One of the common misconceptions about Bermuda is that it is a “tax free” country. However, although tax obligations are minimal when compared to many countries, they still exist.One such tax obligation is that all employees who provide services during any tax period who are wholly or mainly employed in Bermuda are subject to payroll tax.The Payroll Tax Act 1995 (the “Act”) sets the parameters for what income and financial benefits may be taxed and the Payroll Tax Rates Act 1995 (the “Rates Act”) sets out the rate of payroll tax payable.The current standard rate of payroll tax is 14 percent, 5.25 percent of which is recoverable by the employer from the employee usually as a salary deduction. In accordance with section three of the Act, payroll tax is payable “by every employer at the standard rate in respect of remuneration paid by him to every employee and deemed remuneration paid by him to every deemed employee of his during any tax period for services rendered by the employee or the deemed employee during that tax period wholly or mainly in Bermuda, whether or not the remuneration is paid in Bermuda.”Whether or not payroll tax is payable significantly depends on the definition of “remuneration” in the Act, which is not limited to just the employee’s salary.Section seven of the Act defines remuneration very broadly and captures a variety of financial benefits to the employee, of which both employee and employer may be unaware, namely:n “any wages, salary, leave pay, commission, gratuity, fee, bonus, perquisite or allowance;n any money paid under a profit-sharing scheme;n any money or other thing of value paid or given to him as an employee or an ex-employee in connection with the permanent termination of his employment on account of redundancy or otherwise, whether or not so paid or given in a lump sum or in a series of payments or in respect of one or more tax periods, being, money or a thing paid or given for services to the employer wholly or mainly in Bermuda; and it shall be assumed that any money or thing paid or given by an employer to, or with respect to, an employee or ex-employee of his at, or within three years of, the permanent termination of the employment is remuneration for the purposes of this Act unless the contrary is proved;n any amount paid with respect to him to a retirement or provident fund, scheme or society, or under a hospital or health insurance scheme;n the value of any meals, board, lodging or other benefit of any kind whatever, and whether provided in cash or otherwise than in cash;n the rental value of any place of residence provided rent-free;n where a place of residence is provided at a rent less than the rental value, the excess of the rental value over that rent;n any gain obtained by the exercise by him of, or the assignment or release by him of, a right to acquire shares or stock in a body corporate, being a right arising out of services rendered by him (whether in the capacity of director otherwise) to that body corporate.”Payroll tax is payable quarterly, in arrears. Each tax period is for three months commencing on the first day of January, April, July, or October respectively.In the event that certain remuneration paid to the employee is taxable under the Act but has not been taxed correctly or on time, the Taxes Management Act 1976 (the “Taxes Act”) applies.Section 20 of the Taxes Act provides that “an assessment to tax may be made no later than five years after the end of the tax period to which the assessment relates.”This means that should payroll tax be payable pursuant to the Act, but has not to date been paid, the tax must be calculated back five years in order to rectify the matter.Section 22 of the Taxes Act provides the penalty for late payment, namely that it is “payable in an amount equal to five per centum of the unpaid tax for every month, or part of a month, during which the tax is unpaid, with a maximum penalty of an amount equal to thirty per centum of the unpaid tax”.Section 16 of the Taxes Act states: “Where it appears to the (tax) Collector that any person has not paid all the tax to which he is chargeable, such person shall also be liable to pay, by way of additional tax, an amount equivalent to the amount of tax or further tax assessed but the Collector may if he thinks fit in any particular case remit such additional tax or any part thereof.”There are also various penalty fines prescribed by the Taxes Act for such offences as filing false tax returns and tax evasion.Although the taxes payable in Bermuda are few, they must still be given full consideration and examination to ensure that all requirements are met, all tax amounts payable under Bermuda law are being paid and in a timely fashion in order to protect against falling foul of the Taxes Act and suffering the consequences.Attorney Anna Knapman-Scott is a member of the Litigation and Insolvency Practice Group at Appleby. A copy of Ms Knapman-Scott’s column can be obtained on the Appleby website at www.applebyglobal.com.This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.