Newly enacted law in Bermuda—the Economic Substance Amendment Act 2019 (ESA2019)—provides that non-resident entities are not subject to economic substance requirements in Bermuda.
For this purpose, the term “non-resident entity” means an entity that is resident for tax purposes in a jurisdiction outside Bermuda, provided that the other jurisdiction is not in Annex 1 to the European Union (EU) list of non-cooperative jurisdictions.
A non-resident entity is required to provide information to the Registrar regarding the jurisdiction in which it claims to be tax resident, as well as sufficient evidence to support such claim.
There are also new expanded rules for the automatic exchange of information. Before this change, the Ministry of Finance was required to disclose information regarding an entity that failed to meet the Bermuda economic substance requirements, or that engaged in intellectual property activities prescribed as “high risk,” to the competent authority of EU Member States where the direct (and certain indirect) owners of such entity were incorporated, formed, registered, or resident.
With the new law, the scope of information exchange will be expanded to include any jurisdiction where such owners were incorporated, formed, registered, or resident. The new measures further provide that the Ministry of Finance will exchange information regarding non-resident entities with the competent authority of the foreign jurisdiction where the entities claim to be resident for tax purposes, and the foreign jurisdictions where the direct (and certain indirect) owners of such entities were incorporated, formed, registered, or resident.
Draft guidance notes
Draft guidance notes concerning economic substance guidance have been issued, and are intended to assist in determining whether entities are within the scope of the economic substance requirements and how to satisfy such requirements. The draft guidance notes also provide direction for how the Registrar will measure and assess the criteria for meeting the economic substance requirements. It is anticipated that further guidance (including sector specific guidance notes) will follow in the coming months.
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