Understanding Bermuda’s New Corporate Income Tax Act
Bermuda, recognized as a leading offshore financial centre, has taken a significant step to align with global tax regulations. The island’s legislature has introduced the Corporate Income Tax Act 2023 (CIT), which is in response to the OECD’s inclusive framework for a global minimum income tax, known as Pillar 2. This new legislation will levy a 15% income tax on constituent entities of multinational enterprises (MNEs) with annual consolidated revenues exceeding €750 million.
With the enactment of the CIT, MNEs are prompted to reassess their tax strategies and address Bermuda-specific issues. As the initial tax filings under this act are not due until 2026, the upcoming period presents a critical time for evaluation and strategic tax planning.
Valuation Adjustments and Opportunities
The CIT Act introduces an economic transition adjustment (ETA), akin to fresh start accounting, which permits adjustments in the tax basis of certain assets and liabilities to reflect their fair value as of September 30, 2023. This provision opens doors for MNEs to capitalize on deferred tax assets or carry forward losses. For instance, intangible assets such as trade names, technology, and licenses may be revalued and amortized, potentially easing future tax liabilities and enhancing deferred tax assets.
Exemptions to Consider
Additionally, the CIT Act encompasses several technical exemptions that warrant attention from MNEs during their planning phase. Notably, the “limited international presence” exemption could offer advantages to MNEs with smaller jurisdictional footprints, aligning with tax incentives for specific business configurations.
Kroll’s Expertise in Navigating the CIT Act
Kroll, with its extensive valuation practice, stands ready to assist clients in independently assessing their intangible assets, ensuring confidence among management, auditors, and stakeholders. Furthermore, Kroll’s corporate restructuring teams are equipped to guide MNEs through reorganization or simplification of legal structures, aiming to optimize shareholder value in light of the new tax landscape.
The introduction of the CIT Act marks a transformative period for MNEs operating in Bermuda. As businesses navigate these changes, the expertise of firms like Kroll will be invaluable in adapting to the evolving tax environment and leveraging the opportunities presented by Bermuda’s commitment to global tax compliance.
