The Government is moving towards the implementation of corporate income tax in what would be the biggest shake-up of the island’s tax system since the 1800s.

The shift comes as the result of work by the Organisation for Economic Co-operation and Development’s Inclusive Framework, whose 135 members in 2021 agreed on a two-pillar solution to reform international tax rules to ensure that large multinational enterprise groups pay a minimum level of corporate income tax.

The rules are designed to impose a minimum effective tax rate of 15 per cent on corporate profits, in each jurisdiction in which they operate, that will apply to MNEs with more than €750 million in total global revenues in at least two of the previous four accounting periods.

David Burt, the Premier and Minister of Finance, said: “The scale of these international tax changes has not been seen for nearly a century, and the rapid pace of the proposed implementation of these rules will have a significant impact around the world.

“Therefore it would be evident that Bermuda finds itself at a pivotal point and must consider how we can adapt to these impending changes to global tax rules.

“Bermuda’s current consumption-based tax system was developed in the 1800s and reflected the expected scope and nature of expected economic and business activity, given our size and other factors.”

He added: “Therefore, in response to the substantial changes in the global tax landscape, the Government is considering the implementation of a new corporate income tax regime as part of its work to address the Pillar 2 requirements agreed by the Inclusive Framework.”

The Government anticipates that the proposed Bermuda corporate income tax legislation will be effective for tax years beginning on or after January 1, 2025.

Mr Burt said later that estimates were that it would apply to about 2,000 of the island’s 16,000 international companies.

The proposed tax would be taken into account in calculating the effective tax rate of Bermuda businesses under the OECD’s global minimum tax rules.

The Government said the taxes paid under the proposed Bermuda corporate income tax regime would be those which would be payable to other jurisdictions under the global minimum tax framework.

It added that any new corporate income tax adopted would also include certain tax credits supporting Bermuda’s economic goals and maintained Bermuda’s global attractiveness.

It added that the Tax Reform Commission would examine the possibility of restructuring the island’s existing tax regimes as a means of lowering the cost of living and doing business in Bermuda.

Mr Burt said: “Our approach is to use tax reform to bolster policy initiatives that will enhance Bermuda’s economic growth prospects.

“The Government continues to guide Bermuda to sustainable economic growth and development. We must attract and retain business in Bermuda, boost foreign investment, increase employment opportunities while expanding the workforce and build our local economy to its fullest potential. These efforts will further our policies to make our island a better place to live and work.”

He added: “The Government believes the proposed new tax regime, which proposes to capture tax that must be paid to a jurisdiction under the global minimum tax framework, will enhance Bermuda’s attractiveness to draw economic investment and bolster economic growth.”

The implementation of corporate income tax in Bermuda would end a tax exemption that has been in place and enjoyed by multinational companies for more than five decades.

Bermuda’s tax system, at present, levies no corporate taxes on profits, income, dividends or capital gains, has no limit on the accumulation of profit, and has no requirement to distribute dividends.

A more than half a century old provision — the Exempted Undertakings Tax Protection Act 1966 — has provided exempted companies in Bermuda with a certificate exempting them from income tax until 2035.

In implementing a global minimum tax, the aim of the OECD is to reduce tax competition between countries and discourage multinational corporations from profit shifting to low-tax domiciles to achieve tax avoidance.

The OECD indicated last month that it had made major headway in efforts to usher in a new era of international tax.

The Government has issued a consultation paper regarding the proposed changes to the island’s tax structure, which is available at forum.gov.bm.

The paper is a product of deliberations by the Government’s International Tax Working Group, which delivered its report last month.

Members of three main industry groups provided members to serve on that working group.

Leaders of those groups — John Huff of the Association of Bermuda Insurers and Reinsurers; Wayne Smith of the Association of Bermuda International Companies; and Christine Patton of the Bermuda International Long Term Insurers and Reinsurers — attended Tuesday’s press briefing by Mr Burt.

The consultation period, the first in a series of such periods, is open until September 8.