Former finance minister Bob Richards once used a memorable analogy to describe Bermuda’s dependence on international business.
In an interview with The Royal Gazette in 2010, Mr Richards said: “Take a B52, a bomber that’s designed to fly into high-risk situations. It has eight engines, so if one or two or even three fail, the plane can still fly. But in single-engine Bermuda, we have to avoid the risks that larger countries take because if our one engine stalls, we’re going down. That single engine is international business.”
In the year Mr Richards made those comments, IB represented 25.6 per cent of Bermuda’s gross domestic product and employed 11 per cent of the workforce. By 2023 IB’s share of GDP had edged up to 29 per cent, while the industry now directly provides 15 per cent of full-time jobs.
In 2024, the international business sector paid $1.78 billion to its island-based employees, a new record high, according to data from the Department of Statistics. This represents a remarkable 41 per cent of Bermuda’s total employment income earned by 15 per cent of the workforce.
It is worth emphasising how the IB sector’s value goes beyond the firms themselves. The Association of Bermuda Insurers and Reinsurers’ annual economic substance survey for 2024 shows member firms’ on-island spending — on compensation for staff, business services (such as legal, accounting, IT, consulting and recruitment firms), real estate, travel, entertainment and charitable donations – totalled more than $1.2 billion in 2024.
The group of 30 or so international re/insurance firms in the survey were therefore injecting an average of $100 million per month into the local economy, a staggering sum.
Many of the dollars paid in salaries, or to contracted local firms, are spent again and again in the local economy — for example, spending on mortgages, retail purchases, restaurant visits, travel, retail purchases, and rents.
This so-called “multiplier effect” means the sector’s impact on the local economy is far greater than GDP statistics would suggest, given that IB dollars rippling across Bermuda drive the output of multiple other sectors.
This year the IB goose started laying a second golden egg, as the Corporate Income Tax — a 15 per cent levy on profits paid by Bermudian-based international companies with annual global revenues of 750,000 million euros ($870 million) or more — took effect. The tax was introduced as Bermuda’s response to the global minimum tax envisioned by the Organisation for Economic Cooperation and Development’s Pillar 2 initiative.
The first CIT payments were scheduled to be paid in August. The Government has forecast CIT revenue of $187.5 million for 2025-26 and $600 million for each of the following two fiscal years.
While CIT filings are unpredictable and will fluctuate in line with the ups and downs of corporate profits, $600 million would represent the equivalent of a near 50 per cent boost to annual government revenues. With this seemingly too-good-to-be-true scenario comes the opportunity to pay down public debt, boost public services, upgrade infrastructure, shore up pension funds and bring tax relief to residents and businesses.
Ensuring that this extraordinary recurring windfall continues will depend on ensuring the CIT tax base opts to remain in Bermuda for the long term.
And the next step towards achieving that will be ensuring Qualified Refundable Tax Credits, structured to comply with OECD’s GloBE framework, are implemented. The Tax Reform Commission has already proposed a range of credits that reward local economic substance, initially aimed at the re/insurance industry.
These credits would be awarded based on metrics such as employment and training of locals, investment in business innovation, infrastructure and housing, as well as consistent charitable donations over a substantial threshold. The Government tabled tax credit legislation in the House of Assembly in November.
Given that Bermuda needs investment in all of these areas, the credits themselves promise to be a boon for the local economy over time – additional to the tax revenue itself. They create incentives for big businesses to invest in badly needed housing developments, jobs and training for Bermudians, electricity and telecommunications systems and Bermuda’s nonprofit sector.
The credits are essential for Bermuda’s competitiveness as an international business jurisdiction, because other jurisdictions, such as Singapore and Ireland, are implementing their own QRTCs as they strive to remain competitive as they revise their tax systems to comply with the global minimum tax initiative.
Another reason the stakes are high is that some of the small group of multinational companies in scope of the CIT provide hundreds of well-paying local jobs.
A perception among this group that Bermuda is doing too little to reduce the cost of doing business would be costly for the island in terms of employment, if re/insurers respond by relocating corporate functions, or even head offices, to other locations within the group.
John Huff, Abir’s chief executive officer, said in the press release on the Abir survey: “ABIR members look forward to gaining greater clarity on the full impact of the CIT, as the Tax Reform Commission’s recommendations on reforms including tax credits are considered by Parliament. Reducing Bermuda’s cost of doing business is critical to create a more favourable environment for job retention and job creation for Bermudians.”
Likewise, Christian Dunleavy, chairman of the Association of Bermuda International Companies has warned of the impact of the CIT on Bermuda’s competitiveness.
“We are in a perpetual race to enhance our value proposition and competitiveness while safeguarding our reputation, particularly with a diminished tax advantage,” Mr Dunleavy said at ABIC’s annual meeting in November.
“In today’s world capital and people are incredibly mobile. Standing still is falling behind. As the saying goes, it’s OK to look backwards, just don’t stare. We need to continue to move Bermuda to the future.”
The analogy of the one-engined plane is probably even more apt today than it was when Mr Richards said it.
