Bermuda Tax Status Reduction for Re / Insurance Industry: Fitch

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Bermuda’s tax status for the insurance and reinsurance industry will be lowered following the expected adoption of the multilateral agreement to establish a global minimum tax rate of 15%, reports Fitch Ratings.

Historically, Bermuda-based reinsurers have benefited from a low effective tax rate due to the lack of Bermuda corporation tax.

The island was able to resist the Tax Cuts and Jobs Act of 2017 (TCJA) which lowered the corporate tax rate in the United States from 35% to 21%, and developed the tax on erosion of the base and the anti-abuse tax (BEAT).

However, the TJCA reduced the tax advantage of Bermuda-incorporated businesses over the United States to a greater extent than expected with the adoption of a global minimum tax rate of 15%.

As Fitch explains: “The minimum tax rate of 15% will reduce the difference between the effective tax rate of non-Bermuda (re) insurers and Bermuda (re) insurers, although it is not not fully eliminated as most jurisdictions will have tax rates. above the minimum.

RMS

While island businesses have benefited from the absence of corporate taxes, Bermuda-based businesses pay taxes to other jurisdictions and also pay a US excise tax on state premium payments. – United with offshore subsidiaries.

“Bermuda companies have responded to the adoption of the TCJA with various strategic changes in the way they manage offshore operations to mitigate the overall negative impact of the tax change.

“Additionally, Bermuda-based business start-up and scale-up trainings continued, particularly in response to increasing underwriting opportunities in a tightening market environment. In addition, many Bermuda entities have filed for 953 (d) elections to be taxed as if it were a US corporation, in part because it eliminates the obligation to pay BEAT, ”continues Fitch.

In the near term, the rating agency does not anticipate any rating action on its universe of Bermuda re / insurers following the deal, but warns that the long-term implications are unknown.

“The overall benefits of maintaining a home and operating in the Bermuda market are likely to last, but the net profitability gap between companies incorporated in Bermuda and non-Bermuda is expected to narrow over time,” Fitch said.

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