Bermuda Payroll Taxes

Under the Payroll Tax Act 1995 and later legislation, Bermudan employers have traditionally had to pay a tax of 12.75% of payroll; in the case of 'local' companies or partnerships, ie those with 60% Bermudan ownership, this is calculated on the actual payroll cost; in the case of exempt or permit companies or partnerships, ie those with foreign ownership, there is a choice between paying 12.75% on actual salaries like local companies, or paying the 12.75% on a notional amount of $66,000 per employee, when it amounts to $7,920 per employee per year. (See Types of Company for descriptions of the different types of company.)

Employers have also been able to recover 4.5% of the payroll tax from employees (on their actual salary, not the notional amount).

In the 2004/2005 financial year, the 12.75% rate was raised to 13.5% for firms with payrolls amounting to more than BMD200,000 per year.

In the February budget for 2005/2006, Bermuda’s Minister of Finance Paula Cox announced a restructuring of the payroll tax system in an attempt to assist small and medium-sized enterprises and attract new business to the jurisdiction.

Under the change, firms faced new tiered rates as follows:

Additional changes to the payroll tax system were announced in the 2007/8 budget, and included:

Under the Acts, taxable remuneration is defined to include various benefits, including pension contributions, rental value, profit-sharing, stock option gains, etc.

Taxpayers paying the top three rates of payroll tax and those operating an hotel or restaurant are entitled to Special Relief. Taxpayers in this category are entitled to a deduction from total remuneration paid during the tax period. This deduction is equal to BMD600.00 per employee per quarter.

The qualifying criteria are that the employee must be on the payroll at the end of the tax period and must have worked for the employer for a minimum of 180 hours in that quarter. However, the amount of Payroll Tax payable by any such employer in respect of an employee whose remuneration is subject to the Special Relief, cannot be less than 4.75% of gross remuneration. Self-employed persons and deemed employees are not eligible for Special Relief.

'Employer' means anyone, company or individual, who employs another person; however, there are reduced rates for employers with a payroll below BMD100,000 annually. Just about enough to have a part-time gardener in Bermuda.

Other tax measures included a 4.75% increase in social security contributions from August 2005, (increased again from August 2008), and customs duty concessions for the agricultural sector.

Meanwhile, the estate tax and stamp duty system is being reviewed and the government has put forward a proposal to establish protection from estate tax on family homes. In addition, land tax for over-65s occupying their own homes is to be abolished.

With regard to the financial services industry, Cox was mindful of the important role played by international business to the island’s economy, and described Bermuda as “a premier international business jurisdiction of choice”.

“As a result, we must guard against anything that erodes our competitiveness or diminishes our reputation,” Cox went on to state, although she added that the government remains committed to introducing international standards of financial supervision and regulation.

In the 2008/9 budget, the standard rate of payroll tax was raised again, by 0.5% to 14%, for businesses with annual payrolls of BMD1 million or more. The payroll tax salary cap, which was raised from BMD225,000 to BMD235,000 in 2004/5, and to BMD350,000 in 2007/8, was left on hold in the 2008/9 budget.

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Bermuda Social Insurance

Bermudan employers must pay social insurance contributions in respect of every employee over 16 years old, and who works more than 4 hours per week; half of the amount paid may be deducted from the employee's pay.

Foreign (non-Bermudian) employees are covered by the tax, retrospectively if necessary, if they work for six months or more in the country.

Employers must provide the Social Insurance Department at the Government Administration Building with a list of their employees and their social insurance numbers; the Department bills employers monthly.

Previously, the social insurance contribution were BMD42.68 per week, BMD21.34 due from each of the employer and employee.

These amounts were increased by 4.75% in the 2005/2006 budget.

In early 2008, the contribution rate stood at BMD56.96 per week, with BMD26.48 due from employer and employee, but as a result of the 2008/9 budget, contribution rates increased again, by 5% with effect from August 2008.