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Important Amendments to Bermuda’s Economic Substance Legislation

On 24 December 2019, both the Economic Substance Amendment (No.2) Act 2019 and the Economic Substance Amendment (No.3) Regulations 2019 (the Amendment Legislation) came into force. The Amendment Legislation makes key changes to Bermuda’s economic substance regime, principally to harmonise the legislation with the legislation of other British Overseas Territories and Crown Dependencies. Simultaneous with the introduction of the Amendment Legislation, the Minister of Finance released Guidance Notes on the scope and application of the economic substance legislation.

The most significant changes under the Amendment Legislation are related to:

  • Holding entities
  • Financing and leasing
  • Shipping
  • Insurance
  • Local entities

Holding Entities

The definition of “holding entity” has been narrowed in line with other jurisdictions to limit the relevant activity to being a pure equity holding entity.

An entity will be regarded as a “pure equity holding entity” if its primary function is to acquire and hold shares or an equitable interest in other entities, it performs no commercial activity and the shares or equitable interests are controlling stakes in such other entities. The main effect of this change is that entities which carry on another commercial activity other than being a pure equity holding entity will, as long as that activity is not a relevant activity, be out of scope of the economic substance legislation.

Furthermore, a pure equity holding entity need only comply with the minimum economic substance requirements meaning the entity must comply with corporate governance requirements set out in the Companies Act 1981 (or equivalent legislation) and complete and file an annual economic substance declaration form.  A pure equity holding entity must also have adequate “people” (rather than adequate “employees”) for holding and managing its equity participations, and adequate premises in Bermuda.

Financing and Leasing

The hitherto separate activities of financing and leasing have been combined. The relevant activity of “financing and leasing” now encompasses providing to any person for consideration credit facilities of any kind, such as loans, hire purchase arrangements, finance leases (excluding in relation to land) and conditional sale or credit sale arrangements.

Financing and leasing will also include situations where any credit receivable is assigned to another person. The assignee will be considered to be the person providing the credit facility, and will therefore be in scope.

However, banking, insurance and fund management activities will not constitute financing and leasing.

 

To continue reading full articles in PDF format:
Important Amendments to Bermuda’s Economic Substance Legislation

 


Neil Henderson
Director

Bermuda   +1 441 298 7846


Anthony D. Whaley
Director

Bermuda   +1 441 299 4927


Graham B.R. Collis
Director, Head of Bermuda Corporate

Bermuda   +1 441 299 4965


Marcello Ausenda
Director

Bermuda   +1 441 299 4954


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