Economic substance incentives unveiled

  • Forward strategy: Curtis Dickinson, Minister of Finance, held a press conference where he outlined proposed incentives in the EU Economic Incentive Programme. He was joined by a number of business leaders (Photograph by Akil Simmons)

The Government of Bermuda is working to make the island more attractive to companies that might be impacted by new economic substance requirements.

Of particular concern are companies registered in Bermuda that have little or no actual presence here. They will have to change that situation and have a visible amount of economic activity on the island, or face penalties.

The worry that some of the thousands of companies likely to be affected will simply go elsewhere, causing economic loss for the island, is being addressed with proposed incentives to keep them here and encourage job creation and opportunities.

Outlining the proposals, which involve work permit policy and payroll tax concessions, Curtis Dickinson, Minister of Finance, said: “The Government’s plan encourages and rewards investment in Bermuda’s economy, encourages businesses already here to expand and stay, and our tax incentives will encourage job creation.”

The economic substance situation stems from efforts by the European Union to curb harmful tax practices, and to secure co-operation from jurisdictions with low or zero rates of corporate income.

Bermuda is one of 13 countries identified by the EU in 2017 as having tax regimes that facilitate offshore structures which attract profits without real economic activity.

The island, along with the likes of British Virgin Islands, Cayman Islands, Guernsey and the Isle of Man, committed to addressing concerns relating to economic substance by the end of last year.

In December, Parliament passed the Economic Substance Act 2018, a move aimed at keeping Bermuda off any EU list of non-compliant jurisdictions. Being on such a list would have negative implications for the island’s status as an international business centre.

As a result of the Act, Bermuda registered business, including those in banking, insurance, financing and leasing, headquarters, shipping, and intellectual property, need to meet economic substance requirements described in the legislation.

“These firms must show that they have a physical presence, personnel and revenue-generating activities in Bermuda,” said Mr Dickinson.

The requirements apply from the start of this year to new companies, and from July 1, 2019, for existing companies.

Explaining the proposed incentives to keep companies affected by the Act in Bermuda, and encourage job creation, Mr Dickinson said the new EU Economic Incentive Programme includes the New Business Work Permit Policy, which is already in place, together with payroll tax relief.

“The Government understands that the two things foremost in the minds of most Bermudians are jobs and the protection of Bermudian opportunities within our own country,” said Mr Dickinson.

“Closed or restricted job categories such as a front office receptionist, or which are entry level, graduate or trainee positions, will remain closed and continue to be protected, giving Bermudians the opportunity to earn employment in the new jobs created by these companies.”

Mr Dickinson said many Bermudians had lost such positions during the recession, and the government “is committed to working with these companies to ensure that unemployed and underemployed Bermudians will be ready and able to fill these posts”.

The minister spoke at a press conference where he was joined by a number of the island’s business leaders.

The New Business Work Permit Policy has been in place since 2012, and allows an exempted company that is new to Bermuda to receive automatic approval of work permits for the first six months of obtaining its first new business permit. There is eligibility criteria, such as a business must be directed and managed from Bermuda, and it must show that it has adequate personnel and expenditure undertaken on island “thus creating jobs and opportunities within new or existing businesses offering support services”.

Mr Dickinson said the policy will include exempted companies already registered in Bermuda without employees and any new exempted company that decides to set-up in Bermuda with employees.

Businesses that need more than 10 work permits within the first six months of operation will be required to present their Bermuda office staffing plan to the minister.

In May, the government granted medium and large companies a three-year employer payroll tax concession for additional jobs created in Bermuda.

Mr Dickinson said: “With respect to this programme, the concession will last for two years and extend to companies that create or transfer jobs to Bermuda.”

He thanked a number of organisations for their support, including the Bermuda Monetary Authority, the Association of Bermuda International Companies, Association of Bermuda Insurers and Reinsurers, and government technical officers, and added: “Our goal is to have more companies and more jobs based in Bermuda, providing more employment and entrepreneurial opportunities for Bermudians.”

See Related Media for Mr Dickinson’s statement