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On 21 November 2025, the Government of Bermuda tabled the Tax Credits Act 2025 (the "TCA"). As previewed in our September alert, the TCA establishes, for the first time in Bermuda's history, a series of credits that certain Bermuda-based organisations can utilise to materially reduce their corporate income tax or payroll tax liability. Given its progress through the Bermuda legislature, we anticipate that the TCA will be enacted no later than (and possibly in advance of) 15 December 2025.
The substance of the TCA remains consistent with the "illustrative" draft tax credits legislation that was released in a public consultation in September. The TCA establishes three types of credits:
(i) a substance-based tax credit targeting the insurance and reinsurance industry;
(ii) a utilities infrastructure tax credit targeting regulated utility providers in Bermuda; and
(iii) a community development tax credit available to all Bermuda taxpayers that are not individuals.
It is important to note that the criteria for benefiting from tax credits is completely independent from the question of whether a corporate group is in scope of Bermuda's new corporate income tax. An organisation does not need to be a corporate income taxpayer to benefit from these new tax credits, provided it meets the relevant tax credit's prerequisites set out in the TCA. All tax credits are calculated on the basis of an individual organisation's fiscal year, beginning with the first fiscal year starting on or after 1 January 2025.
Substance-Based Tax Credit
The substance-based tax credit is available to Bermuda corporate groups that derive a substantial amount of their revenue from insurance operations. Broadly, the prerequisite to benefit is that the Bermuda-based group (with the "group" determined using financial accounting principles) must have at least one entity licensed as an insurer under the Insurance Act 1978 and must derive more than 50% of its Bermuda revenue from such insurer(s).
Insurance intermediaries, such as managing agents, do not count for the purposes of this test. However, once the test has been satisfied, every member of the Bermuda group – not only the insurers – may claim the tax credit benefit.
The level of the tax credit benefit is determined using substance-based factors including island payroll expenses and expenditure on Bermuda sourced goods and services, such as the rental of Bermuda premises or the use of third-party Bermuda service providers. The precise calculation of the credit can be a complicated exercise, as certain policy levers have been included in the design of the credit to incentivise behaviours such as the employment of Bermudians or the growth of on island headcount.
Overall, the amount of the credit equates to a total percentage of the qualifying expenses, adjusted based on several factors. Once calculated, the tax credit can be applied against the tax liability of the Bermuda based group. Credits taken against corporate income tax are applied as an offset (generating a cash refund where corporate income tax has been overpaid), whereas credits taken against payroll tax are rebated to taxpayers. The substance-based tax credits also have a "phase-in" period of several years, during which the amount of credit that can be taken as a benefit is limited in the initial years, presumably to manage revenue impacts of the credit's establishment.
Utilities Infrastructure Tax Credit
The utilities infrastructure tax credit is similar in design to the substance-based credit, in that it focuses on Bermuda substance factors such as payroll, but in addition to tangible asset related expenses, it also factors in a Bermuda group's tangible assets themselves (provided they are located on island) such as plant and machinery. This credit will likely be narrower in scope, due to its applicability being limited to regulated utility providers, including electricity and telecommunications providers. Unlike the substance-based tax credit, the utilities infrastructure tax credit is non-refundable.
Community Development Tax Credit
This credit is markedly different from the other two credits, both in its scope and its application. It is not limited to specific sectors, but is instead available to any Bermuda corporate group that donates at least $300,000 to qualifying Bermuda charities over the previous three years (and the TCA provides that this need not be an average: the criteria can be met by donating $300,000 in any one year).
Rather than offsetting corporate income tax or payroll tax, the community development tax credit is more akin to a rebate, in so far as the "credit" works by refunding 25% of the qualifying charitable donation to the donor. Not all donations to Bermuda charities or foundations will qualify, as the TCA imposes certain requirements for eligibility.
Administration
The TCA does not contain detailed provisions dealing with the administration of the new tax credits system. However, alongside the TCA, the Bermuda Government also tabled a package of amendments to Bermuda's existing tax legislation. From this package of amendments, it's clear that the credit system will be administered by the Corporate Income Tax Agency.
Given that past practice in Bermuda has been to establish the administrative framework for taxes through regulations, and that the TCA includes a regulation making power, it seems probable that regulations will be published in the new year to address the administrative aspects of the tax credits.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
