Frequently Asked Questions: Bermuda Economic Substance Requirements

In this article, Michael Frith of Carey Olsen Bermuda Limited gives an overview of the economic substance requirements in Bermuda and answers the most frequently asked questions by companies filing their first economic substance declaration in the jurisdiction.

Where did the economic substance legislation come from?

The economic substance standards are a global tax policy initiative driven by the Organisation for Economic Cooperation & Development (OECD) (and specifically the OECD's Forum on Harmful Tax Practices (FHTP)) and by the European Union's Code of Conduct Group on Business Taxation.

The fundamental principle behind them is that jurisdictions that have no or only nominal corporate tax should not facilitate structures or arrangements aimed at attracting profits which do not reflect real economic activity in the jurisdiction. In other words, if an entity is able to benefit from low/no corporate tax by being incorporated or registered in a jurisdiction,