Bermuda International Business Company – Economic Substance -Company Formation_Trademark Registration_Tax Service - Hong Kong CPA

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Bermuda International Business Company – Economic Substance

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What is the purpose of the Economic Substance Law and why does it exist in Bermuda?

The purpose of the Economic Substance Law is to ensure that Bermuda legal entity does not facilitate the use of structures which attract profits but which do not reflect real economic activity that is being undertaken in Bermuda. That requires certain entities that are incorporated or registered in the Bermuda, and which conduct one or more of a set list of relevant activities, to comply with local requirements and demonstrate adequate ‘Economic Substance’.

What are “relevant activities” and who need to satisfy the requirement of Economic Substance?

Those relevant entities which carry on one or more of the following relevant activities will be in scope and must comply with Economic Substance requirements:

1.	Holding Entity;
2.	Shipping;
3.	Insurance;
4.	Banking;
5.	Fund Management;
6.	Intellectual Property;
7.	Financing & Leasing;
8.	Distribution & Service Centre; and
9.	Headquarters.

Who needs to determine whether a company is carrying on a relevant activity?

The directors of company need to determine whether it is carrying on a relevant activity or not. A self-assessment form will need to be filled and signed. You are suggested to seek professional advice if any doubt.

When will Economic Substance Law be applied?

The Economic Substance Law requirements are applicable from 1 January 2019 for all entity incorporated and/or registered on or after that date in Bermuda. Existing entity that was incorporated and/or registered in Bermuda prior to 1 January 2019 will be subject to the Economic Substance Law from 1 July 2019.

How and when to report the information of Economic Substance to Bermuda Registrar?

Bermuda Company need to file on a declaration annually with the Bermuda Registrar to confirm that it complies with such requirements.

What information shall notify the Bermuda Registrar annually regarding Economic Substance?

Bermuda company shall declare to the Registrar whether the entity is carrying on a relevant activity or not with nature and extent of the relevant activity. If the company is carrying on a relevant activity, whether or not all or any part of the company’s gross income in relation to the relevant activity is subject to tax in a jurisdiction outside of Bermuda. If so, shall provide appropriate evidence to support that oversea tax residence, and the date of the end of its financial year.

What requirements need to demonstrate if the entity in scopes of Economic Substance in Bermuda?

For all entities carrying on relevant activities, the legislation requires that they maintain a substantial economic presence in Bermuda, and met the following Economic Substance requirements:

1.	The entity is managed and directed in Bermuda;
2.	Core income generating activities are undertaken in Bermuda with respect to the relevant activity;
3.	The entity maintains adequate physical presence in Bermuda;
4.	There are adequate full time employees in Bermuda with suitable qualifications; and
5.	There is adequate operating expenditure incurred in Bermuda in relation to each relevant activity.

Is there needs to satisfy Economic Substance test, during liquidation or otherwise ceasing to carry on relevant activities?

A relevant entity in liquidation process which still carrying on a relevant activity is required to maintain a substantial economic presence in Bermuda. When an entity ceases to undertake any relevant activity, that entity will no longer be subject to the Economic Substance requirements.

What the impact of failure to satisfy and meet the Economic Substance requirement?

The Bermuda Registrar of Companies will be responsible for implementing, monitoring and enforcing the Economic Substance regime. The legislation provides for civil penalties up to BD$250,000 to be applied in relation to non-compliance with the applicable Economic Substance requirements. If an entity continues its failure to comply after the civil penalties have been exhausted, the Registrar may apply to the Court for further actions.

What is the consequence of providing false or misleading information to Bermuda Registrar regarding Economic Substance?

It is an offence to knowingly provide false information to the Registrar. Punishment for this offence on summary conviction is a maximum fine of BD$10,000 or two years imprisonment, or both.

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