Executive summary

On 18 November 2024, the Government of Bermuda released additional guidance concerning frequently asked questions (FAQs) on certain determinations under the Corporate Income Tax Act (CIT Act). The new guidance adds four FAQs to the previous lists of FAQs issued on and after 18 December 2023. The four new FAQs provide guidance on how certain provisions are to be interpreted and legislation that is forthcoming.

The Bermuda Parliament passed the CIT Act in December 2023, enacting a 15% corporate income tax regime that will become effective for tax years beginning on or after 1 January 2025. The CIT Act will apply to Bermuda Constituent Entities (BCEs) that are part of multinational enterprise (MNE) groups with annual revenue of €750m or more.

Detailed discussion

The new FAQs, all located under "General Matters — Tax Attributes" section of the publication, are highlighted below.

Asymmetric foreign currency gains or losses

A FAQ was added (see "s.2 — Interpretation"), recognizing that the definition of asymmetric foreign currency gains or losses in the CIT Act differs from the definition in the Global anti-Base Erosion (GloBE) Rules. The new guidance indicates that the Government intends to revise the definition of "asymmetric foreign currency gains or losses" in the CIT Act to more closely align with the definition in the GloBE Rules. The guidance indicates that it is intended that the definition change will be applied retrospectively, as if originally enacted as part of the CIT Act; however, entities may be permitted to elect the change prospectively from their first fiscal year beginning on or after 1 January 2025

Fiscal transparency classification

Subsections (5) and (6) of section 15 of the CIT Act refer to the application of the fiscal transparency rules to companies registered under the Segregated Accounts Companies Act 2000 or the Incorporated Accounts Companies Act 2019 but incorporated under the Companies Act 1981 or formed under the Limited Liability Company Act 2016. The FAQ (see "s.15 — Fiscal transparency classification") indicates that it was also the intention for companies incorporated or formed under Private Acts1 to be included within the scope of those subsections.

Adjustments to financial accounting net income or loss

The GloBE Rules provide, in the Consolidated Commentary to Article 3.2.1, for debt releases to be excluded from the computation of GloBE Income or Loss, under prescribed circumstances. The FAQ (see "s.27 — Adjustments to financial accounting net income or loss") indicates that legislation will be introduced in 2025 to provide for the exclusion of the amount of a debt release included in financial accounting net income or loss, provided the release arises under similar prescribed circumstances as those set out in the Consolidated Commentary. It is anticipated that taxpayers may choose whether to rely on this either retrospectively or prospectively.

Taxable distribution method

The FAQ (see "s.41 — Taxable distribution method") clarifies that provisions of section 41 of the CIT Act that enable entities to make an election for the taxable distribution method should apply where the constituent entity owner of an investment entity or insurance investment entity is either a Bermuda Constituent Entity or any other entity as provided for in the GloBE Rules. To achieve appropriate alignment with the taxable outcomes under the GloBE Rules in Article 7.6 of the Model Rules, it is proposed to clarify in legislation that the provisions of section 41 should: (a) allow a Bermuda Constituent Entity-Owner to be taxed on distributions from a non-Bermuda Investment Entity; and (b) exclude financial accounting net income or loss earned by a Bermuda Investment Entity. The clarifying provisions are expected to be included in legislation to be effective prior to 31 December 2024.