Bermuda Entity’s Conduct of Relevant Activity Raises Questions Over Economic Substance Compliance
A recent review of a prominent Bermuda-registered entity has sparked concerns over whether the company is conducting a “relevant activity” for the purposes of the island’s economic substance laws.
Background
The entity, which remains unnamed, is required to file an economic substance declaration with the Registrar by June 30th, as per the requirements set out in the Economic Substance Act. The declaration must be filed within six months of the company’s financial year-end and provides detailed information on the entity’s activities and profits.
Industry Insiders’ Concerns
Industry insiders suggest that the entity may not be conducting a “relevant activity” as defined by the Economic Substance Act, which requires companies to engage in core income-generating activities (CIGAs) such as:
- Banking
- Insurance
- Fund management
- Intellectual property licensing
If found non-compliant, the entity could face significant penalties and reputational damage.
Purpose of Economic Substance Legislation
The economic substance legislation was introduced in 2018 as part of Bermuda’s efforts to comply with the Organisation for Economic Co-operation and Development’s (OECD) Base Erosion and Profit Shifting (BEPS) initiative. The laws aim to ensure that companies registered in the territory are engaging in meaningful economic activities and not simply using the jurisdiction as a tax haven.
Other Reporting Requirements
Meanwhile, other event-driven reporting requirements have also come into focus. The Bermuda Monetary Authority (BMA) has notified several entities of changes in their beneficial ownership structure, sparking concerns over compliance with exchange control regulations.
- Companies must notify the BMA of any changes in direct ownership within 14 days.
- Regulated entities must prepare and file audited financial statements annually.
Conclusion
As the regulatory landscape continues to evolve, companies registered in Bermuda are advised to carefully review their activities and reporting requirements to ensure compliance with economic substance laws and other regulatory obligations. Failure to do so could result in severe penalties and reputational damage.