The wide-ranging proposals of the Tax Reform Commission could have significant implications for local, as well as international, businesses in Bermuda in 2026 – particularly related to the cost of employing people.
The TRC was appointed late in 2023, ahead of the implementation of the Corporate Income Tax, to recommend tax policy reforms to create a more transparent, fair, equitable and straightforward tax system.
Reducing the cost of living and cost of doing business was a particular focus of the TRC, which consulted with more than 500 people and 30 stakeholder groups during the research that led up to the publication of its report in September.
Business groups in Bermuda have long lamented the high cost of doing business as an inhibitor of economic growth and job creation. A particular concern is the taxes and benefits that come with employing someone, which mean that hiring a worker on a $100,000 salary will often cost a business more than $125,000 a year.
Employers pay the lion’s share of payroll tax, the largest single contributor to government coffers, expected to generate more than $621 million in 2025-26. They also pay half of their employees’ health insurance premiums, half of the social insurance contributions that fund the Contributory Pension Plan, as well as forking out an additional 5 per cent of an employee’s salary to contribute to their occupational pension plans.
Lightening the load of some of these obligations would make hiring people less expensive and make Bermuda more attractive as a place to locate employees and teams.
And CIT revenues – although highly unpredictable – promise the fiscal flexibility that would allow the Government to lower those costs. The TRC laid out practical ways this could be done.
To help manage the uncertainty of CIT revenues, the TRC proposed a “waterfall” funding allocation model, listing recommendations in order of priority. Only when higher-level priorities, such the debt sinking fund, are substantially funded do funds flow down to lower priorities.
Some of the recommendations that could most directly impact local businesses include:
Employer payroll tax
In addition to reductions in employee payroll tax, the TRC proposed capping the rate paid by employers at a maximum 7%, potentially falling further to 5%.
Under today’s graduated regime, larger employers pay higher rates of employer payroll tax. Companies with a total annual payroll of $1 million or more pay a 10 per cent rate, except exempt companies, which pay 10.25 per cent.
For a company in the 10 per cent bracket, a reduction to 7 per cent could result in a significant saving – for example, a local business employing 30 employees on an average salary of $80,000 would save $72,000 a year, rising to $120,000 if the rate was reduced to 5 per cent in future.
The TRC estimates the Government would see a fall of $68 million in payroll tax revenue resulting from the reduction.
Employer health insurance subsidy
Some countries levy a tax to pay for a public healthcare system. In Bermuda, we pay premiums to private health insurers, but the effect is the same as a regressive tax — in that those on low incomes need to pay a higher portion of their income to get access to the same level of healthcare as higher earners.
This tax-like impact, coupled with the significant and increasing impact of health insurance as a cost of doing business, persuaded the TRC to include it in their recommendations.
Global healthcare inflation is in double digits, according to tracking by Aon and WTW. In Bermuda, health insurance increases are driven by increased use of health services by our ageing population, an ever-increasing range of drugs and treatments, and chronic diseases linked to unhealthy habits.
The TRC has proposed a refund of 25 per cent of employers’ Standard Premium Rate contribution — which amounted to $400.41 per policy per month in 2024. The full payment would continue to support the healthcare system — the refund would be paid separately by the Government.
Health insurance represents a significant portion of employment costs, particularly for lower-income workers. The TRC’s research found that for a worker earning $60,000, the employer portion of health insurance is generally $3,000 to $6,000 per year, depending on the type of plan. A refund cutting this expense by approximately $1,200 per employee would cut the cost of hiring, with the hope this would spur job creation.
The refund would cost the Government approximately $19 million annually, says the TRC. The Commission adds that the recommendation is designed to be a temporary measure, pending developments with the Government’s progress towards Universal Healthcare.
Elimination of Foreign Currency Purchase Tax
Nearly all goods sold to consumers in Bermuda — from groceries and clothing to building supplies and pharmaceuticals — are imported. This means paying overseas suppliers in their own currency, which necessitates changing Bermudian dollars into foreign currency — a transaction subject to the 1.25 per cent Foreign Currency Purchase Tax.
It may not sound much, but it adds up: the Government projects it will take in almost $33 million in FCPT in the current fiscal year.
The 1.25 per cent exchange charge adds to an importer’s cost base. As the TRC Report notes, by the time the goods go through successive profit margin mark-ups in the wholesaler-retailer local supply chain, the impact on the price paid by consumers is likely to be more than 1.25 per cent.
Utility tax relief
Businesses in Bermuda all consume electricity to varying degrees. Anything that reduces Belco bills will benefit every sector of the economy, as well as consumers.
The TRC has proposed eliminating customs duties on electricity production and removing employer payroll taxes for utility bulk electrical generation, resulting in an estimated decrease of $8 million in government revenues.
Since the rates Belco can charge have to be approved by the Regulatory Authority — which considers the utility’s cost base as part of the formula — then the TRC-proposed savings for Belco will be passed directly onto customers.
If all of these measures are implemented, their combined impact has the potential to deliver a significant overall reduction in the cost of doing business for many local companies.
