May 2024
The Economic Substance Act 2018 (the “Act”)1 requires Bermuda-based entities that are carrying on a “relevant activity” in a relevant financial period and entities claiming “non-resident entity” status under the Act to file an Economic Substance Declaration Form (a “Declaration Form”) with the Bermuda Registrar of Companies (the “Registrar”). Such Declaration Forms must be filed annually, within six months of the last day of the entity’s financial year. For example, an entity with a financial year-end of 31 December 2023 will be required to file its completed Declaration Form by 30 June 2024.
Relevant Activities
The following are relevant activities, as defined by the Act:
- Banking
- Financing and leasing
- Intellectual property
- Insurance
- Headquarters
- Distribution and service centres
- Fund management
- Shipping
- Holding entity
Economic Substance Declaration
Every entity carrying on a relevant activity in respect of the relevant financial period must file a Declaration Form. The Declaration Form requires the disclosure of certain financial and other information, and the extent of the information required will depend on the nature of the relevant activity and the particular circumstances of the entity.
The Declaration Form can only be filed via the Registrar’s Online Register Portal, which is accessed via the following web link: www.registrarofcompanies.gov.bm
Nil Gross Revenue – Relevant Activity
Entities that do not earn any gross revenue in respect of a relevant activity are only required to file a “nil” Declaration Form. Any entity conducting a relevant activity that does not earn gross revenue in a relevant financial period is not required to comply with economic substance requirements beyond completing and filing the “nil” Declaration Form.
“Non-resident Entity” Status2
Entities that are tax resident outside Bermuda (in a jurisdiction that is not on the European Union’s list of non-cooperative jurisdictions for tax purposes) are only required to file evidence or confirmation of their tax residency. Where documentary evidence is not available for the entire relevant financial period at the time of filing the Declaration Form, it is possible for the entity to file a provisional claim of residency for tax purposes. Final evidence of tax residency must be supplied by a date specified to the entity by the Registrar, or, in any event, no later than 12 months from the date of the provisional claim. Non-resident entities are not required to comply with economic substance requirements beyond completing and filing the Declaration Form and evidence or confirmation of their tax residency status.
The Registrar has advised that one or more of the following is sufficient final evidence to demonstrate an entity’s tax residency outside Bermuda:
- a letter or certificate from the competent authority or tax authority of the jurisdiction in question, stating that the entity is considered to be resident for tax purposes in that jurisdiction; or
- an assessment to tax on the entity, a confirmation of self-assessment to tax, a tax demand, evidence of payment of tax or any other equivalent document issued by the competent authority or tax authority for the jurisdiction in question.
Where an entity made a provisional tax residency claim in its Declaration Form filed in 2023, we recommend such entity provides the Registrar with the final evidence once it is available, if this has not yet been done.
If an entity intends to make a claim for “Non-resident Entity” status in its upcoming Declaration Form, we suggest such entity requests final evidence of this tax residency from the relevant tax authority as soon as practicable.
Entities which claim to be non-resident entities for tax purposes relying on an election made under section 953(d) of the Internal Revenue Code of the United States of America (“Election”), a document stamped or issued by the Internal Revenue Service which confirms approval of the Election will be construed as sufficient evidence of tax residence in the United States of America for a relevant financial period.
Economic Substance Requirements
Where an entity (i) is not a non-resident entity, (ii) has conducted a relevant activity and (iii) earned gross revenue in a relevant financial period in respect of such activity, its economic substance requirements will depend on the nature of the relevant activity and the particular circumstances of the entity.
For an overview of economic substance requirements for Bermuda-based entities, click here. However, we recommend seeking legal advice in Bermuda concerning the individual situation of any entity or proposed entity.
Compliance Reviews
The Registrar continues to select entities as part of their ongoing monitoring exercises to ensure compliance with, and adherence to, the provisions of the Act, where applicable. Selected entities typically receive requests for information in connection with the Declaration Form filed in respect of previous years in order to, for example, verify which relevant activity or activities the entity engaged in during a relevant financial period.
How Can We Help?
Conyers has been closely involved with the implementation of Bermuda’s economic substance legislation. Our lawyers have advised and assisted our clients with their assessment of the impact of the economic substance requirements, as well as the filing of their Declaration Forms. In so doing, we have acquired an unrivalled understanding in Bermuda of the economic substance requirements of various types of entity, across all relevant activities.
Please reach out to your usual Conyers contact or our economic substance team at [email protected], for help with:
- determining the status of an entity for economic substance purposes
- advising on the compliance of an entity with the economic substance requirements
- clarifying the reporting obligations of an entity
- completing and filing the Declaration Form
- compliance reviews
If you would like Conyers to assist with any of the above in connection with your 2024 Economic Substance filings or compliance reviews, please contact us as soon as possible.
Corporate Services
In some instances, entities required to meet economic substance requirements may benefit from our fiduciary services, including local directorship services. Contact us to find out whether we can assist you in fulfilling your obligations under the economic substance regime.
1In 2018, Bermuda enacted legislation with respect to economic substance requirements for relevant entities based in the jurisdiction. All other major offshore jurisdictions have enacted similar legislation.
2 Entities claiming to be tax resident in certain no-tax or only nominal tax jurisdictions will not be deemed by the Registrar to be resident for tax purposes in a jurisdiction if that jurisdiction does not have a corporate tax regime and/or residency for tax purposes in such jurisdiction does not result in the entity being subject to the equivalent economic substance requirements in that jurisdiction. Such jurisdictions may include Anguilla, Bahamas, Bahrain, Barbados, British Virgin Islands, Cayman Islands, Turks and Caicos Islands, and the United Arab Emirates.