The Economic Substance Act 2018 was passed by the Bermuda Government in response to concerns raised by the European Union’s Code of Conduct Group (Business Taxation). The Act is effective from 1 January 2019 and addresses the issue of economic substance for relevant businesses by defining ‘relevant activity’ and ‘core income generating activities’.
- Economic Substance Declaration filing update
- Declarations - Online Portal Now Live
- Economic Substance Declarations: How we can help
Economic Substance Declaration filing update
For those with a December year end, the financial year end has now passed and we wish to remind these entities that their Economic Substance Declaration (“ESD”) filing is due by 30 June. We would recommend that these entities start thinking about their ESD filings now, especially those who did not submit a return last year.
As a reminder, the Registrar of Companies revised its Guidance Notes in September 2020, so all entities performing a Relevant Activity, regardless of whether they are earning gross revenue from any Relevant Activity, are now required to file an ESD. This means that some entities that were not required to file an ESD in 2020 are now required to do so in 2021, although the economic substance requirements have not changed.
Please reach out to us if you have any concerns regarding whether or not you are required to file an ESD and we will be happy to assist you.
Declarations - Online Portal Now Live
The Registrar has also confirmed that the ESD online portal (the “Portal”) has been updated to include additional questions under the "Managed & Directed" and "Financial Information & Employees" sections of the ESD. You can find the ESD online portal here.
Economic Substance Declarations: How we can help
PwC is continuing to assist our clients by offering a range of economic substance services as outlined below.
1. Conducting an Economic Substance Assessment
PwC can assist you in assessing whether there is any impact to your entity’s business model by conducting a current state assessment, preparing a gap analysis and providing options to ensure economic substance compliance is met.
2. Assisting with preparing and submitting your ESD filings
PwC can assist you with the preparation and filing of relevant material, including tax evidence and the ESD annual returns for your entities.
3. Providing CIGA support
PwC may be able to support you in conducting some of the CIGAs locally in Bermuda to help evidence that the economic substance test is being met.
Who is subject to economic substance requirements?
Every entity that is engaged in a “relevant activity”. A "relevant activity" is one where an entity is operating in one or more of the following categories: Banking, Insurance, Fund management, Financing and leasing, Headquarters, Shipping, Distribution and service centre, Intellectual property, Holding companies.
What are the economic substance requirements?
An in-scope entity must meet the following economic requirements:
- Managed and directed in Bermuda
- ‘Core income generating activities’ are undertaken in Bermuda with respect to the ‘relevant activity’
- Maintains adequate physical presence in Bermuda
- Has adequate full-time employees in Bermuda with suitable qualifications
- Incurs adequate operating expenditure in Bermuda in relation to the ‘relevant activity’
What are the economic substance reporting requirements?
Affected companies are required to file an annual Economic Substance Declaration (an “ESD”) with the Bermuda Registrar of Companies (the “ROC”).
What to do if I am concerned about meeting economic substance requirements
Some companies may struggle to meet the economic substance requirements. Speak to us before submitting your filing and we can walk through your options.
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