In Bermuda there are no taxes on profits, dividends or income; there is no capital gains tax, no withholding tax and no sales tax. The main tax impinging on companies is payroll tax. See Types of Company for details of annual fees payable depending on status.

When the European Savings Tax Directive came into effect in 2005, most offshore dependent territories of the UK and other EU member states rolled over and accepted the necessity of implementing a withholding tax on savings interest payments to EU residents. Bermuda, however, appears to have escaped the worst.

Payroll Taxes

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 $200,000 per year. In addition, the payroll tax salary cap was raised from $225,000 to $235,000.

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 will face new tiered rates as follows:

• 13.50% applicable to: Taxpayers with an annual payroll greater than $1,000,000 and exempt undertakings.
• 12.75% applicable to: Taxpayers with an annual payroll greater than $500,000 and up to $1,000,000.
• 10.75% applicable to: Taxpayers with an annual payroll between $200,000 and $500,000.
• 9.75% applicable to: Taxpayers operating an hotel or restaurant with an annual payroll of $200,000 or greater.
• 7.75% applicable to: Remuneration paid to employees in Special Situations, e.g. persons on jury duty or on duty with the Bermuda Regiment or Bermuda Volunteer Reserve, persons employed as farmers, fishermen or horticulturists and hotel employees in December, January or February.
• 7.25% applicable to: Employers and self-employed persons with an annual payroll of less than $100,000. Educational, sporting, or scientific institutions or societies. Taxi drivers, farmers, fishermen and horticulturists. The Bermuda Hospitals Board and the Corporations of Hamilton and St. George’s.
• 4.75% applicable to: The Government, Parish Councils, Government Boards, the Bermuda College, approved schools, registered charities, religious and cultural organizations and the Bermuda Festival Ltd.

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

Taxpayers paying at the rates of 10.75%, 12.75% or 13.50% and those operating an hotel or restaurant and paying at 9.75% 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 $600.00 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 $100,000 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, 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.

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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 is $42.68 per week, $21.34 due from each of the employer and employee.

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