Entity Setup
Structuring a Legal Entity in Bermuda: Zero-Corporate-Income Advantages and Where to Stay Compliant
Learn how to legally establish a business entity in Bermuda to benefit from its zero corporate income tax while navigating substance requirements and payroll tax obligations.
By NomadicTax Research Team • 5-8 min read • August 16, 2026
## Bermuda Entity Setup: Key Features and Best Practices
Bermuda is renowned for **no corporate income tax**, but structuring an entity there still involves navigating new global standards, compliance responsibilities, and local payroll/tax obligations.
### Why Bermuda Remains Attractive
- **Zero corporate income tax** on profits of companies—no tax on retained or distributed earnings for most businesses. ([gov.bm](https://www.gov.bm/types-taxes-bermuda?utm_source=openai))
- Recently enacted **Corporate Income Tax (CIT)** starting January 1, 2025, applies to certain large non-resident entities or those that fall under new global minimum tax rules. ([gov.bm](https://www.gov.bm/CIT?utm_source=openai))
- Strong regulatory reputation—Bermuda is aligning its laws with OECD’s Pillar Two and related rules. ([gov.bm](https://www.gov.bm/articles/international-tax-matters?utm_source=openai))
### Entity Types and Localization (“Substance”) Requirements
| Entity Type | Common Uses | Key Considerations |
|-------------|-------------|---------------------|
| Exempted Companies | International finance, reinsurance, investment entities | Must maintain substance—local director, meetings in Bermuda, local employees, physical office per CIT/substance rules. |
| Local Businesses / Charities | Retail, services, non-profits | Generally treated as resident and may be exempt from certain reliefs offered to exempted companies. |
### Compliance: Payroll, Employer Costs, and Tax Credits
- Bermuda levies a **payroll tax** instead of income tax for employees. Employers and employees both have obligations. ([gov.bm](https://www.gov.bm/types-taxes-bermuda?utm_source=openai))
- As part of recent budget measures (2026/27), **employer payroll tax rates have been reduced** for many categories (large employers, hospitality, retail, etc.) and even eliminated for certain employers. ([gov.bm](https://www.gov.bm/calculating-payroll-tax-2026?utm_source=openai))
- The **Tax Credit Act 2025** introduces **substance-based tax credits**, incentives for local hiring, capital expenditure, infrastructure, and community benefit. These are structured as *refundable credits* under the updated CIT regime. ([gov.bm](https://www.gov.bm/articles/international-tax-matters?utm_source=openai))
### Actionable Steps for Entity Setup
1. **Choose the correct entity type**—if you expect cross-border revenues or fall under global rules, plan for an exempted company maintaining substance.
2. **Maintain physical presence**—hire local staff, book board meetings in Bermuda, have local directors.
3. **Leverage fiscal incentives**—ensure your business qualifies for tax credits like local hiring or community benefit when planning CapEx and staffing.
4. **Understand payroll commitments**—even with entity structure, you’ll manage payroll tax both employer and employee portions; new reliefs reduce some burdens. ([gov.bm](https://www.gov.bm/calculating-payroll-tax-2026?utm_source=openai))
5. **Plan for CIT / global minimum tax compliance**—stay updated with Bermuda’s evolving law to ensure your entity is compliant under OECD/BEPS rules. ([gov.bm](https://www.gov.bm/articles/international-tax-matters?utm_source=openai))
### Example Scenario
A reinsurance company (exempted) sets up its entity in Bermuda. To meet substance: hires two Bermudian directors who meet monthly, establishes an office, and employs 3 local staff. Under the Tax Credit Act, because it spent on local hiring and infrastructure, it claims a refundable credit reducing CIT liability. Payroll tax savings under the 2026/27 budget help reduce employer’s payroll tax rate from 5% to 4% in hospitality classification. firstname Lastname, Employee, pays lower employee payroll tax in the first income bands due to cuts effective April 1, 2026. ([gov.bm](https://www.gov.bm/calculating-payroll-tax-2026?utm_source=openai))
**Takeaway:** Setting up in Bermuda offers significant tax efficiency—but only with robust planning for substance, payroll tax compliance, and staying ahead in a changing international tax landscape.