Bermuda Introduces Economic Substance Regulations to Combat Tax Evasion
Hamilton, Bermuda - In a move aimed at combating tax evasion and ensuring transparency in the financial sector, the Government of Bermuda has introduced the Economic Substance Regulations 2018.
What are the Economic Substance Regulations?
The regulations require companies engaged in intellectual property (IP) business to demonstrate economic substance by carrying out core income-generating activities in Bermuda. This means that companies must show that they have a physical presence and employees in Bermuda who are involved in the development and exploitation of IP assets.
Stricter Requirements for High-Risk IP Activities
Entities engaged in high-risk IP activities will be subject to stricter requirements. These entities must demonstrate:
- A high degree of control over the development, exploitation, maintenance, enhancement, and protection of their IP assets
- An adequate number of employees with suitable qualifications who reside and perform their IP-related activities in Bermuda
Consequences of Non-Compliance
Failure to comply with the economic substance regulations may result in penalties, including:
- Fines
- Strike-off of a company
The Registrar of Companies has been granted powers to:
- Issue notices to companies to comply with the regulations
- Impose civil penalties
- Apply to the Court for orders regulating the conduct of a company’s affairs or restricting it from carrying on business
Efforts to Maintain Reputation and Address Concerns
The introduction of these regulations is part of Bermuda’s efforts to maintain its reputation as a reputable financial center while also addressing concerns about tax evasion and money laundering. The Government has amended the regulations several times since their introduction, with the most recent amendments taking effect in 2021.
Promoting Transparency and Accountability
The Economic Substance Regulations 2018 are seen as a positive step towards promoting transparency and accountability in Bermuda’s financial sector. They demonstrate the country’s commitment to:
- Complying with international standards and best practices
- Working with other jurisdictions to combat tax evasion and other financial crimes