Taxation of an Offshore Company in Bermuda: Taxes, VAT, and Dividends

Published on August 16, 2026 and written by Cyril Jarnias

Long a symbol of “zero tax”, Bermuda has profoundly evolved its tax landscape with the introduction in 2025 of a corporate income tax targeting the very largest international groups. Yet the territory remains one of the most attractive environments for an offshore structure, particularly regarding VAT (nonexistent), dividend taxation, and personal taxation of shareholders.

Good to know:

Bermuda’s tax system rests on three pillars: a new, targeted corporate income tax, a payroll tax that constitutes the main pillar of public revenue, and a specific treatment of dividends for both the company and its beneficiaries. This architecture is essential for entrepreneurs and international groups to understand.

A Historically “Zero-Tax” Environment Undergoing Change

For decades, Bermuda established itself as one of the best-known offshore financial centers, particularly in insurance, reinsurance, funds, and institutional structures. The general rule was simple: no corporate income tax, no income tax, no capital gains tax, no withholding tax.

The key features of the system remain for the majority of structures:

Tip:

The applicable tax regime provides for no VAT or GST-type tax, no general personal income tax, and no capital gains tax for individuals or companies. Dividends paid or received are not taxed, and no withholding tax is levied on dividends, interest, or royalties, whether for residents or non-residents.

Public finances rely mainly on other levers: customs duties on imports, land tax (property tax), payroll tax, corporate services tax (7% on the revenue of certain service providers to exempted companies), and specific taxes on banks, insurers, or money services businesses.

The introduction of the Corporate Income Tax effective January 1, 2025, does not overturn this model for everyone. It targets a specific segment: multinational groups exceeding a certain revenue threshold. For most “classic” offshore companies, the corporate tax rate remains 0%.

The New Corporate Income Tax: Who Is Affected, and at What Rate?

The Corporate Income Tax Act 2023 introduces, for the first time, a true profits tax in Bermuda. The legislation was passed in late 2023, in the wake of the OECD Pillar Two framework on the global minimum rate of 15%, after several rounds of public consultation.

Scope: Only the Very Largest Groups

The cornerstone of the system is the consolidated revenue threshold. Only multinational groups are within the scope of the Corporate Income Tax:

– whose consolidated revenue reaches at least €750 million;

– and that exceed this threshold in at least two of the four fiscal years preceding the tested fiscal year.

The law thus targets “In-Scope MNE Groups.” A Bermuda entity is taxable if, and only if, it is a Bermuda Constituent Entity (BCE) of such a group: a local company, exempted company, LLC, partnership, or even a branch (Bermuda Permanent Establishment) of a foreign entity.

Companies that are purely domestic, even large ones, are excluded from scope, as are international groups below the €750 million revenue threshold. In addition, specific entities or income are excluded, in parallel with the GloBE rules: certain investment funds, non-profit organizations, international maritime transport activities, dividends and capital gains on securities in certain cases, etc.

Group Logic: Taxation at the BCE Group Level

The Corporate Income Tax does not apply entity by entity, but at the level of the Bermuda BCE Group. Specifically:

Warning:

All Bermuda constituent entities belonging to the same multinational group are aggregated to calculate a single taxable base. One group member, designated as the “filing entity,” files the return for all entities. Finally, each entity in the group remains jointly and severally liable for the BCE Group’s tax debt.

The calculation basis relies on the entities’ book income, according to consolidated financial statements and the applicable accounting standard (IFRS or GAAP), on an accrual basis. Adjustments then refine it, notably to neutralize certain transactions and incorporate creditable foreign taxes and the Economic Transition Adjustment (ETA), designed for capital-intensive groups.

Rate and Calculation Method: 15% on Net Taxable Income

The nominal rate is set at 15% of the BCE Group’s net taxable income, after accounting for tax credits. The approach follows the Effective Tax Rate (ETR) logic of Pillar Two:

– the group’s Bermuda presence effective tax rate is calculated;

– if this rate is below 15%, a top-up tax is due in Bermuda to reach that minimum;

– credits for eligible foreign taxes reduce the charge, according to specific priority ordering rules.

Good to know:

In Bermuda, no interest deduction limitation (such as an EBITDA cap) is provided for under domestic law. However, Pillar Two normalization may indirectly restrict the benefit of high intra-group financing costs.

An important point for offshore companies: the Corporate Income Tax Act formally introduces the concept of tax residency in Bermuda, based on incorporation, unless the company proves its effective tax residence in another state (through the location of management and control, and under international conditions).

Exemptions, Transition Periods, and Technical Options

The framework provides several mitigation or transition mechanisms:

– Economic Transition Adjustment (ETA), allowing certain assets to be revalued at a reference date and avoiding economic double taxation on latent gains;

– opening a stock of loss carryforwards (Opening Loss Carryforwards) over the previous five fiscal years;

– a five-year exemption for groups with “limited” international presence (present in six jurisdictions or fewer), starting from the year they first reach the €750 million threshold;

– the option, upon election, to treat certain securities portfolios as short-term holdings, which changes the tax treatment of portfolio dividends.

Example:

Bermuda’s law aims to cap the local tax charge at the level required by Pillar Two, while avoiding double taxation through foreign tax credits. Restrictions target certain U.S. taxes (Subpart F, GILTI) and those levied on non-Bermudian parent entities.

Registration, Filing, and Payment Obligations

Groups within scope must:

– register with the Bermuda administration (Corporate Income Tax Agency / Bermuda Tax Authority);

– file an annual return per BCE Group within 12 months after the end of the fiscal year;

– make advance payments:

– a first advance payment equal to 50% of the expected tax, no later than the 15th day of the 8th month of the fiscal year;

– a second advance payment bringing the total to 90%, no later than the 15th day of the 12th month;

– settle with a “true-up” payment by the filing deadline, i.e., the 15th day of the 10th month following year-end;

– pay tax in Bermudian dollars (BMD), at parity with the US dollar.

Groups must also maintain robust documentation, as the administration may carry out audits, and penalties are provided for late payment or non-compliance.

Summary: Who Pays Corporate Income Tax in Bermuda?

The Corporate Income Tax landscape can be summarized in a simple table.

For a “classic” offshore company not part of a very large group, the reality is simple: the corporate tax rate remains 0%. The main tax item will remain payroll tax.

No VAT or Consumption Tax: The Role of Customs Duties

On the “VAT” side, Bermuda’s regime is particularly clear: there is no VAT, no GST, and no general sales tax. The consumption tax burden falls exclusively on customs duties, levied upon entry into the territory.

Customs duty rates vary according to the nature of the imported goods. A few major recent categories can be summarized as follows:

For an offshore services company, these customs duties mainly affect setup costs (offices, IT equipment, vehicles, etc.), but they have no direct impact on client invoicing: there is no VAT to charge and no mechanism for input tax deduction or credit.

Good to know:

The absence of VAT simplifies the pricing structure for an offshore entity, but it also eliminates an optimization tool used by many businesses through VAT credits in other jurisdictions.

Payroll Tax: The Real “Tax” for Bermudian Companies

In Bermuda, with no general personal income tax, payroll tax is the main levy on compensation flows. It is owed by both the employer and the employee.

For an offshore company in Bermuda, this will be the first recurring tax item: every Bermudian employee or worker operating locally triggers a payroll tax charge.

General Structure: Progressivity and a BMD 1 Million Cap

The payroll tax is calculated on the gross annual compensation paid to an individual, whether salary, bonus, certain fringe benefits and, in the case of local companies, a portion of dividends paid to employee shareholders.

Two structuring principles:

– a taxable compensation cap set at BMD 1,000,000 per person per year; beyond that, no additional payroll tax is due;

– a progressive structure, for both the employer and employee portions, by compensation brackets.

For 2025–2026, the main payroll tax brackets on the employee side are as follows:

For fiscal years 2025 and 2026, the maximum employer rate is 10% for the BMD 500,001–1,000,000 bracket. Exact employer rates depend on the size of the payroll and the company category (local business, exempted undertaking, hospitality sector, specific retailers, etc.).

4

Maximum consecutive weeks of presence in Bermuda for compensation paid to non-resident employees to be exempt from payroll tax.

2026 Reforms: Rate Cuts and Targeted Relief

As of April 1, 2026, Bermuda has undertaken a significant reduction in payroll tax rates, with several objectives: easing the cost of labor, encouraging local employment, and politically aligning with the introduction of the Corporate Income Tax.

On the employer side, the main announced changes are:

On the employee side, the 2026 reform significantly eases the tax burden on low and middle incomes:

In parallel, several targeted exemptions have been introduced:

Good to know:

Employer payroll tax can be eliminated for new Bermudian hires under certain conditions, exempted on the first BMD 96,000 for employees aged 65 and over, waived for self-employed caregivers, and reduced to 0% in special situations such as military service, jury duty, parental leave, off-season hotel/retail employment, or permanent disabilities.

These measures are crucial for assessing the real cost of setting up: a group that optimizes its payroll structure can significantly reduce its annual payroll tax charge.

Simple Example of Payroll Tax Cost for an Offshore Company

Imagine an offshore company in Bermuda, not subject to the Corporate Income Tax (group revenue < €750M), with 10 Bermudian employees each paid BMD 150,000 per year.

On the employee side, on a salary of BMD 150,000, the payroll tax share is calculated by brackets. Applying the 2026–2027 rates:

– BMD 48,000 at 0.25%;

– the next BMD 48,000 at 7.75%;

– the next BMD 54,000 (from 96,001 to 150,000) at 10.75%.

This results in a non-negligible individual charge, but with a progressivity that protects low incomes.

On the employer side, assuming a total payroll of BMD 1.5 million, the company falls into the “large local employers” category or similar, with a rate around 9.5–9.75% depending on its exact status (local vs. exempted undertaking). On BMD 1.5 million, the employer payroll tax amounts to approximately BMD 140,000–145,000 per year.

This amount very concretely represents the recurring “tax” for this offshore company in Bermuda, with corporate income tax remaining at 0% in this example.

Dividends: No Capital Tax, but Interaction with Payroll Tax

For an investor or founder creating an offshore company in Bermuda, the issue of dividends is central. The answer, from a purely Bermudian perspective, remains extremely favorable.

No Bermudian Tax on Dividends Received or Paid

Generally speaking:

– dividends paid by a Bermudian company are not subject to any withholding tax, whether the recipients are residents or non-residents;

– individuals are not personally taxed on dividends or capital gains, whether they come from local or foreign companies, whether shares are listed or not;

– companies are also not subject to specific taxation on dividends received, including those from foreign subsidiaries (Bermuda has no CFC-type rules requiring the repatriation of foreign profits).

This neutrality also applies in the new Corporate Income Tax context: the 15% regime does not introduce withholding tax on dividends. Pillar Two rules concern only the minimum tax charge at the company level, not the taxation of distributions to shareholders.

Dividends and Payroll Tax for Local Companies

An important nuance arises for employee shareholders of unlisted local companies. Since 2018, dividends paid to individuals providing services to a local (unlisted) company are, above a certain threshold, treated as a compensation component for payroll tax purposes.

The rule was adjusted in 2026:

– an annual dividend exemption increased from BMD 10,000 to BMD 20,000 per person, effective April 1, 2026;

– above BMD 20,000 of dividends per year, each additional dollar is included in the payroll tax base, up to the overall BMD 1,000,000 compensation cap.

This can be summarized as follows:

For a typical offshore company (an exempted company held by non-residents), this mechanism generally has no impact: dividends remain entirely “net” from the perspective of the Bermudian tax authorities. The only exception would be the situation of a Bermudian employee employed by the company and receiving dividends as a shareholder, on which payroll tax may apply if the structure is considered “local” under domestic law.

Complete Absence of Withholding Tax: A Key Advantage for International Flows

Bermuda also stands out for the absence of any withholding tax, for residents and non-residents alike, on:

– dividends;

– interest;

– royalties and other payments related to intellectual property;

– profit distributions in general.

Good to know:

The withholding tax rate on dividends is 0% in all cases, even without a bilateral tax treaty. An offshore company in Bermuda can thus distribute dividends to its international shareholders without any local deduction.

From an international planning perspective, the constraint actually comes from the beneficiaries’ countries of residence, which may tax these dividends upon receipt (or apply CFC, GILTI, Subpart F rules, etc.), but not from Bermuda.

Other Levies: Corporate Services Tax and Sectoral Taxes

Beyond the Corporate Income Tax for large groups and the payroll tax for all businesses employing staff, several additional levies may affect an offshore structure in Bermuda.

Corporate Services Tax: 7% on Service Providers to Exempted Structures

A specific 7% tax targets corporate service providers (registered office, company administration, secretarial services, etc.) on the revenue they earn from exempted companies and exempted partnerships.

Good to know:

The tax is not paid by the offshore company, but by its service provider. However, this cost is passed through in the fees charged, so it should be included in the annual operating budget.

Specific Taxes on Banks, Insurers, and Money Services Businesses

Certain key sectors are subject to levies based not on profit but on economic aggregates:

– banks: 0.0075% tax on consolidated assets;

– domestic insurers: 3.5% of gross written premiums (excluding health and annuities);

– money services businesses: 1% of total outgoing transfer volume.

These taxes are mainly relevant to banking or insurance groups, but may affect an offshore company if it operates in these segments.

Economic Substance, Transparency, and Reporting Obligations

Bermuda’s tax system is no longer simply about the absence of tax. Since the Economic Substance Act 2018 and its regulations, strengthened in 2026, registered companies must demonstrate real economic substance when their activities fall within one of the nine so-called “relevant activities” categories: banking, insurance, fund management, finance and leasing, headquarters, shipping, distribution, IP holding, and holding company business.

For an offshore company, this means:

Tip:

To meet the economic substance requirement in Bermuda, you must have suitable premises on the ground; a simple virtual office is insufficient. You must also employ or engage locally qualified staff in quantities proportionate to the nature and volume of the activity, and perform the key functions (income-generating activities) from Bermuda. Sufficient local operating expenditures are required, and you must file an economic substance declaration every year within six months of the fiscal year-end.

Since 2026, administration of this substance regime has been transferred to the Corporate Income Tax Agency, strengthening the integration between substance obligations, transparency (Country-by-Country Reporting, CRS), and the new Corporate Income Tax regime.

The challenge for an offshore company in Bermuda is therefore twofold: optimizing its tax profile while proving a real presence in the archipelago, under penalty of substantial fines, or even removal from the register for repeated violations.

Summary: What Is the Tax Reality for an Offshore Company in Bermuda?

To conclude, it is useful to place the various elements in an overall table, from the perspective of a typical offshore company.

For the vast majority of offshore companies that do not belong to very large international groups, Bermuda’s tax system thus remains extremely light: no corporate income tax, no VAT, no taxation of dividends or capital gains, and only one major constraint, payroll tax, which applies only to employment compensation.

Warning:

Groups exceeding €750 million in revenue can no longer benefit from the “zero-tax” regime for their Bermudian entities. They must apply a minimum effective rate of 15%, meet an enhanced substance requirement, and comply with a broader transparency framework (CRS, CbC, beneficial ownership registers).

For an entrepreneur or investor considering an offshore company in Bermuda, the key question becomes: am I within the scope of the Corporate Income Tax or not? If the answer is no, Bermuda remains one of the most competitive corporate tax environments in the world, particularly regarding VAT and dividends. If the answer is yes, then the jurisdiction must be treated not as a simple tax haven, but as a fully integrated link in the Pillar Two architecture of international taxation.

Working on a wealth planning project or have a question? Contact us now to speak with a wealth management expert.

Cyril Jarnias

Cyril Jarnias is an independent expert in international wealth management with over 20 years of experience. As an expatriate himself, he is dedicated to helping individuals and business leaders build, protect, and pass on their wealth with complete peace of mind.

On his website, cyriljarnias.com, he shares his expertise on international real estate, offshore company formation, and expatriation.

Thanks to his expertise, he offers sound advice to optimize his clients' wealth management. Cyril Jarnias is also recognized for his appearances in many prestigious media outlets such as BFM Business, les Français de l’étranger, Le Figaro, Les Echos, and Mieux vivre votre argent, where he shares his knowledge and know-how in wealth management.

Find me on social media: