Bermuda’s Economic Substance Act 2018 and Economic Substance Regulations 2018 (and subsequent amendments) set out the requirements that Bermuda-based entities must adopt with regard to economic substance in the jurisdiction. Bermuda, along with all of the major offshore jurisdictions, passed this legislation in order to remain on the European Union’s ‘white list’ of cooperative jurisdictions for tax purposes. This article provides a general overview of economic substance as it applies to shipping entities in Bermuda.
Which shipping entities are in scope?
Entities within the scope of the legislation (‘registered entities’) include exempted and local companies, permit companies, exempted and local LLCs, and partnerships that have elected to have separate legal personality, where those entities are carrying on a ‘relevant activity’ as a business in or from within Bermuda. Non-resident entities are out of scope; for this purpose a non-resident entity is an entity which is resident for tax purposes in a jurisdiction outside Bermuda that is not designated by the EU as a non-cooperative jurisdiction for tax purposes.
Shipping is a ‘relevant activity’ under the Economic Substance Act. As defined in the sector-specific Guidance Notes, an entity will be carrying on the relevant activity of “shipping” if it engages in any of the following activities involving the operation of a ship anywhere in the world other than in the territorial waters of Bermuda:
- transporting, by sea, passengers or animals, goods or mail for a charge;
- renting or chartering of ships for the purpose described in (a);
- sale of travel tickets and ancillary ticket-related services connected with the operation of a ship;
- the use, maintenance or rental of containers, including trailers and other vehicles or equipment for the transport of containers, used for the transport of anything by sea; or
- functioning as a private seafarer recruitment and placement service.