’ in that it now excludes an entity, which owns a vessel that does not otherwise get involved in its day-to-day operation and management.
Local entities – there will no longer be a requirement for local companies to file an economic substance declaration providing that the local entity does not carry out banking or insurance activities and that it is not part of a group that includes two or more enterprises for which the tax residence is in different jurisdictions (part of a MNE group).
Insurance – Intermediaries such as insurance brokers, managers and agents are no longer within scope, leaving just insurers and re-insurers as those that remain within the scope of the relevant activity and therefore subject to the economic substance legislation.
Finance and Leasing – The two previously separate activities of ‘finance’ and ‘leasing’ have been combined. The newly combined relevant activity encompasses those entities that provide to any person for consideration credit facilities of any kind. However, banking, insurance and fund management activities do not fall under this definition.
Following the amendments to the legislation and regulations as identified above, it may be that your Bermuda entity now falls under the scope of the economic substance regime.
If you are unsure whether your business may be affected or there has been a change to your circumstances and you wish to discuss your options, please do not hesitate to contact a member of our team on firstname.lastname@example.org or telephone +44 1624 616544.