Update on Bermuda economic substance scope and filing requirements

Bermuda’s economic substance regime has been brought into closer alignment with the regimes implemented by other jurisdictions named in the European Union’s Code of Conduct Group’s call in 2018 for substance laws. As well as achieving greater uniformity with other jurisdictions, the changes represent welcome clarification of the scope of some of the requirements. In addition, the Registrar of Companies issued the final guidance notes (the “Guidance Notes”) after submitting a draft to the industry in July 2019.

The changes reported in this summary were made in by the Economic Substance Amendment (No. 2) Act 2019 and the Economic Substance Amendment (No. 3) Regulations 2019 which became operative on 24 December 2019.

Holding entity

The relevant activity of “holding entity” is now limited to “pure equity holding entities”. The original definition encompassed any entity that held assets, a criterion that could plainly be satisfied by a vast number of companies. The new definition requires that the entity be engaged in the acquisition and holding of controlling interests in subsidiaries and that it performs no commercial activity. Holding entities may comply with economic substance requirements merely by complying with “minimum economic substance requirements” and having adequate personnel and premises in Bermuda for holding and managing equity participations.


“Insurance” activity is now limited to engaging in insurance business as defined in the Insurance Act 1978 (“Insurance Act”), i.e. it only applies to entities that effect and carry out insurance contracts. Insurance intermediaries are therefore outside the scope of the ESA.

Financing and leasing

These relevant activities have been restructured as a single relevant activity of “financing and leasing”, reflecting the approach in other jurisdictions. The core income generating activities of financing and leasing are more clearly explicated.


The revised definition of “shipping” now excludes entities which own a vessel but do not otherwise take part in its operation and management. The CIGA associated with shipping is now limited to the operation and management of a ship.

Local companies

Reduced “minimum” requirements apply to local companies to the extent they comply with the 60/40 rule (i.e. are not local companies by virtue of a section 114B licence, being listed on a designated stock exchange or other basis) provided that they carry out business only in Bermuda and are not part of an MNE Group. (Local companies that are insurers or banks are not subject to this rule and comply with ESA by complying with the relevant regulatory requirements applicable to them under the Insurance Act or Banks and Deposit Companies Act 1999.)

Annual filing requirements

In addition to its Guidance Notes, the Registrar of Companies (ROC) released amended annual declaration forms specifically relevant for exempted companies, permit companies, limited liability companies, exempted partnerships and overseas partnerships. Registered entities must declare any relevant activity they carry on where appropriate on the applicable annual declaration form as part of their annual filing with the ROC. The ROC is still to release the economic substance form which will be separate from the annual declaration form that will be used by registered entities to report the minimum required information for the relevant financial period.


The changes provide very helpful clarification. They will be most welcome to those entities that would have been, but are not, in scope merely by virtue of holding assets or being registered under the Insurance Act as insurance brokers, agents or managers.

Read others items in Bermuda Corporate Insurance Brief - April 2020