Economic Substance Compliance: what captives boards need to know

Captive International, Richard Daley, September 4, 2020

Bermuda’s Economic Substance legislation has now come into force. Strategic Risk Solutions’ Richard Daley outlines what captives boards should be thinking about to ensure they remain compliant.

Bermuda’s Economic Substance (ES) legislation took effect from July 1, 2019, meaning those entities with a December 31, 2019 year-end were required to file their first ES return by June 30, 2020. The Registrar of Companies’ (ROC) newly created online portal enables filings to be made electronically.

ES legislation was enacted in Bermuda and other offshore captive domiciles to address EU concerns that offshore structures were generating profits disproportionate to the real economic activity taking place within the jurisdiction.

The ES legislation applies to all captives that are both carrying on a Core Income Generating Activity “CIGA” with respect to a relevant activity (“insurance”), as well as are deemed to be “tax resident” in Bermuda.  Captives that are able to demonstrate their tax residency as being outside of Bermuda, will be considered a “non-resident” entity and not subject to ES requirements.  In such cases, the captive will need to provide evidence that all its income from relevant activities are liable to tax in that jurisdiction.  Such evidence may take the form of actual tax filings and/or a letter or certificate from the foreign tax authority stating the entity is resident for tax purposes in that jurisdiction.

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