Snapshot: tax considerations for private clients in Bermuda - Lexology

Tax

Residence and domicile

How does an individual become taxable in your jurisdiction?

There is no income or capital gains tax levied in Bermuda. Domicile and residence are only relevant to taxation with respect to Bermudian dollar-denominated or Bermuda-situate assets. Tax liability can arise

as a result of employment (payroll tax) or land ownership in Bermuda (land tax and stamp duty).

Income

What, if any, taxes apply to an individual’s income?

Bermuda does not impose income tax.

The Payroll Tax Act 1995 and the Payroll Tax Rates Act 1995 imposes payroll tax, which is charged quarterly on remuneration paid, given or assessed to every employee and deemed employee by every employer and self-employed person in Bermuda, and includes cash and any benefit (including pension contributions, stock options, housing allowance and profit sharing). The maximum bracket is 10.25 per cent, applicable to taxpayers with an annual payroll greater than B$1 million and exempt undertakings. The employer is allowed to withhold the following percentages from the remuneration paid to an employee for the year April 2020 through March 2021:

in respect of employees earning less than B$48,000 per annum: 2 per cent;
in respect of employees earning up to B$96,000 per annum: 8.5 per cent
in respect of employees earning up to B$235,000 per annum: 9 per cent and
in respect of employees earning over B$235,000 per annum: 9.5 per cent.

Capital gains

What, if any, taxes apply to an individual’s capital gains?

There is no capital gains tax in Bermuda.

Lifetime gifts

What, if any, taxes apply if an individual makes lifetime gifts?

The form of tax applicable to lifetime gifts is stamp duty charged on the instrument of conveyance. Subject to exceptions, ad valorem stamp duty is charged on instruments that effect gifts of ‘Bermuda property’ (that is, essentially Bermuda dollar-denominated or Bermuda-situate assets). The stamp duty is ordinarily payable within 30 days of the date of execution of the instrument.

The exemptions include, for example, instruments effecting gifts of real or personal property to certain charities and non-profit organisations, conveyances chargeable to duty as a settlement under the Stamp Duties Act 1976).

The applicable rates of duty under the Stamp Duties Act 1976 are:

2 per cent on the first B$100,000 of value of the gift;
3 per cent on the next B$400,000;
4 per cent on the next B$500,000;
6 per cent on the next B$500,000; and
7 per cent on any value in excess of B$1.5 million.

Subject to exemptions, instruments effecting voluntary dispositions of non-Bermudian property are subject to ad valorem duty of 1 per cent of the amount or value transferred. Exemptions include where a ‘international business’ (as defined in the Stamp Duties (International Business) Relief) Act 1990) or a ‘local trustee’ (as defined in the Stamp Duties Act 1976) are properly party to the instrument.

There is no exemption for instruments effecting lifetime gifts between spouses, but lower rates of stamp duty apply to instruments effecting lifetime gifts than on affidavits of value required in support of applications for probate or letters of administration.

Inheritance

What, if any, taxes apply to an individual’s transfers on death and to his or her estate following death?

In Bermuda, there is no direct tax on inheritance. However, stamp duty is assessable on the affidavit of value that supports an application to the Supreme Court for a grant of probate or letters of administration. Stamp duty on the affidavit of value is calculated by reference to the value of the deceased’s ‘Bermuda property’, irrespective of the deceased’s nationality, residence or domicile, if an application in Bermuda for a grant of probate or letters of administration in the deceased’s estate is required. The stamp duty rates applicable on affidavits of value are as follows:

up to B$100,000 in value of the Bermuda property forming part of the deceased estate: nil;

over B$100,000 to B$200,000: 5 per cent;
over B$200,000 to B$1 million: 10 per cent;
over B$1 million to B$2 million: 15 per cent; and
over B$2 million: 20 per cent.

In addition to the exemption in relation to Bermuda property, stamp duty on the affidavit of value is not assessed on the value of the following classes of assets passing on death:

bequests to surviving spouses;
bequests to registered charities (registered as charities under the Charities Act 2014) or to such other bodies or organisations that the Minister of Finance determines to be charitable; and
the value of a deceased’s interest in Bermuda real estate that was designated exempt from stamp duty under section 47A of the Stamp Duties Act 1976 (the ‘family homestead’ designation).

Real property

What, if any, taxes apply to an individual’s real property?

There are no taxes assessed on capital gains on real estate owned by individuals. Stamp duty is charged on deeds of voluntary conveyance or conveyance on sale. In addition, there

is a land tax, which is assessed on Bermuda real estate twice a year. The notional annual rental value (ARV) of each property (if let unfurnished on the open market) is determined by the Land Valuation Department of the Bermuda Government and dictates the applicable tax rate.

The following land tax rates presently apply:

For properties of ARV B$1-B$22000 the land tax is B$300
For properties with ARV over B$22,000 is B$300 plus:
on the first B$1-B$11,000 of ARV, .80 per cent of ARV;
on the next B$11,001 – B$22,000 of ARV, 1.80 per cent;
on the next B$22,001 – B$33,000 of ARV, 3.5 per cent;
on the next B$33,001-B$44,000 of ARV, 6.5 per cent;
on the next B$44,001 – B$90,000 of ARV, 17.00 per cent;
on the next B$90,001 – B$120,000 of ARV, 30 per cent; and
on the next B$120,001 of ARV and over, 50 per cent.

Non-cash assets

What, if any, taxes apply on the import or export, for personal use and enjoyment, of assets other than cash by an individual to your jurisdiction?

Pursuant to the Customs Tariff Act 1970, customs duties are levied on the importation of goods to Bermuda at a rate of 25 per cent subject to limited duty-free allowances. There is no export tax.

Other taxes

What, if any, other taxes may be particularly relevant to an individual?

There is no VAT, wealth or sales tax applicable to individuals in Bermuda.

Trusts and other holding vehicles

What, if any, taxes apply to trusts or other asset-holding vehicles in your jurisdiction, and how are such taxes imposed?

Subject to certain exemptions outlined below, the Stamp Duties Act 1976 imposes stamp duty on instruments effecting settlements of Bermuda property of B$250 plus:

up to B$50,000 of value of the Bermuda property settled is exempt from duty, and thereafter
the next B$150,000 of value is charged at 5 per cent;
the next B$800,000 at 10 per cent, and
any value in excess thereof at 15 per cent.

Trustees are required to execute ‘instruments of addition’ to recognise an addition of corpus to a settlement.

Subject to the exemptions, instruments of addition recognising additions of Bermuda property to the corpus of a settlement are subject to ad valorem stamp duty at the following rates:

up to the point at which the total amount of any duty paid on the instrument of addition Bermuda property by way of instrument of addition equals B$7,750 in total, at the rate of 5 per cent;

the next B$500,000 in value added is charged at the rate of 10 per cent; and
any value added in excess thereof at 15 per cent.

Subject to the exemptions, instruments of addition in respect of additions of non-Bermuda property are subject to duty at the rate of 0.1 per cent of the value of non-Bermuda property added up until the point that as duty amounting in the aggregate of B$7,500 has been paid on instruments of settlement and addition in relation to that settlement.

The exemptions from duty include instruments settling or adding property to a settlement:

that is a Bermuda registered charity;
in favour of charitable purposes that Bermuda's Minister of Finance determines warrant an exemption from duty by reason of their connection with Bermuda (as mentioned in the instrument) and their benefit to Bermuda;
where the instrument settles or adds to a settlement non-Bermuda property and the trustees of the settlement are ‘local trustees’, or an 'international business' or the trust is a ‘pension trust’ as defined in the Stamp Duties Act 1976; and
that is a Bermuda registered pension fund, to the extent the instrument does not dispose of land in Bermuda.

Subject to certain exemptions, a nominal stamp duty apply to certain supplemental trust instruments (such as deeds of appointment).

In Bermuda, with the exception of stamp duty noted above, there are no taxes on income, profits dividends, capital gains earned, received or derived by trusts.

There are no corporate taxes in Bermuda other than annual government fees which apply to all companies based on their level of ‘assessable capital’.

An ‘exempted undertaking’ (being any one of an exempted company, permit company, exempted partnership or exempted unit trust scheme, as defined by the Exempted Undertaking Tax Protection Act

1966) may apply to the Minister of Finance for an assurance that, in the event of there being enacted in Bermuda any legislation imposing tax computed on profits or income, any capital asset, gain or appreciation, or any tax in the nature of estate duty or inheritance tax, that the imposition of any such tax will not be applicable to the exempted undertaking, or to any of its operations or the shares, debentures or other obligations of the undertaking. However, such an assurance will not prevent the application of any such tax to persons ordinarily resident in Bermuda or in respect of land leased to the relevant undertaking. At the present time, a tax assurance certificate is effective until 31 March 2035.

Charities

How are charities taxed in your jurisdiction?

Bermuda registered charities are not taxed in Bermuda. Gifts of property to Bermuda registered charities do not attract any tax liability.

Anti-avoidance and anti-abuse provisions

What anti-avoidance and anti-abuse tax provisions apply in the context of private client wealth management?

Because Bermuda does not impose any income, capital gains or estate taxes, there are no anti-avoidance provisions in Bermuda. Bermuda is, however, subject to various regulatory regimes and multinational agreements that aim to prevent multinational tax avoidance and evasion (such as US Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS).

Economic substance legislation has also recently come into force, requiring certain entities that are registered and tax resident in Bermuda and are carrying on ‘relevant activities’ to report on and satisfy the economic substance requirements as prescribed in the legislation. Many private wealth structures may not be subject to economic substance requirements as entities within these structures would typically not be carrying on any of the relevant activities, or, if they do, the relevant entity will often be subject to reduced requirements, which can be satisfied through the maintenance of a registered office and the completion of mandatory filings.

Law stated date

Correct on:

Give the date on which the information above is accurate.

19 October 2020.

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