Key Takeaways
- Bermuda's zero-tax model removes most incentive to negotiate comprehensive double taxation agreements, leaving very few in force.
- Tax information exchange agreements (TIEAs) handle most of Bermuda's cross-border arrangements where full treaties are absent.
- Without treaty coverage, foreign owners face gaps in permanent establishment, tie-breaker and withholding rules, requiring alternative relief options.
- Global minimum tax under Pillar Two, alongside the MLI and anti-abuse standards, is reshaping Bermuda's treaty outlook.
Tax Treaties in Bermuda: Why a No-Tax Jurisdiction Has Almost No DTAs
Bermuda holds exactly one double taxation agreement, a narrow convention with the United States that addresses insurance enterprises rather than general income. For most foreign owners, that single fact reframes the whole subject: a jurisdiction that imposes no income tax on individuals and, until recently, none on corporate profits has little to relieve and little to negotiate over. Bermuda instead built a wide network of information-exchange agreements, and its standing with bodies such as the OECD rests on transparency rather than treaty relief.
This article explains what the absence of a treaty network means in practice, how Bermuda substitutes information exchange for double-tax relief, and how the new corporate income tax may change the outlook. It is written for foreign business owners, investors, and their advisers weighing a Bermuda structure from outside the island.
What a Double Taxation Agreement Actually Does (and Why It Rarely Matters Here)
A standard double taxation agreement stops the same income being taxed twice: once where it is earned and again where the recipient is resident. These treaties usually cover income tax, corporate tax, and withholding on dividends, interest, and royalties, reducing those rates or exempting certain income outright.
Most also carry a "saving clause" that prevents a resident from using the treaty to escape tax on domestic-source income. The mechanics matter only where a domestic tax exists to be relieved.
That is where Bermuda diverges. Because individuals face no income tax, foreign tax relief has no role to play in Bermuda taxation, and the founding purpose of a DTA is structurally inapplicable to the zero-tax model that still governs most entities.
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Bermuda's Zero-Tax Model and Its Effect on Treaty Negotiations
For decades the island imposed no tax on profits, income, dividends, or capital gains, and it levies no withholding on dividends, interest, or royalties paid to non-residents. With no local tax at source, a foreign resident has nothing to claim relief from, and the home country's liability is unchanged by any agreement signed here.
That removes the usual incentive for a treaty partner to negotiate. The lone US convention even states plainly that it was not designed to relieve double taxation of persons in two jurisdictions, confirming it is not a standard income DTA.
A treaty allocates taxing rights and relieves double taxation. With no Bermuda-side tax to relieve, both the demand for and the value of a comprehensive treaty largely disappear.
The island compensates through information-sharing instead. A Tax Information Exchange Agreement exists with the United States and more than 40 other jurisdictions, and the arrival of a corporate income tax may, over time, give Bermuda reason to build a genuine treaty network.
The Limited Treaty Picture: Bermuda's Agreement With the United States
The entire double-tax treaty network consists of one instrument. It is the convention between the United States and the United Kingdom, acting on behalf of Bermuda, relating to the taxation of insurance enterprises and mutual assistance in tax matters, signed at Washington on 11 July 1986.
Bermuda enacted the U.S.A.–Bermuda Tax Convention Act 1986 on 29 August 1986 to give effect to certain provisions locally. The convention became operative on 2 December 1988.
Its reach is deliberately confined. The agreement deals chiefly with US federal excise tax on insurance premiums paid to Bermuda-based insurers and reinsurers, plus administrative cooperation, and does not touch broad income categories.
For its purposes, a permanent establishment means a regular place of business through which an insurance enterprise operates, including a place of management, branch, office, or sales outlet, and it extends to services lasting more than 90 days within a twelve-month period. The IRS list of US income-tax-treaty partners does not include Bermuda, and there is no double taxation agreement between the United Kingdom and the island.
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How Bermuda Relies on TIEAs Instead of Comprehensive Tax Treaties
Where comprehensive treaties are absent, information-exchange agreements fill the gap. Through bilateral TIEAs and the OECD Convention on Mutual Administrative Assistance in Tax Matters, Bermuda reaches more than 100 countries.
These agreements do something narrower than a DTA. A TIEA provides for the exchange of information that is "foreseeably relevant" to enforcing the tax laws of the contracting parties, operating on the Exchange of Information on Request standard, where one authority shares data only after a specific request rather than automatically.
| Feature | Double Taxation Agreement | Tax Information Exchange Agreement |
|---|---|---|
| Primary purpose | Relieve double taxation, allocate taxing rights | Share tax information for enforcement |
| Reduces withholding rates | Yes | No |
| Bermuda agreements in force | One (US, insurance only) | United States plus 40+ jurisdictions |
| Mechanism | Reduced rates, exemptions, tie-breakers | Information on request |
The OECD and FATF treat a minimum of 12 TIEAs as the benchmark for cooperation on tax transparency, a figure Bermuda comfortably surpasses. The UK–Bermuda TIEA entered into force on 10 November 2008 and was replaced by an exchange of letters in June 2017; the Australia–Bermuda TIEA, signed on 10 November 2005, took effect on 20 September 2007. None of these instruments cuts a withholding rate or allocates taxing rights.
Permanent Establishment, Tie-Breakers and Withholding: Where the Gaps Show
The practical consequence of one narrow treaty is a set of standard treaty protections that simply do not exist for Bermuda entities. The island has agreed no OECD-model permanent establishment definitions, no residency tie-breaker rules, and no reduced withholding rates with any jurisdiction beyond the insurance-only US convention.
Within that convention, permanent establishment is read strictly inside the insurance context and does not extend to other businesses. For everyone else, no bilateral PE concept applies.
On outbound flows the picture is straightforward. Bermuda imposes no withholding on dividends, interest, or royalties paid to non-residents, so money leaving the island carries no Bermuda-side deduction regardless of treaty status.
Inbound treatment is governed entirely elsewhere. Without a DTA, a foreign owner's home country applies its full domestic withholding and income tax rates to Bermuda-sourced income, and tie-breaker rules such as place of effective management remain untested for Bermuda entities outside the US insurance treaty.
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The OECD Multilateral Instrument (MLI) and Bermuda's Position
The BEPS Multilateral Instrument lets governments update existing bilateral treaties together to adopt BEPS measures, sparing them the work of renegotiating each agreement one by one. It entered into force on 1 July 2018 and, as of 10 January 2025, has 104 signatories covering more than 100 jurisdictions.
Bermuda is not among them. The position is logical rather than an oversight: with only the narrow US insurance convention in place, and with the United States itself outside the MLI, there is no Bermuda bilateral treaty the instrument could modify.
So no existing Bermuda agreement qualifies as a "Covered Tax Agreement" under the MLI framework. The island does participate in the separate OECD Convention on Mutual Administrative Assistance in Tax Matters, which concerns information exchange rather than treaty anti-abuse rules, and the OECD's MLI positions database should be checked for the latest standing.
Anti-Abuse Standards: Principal-Purpose Test and Limitation-on-Benefits Concepts
The MLI's headline anti-abuse measure is the Principal Purpose Test, which denies treaty benefits where gaining a tax advantage was one of the main purposes of a transaction. It works alongside Limitation on Benefits provisions to curb treaty shopping.
Because Bermuda neither signed the MLI nor holds comprehensive income tax treaties, the PPT and LOB rules have no direct application to entities in treaty relationships with the island. The exposure for a foreign owner sits elsewhere: in the anti-abuse rules of their own home country and in the treaties that country has with third parties.
Domestically, the island answers abuse concerns through the Economic Substance Act 2018, effective 1 January 2019 and passed in response to the EU Code of Conduct Group. Entities asserting Bermuda residency for planning purposes face that Act's relevant-activity tests and foreign GAAR or PPT rules, not a Bermuda-originated treaty anti-abuse clause.
Claiming Relief Without a Treaty: Practical Options for Foreign Owners
Relief in the conventional sense is largely beside the point here. With no Bermuda income tax at source, there is nothing to relieve on the Bermuda side, and the question moves entirely to the foreign owner's home jurisdiction.
The tools that matter are domestic ones, none of which require a DTA with Bermuda:
- Participation exemptions in the home country, which may exempt qualifying dividends
- Foreign tax credit regimes that offset home-country tax against foreign tax paid
- Territorial systems that exclude certain foreign-source income from taxation
Distributions help illustrate the point. Since Bermuda levies no withholding on dividends, interest, or royalties to non-residents, payments leave the island untaxed, and any liability arises only when they reach the owner's home system.
Information reporting still applies. Bermuda signed a Model 2 FATCA agreement with the United States on 19 December 2013, under which affected financial institutions report directly to the IRS, and the island participates in the Common Reporting Standard, so non-US owners' account data flows automatically to their home tax authority. US owners in insurance may claim the convention's excise-tax relief, but no equivalent exists for non-insurance income, and structuring choices must be tested against home-country CFC, GILTI, or similar rules.
The Impact of Global Minimum Tax (Pillar Two) on Bermuda's Treaty Outlook
The zero-tax premise no longer holds for the largest groups. From 1 January 2025 a 15% corporate income tax applies to multinational enterprises with annual revenue of EUR 750 million or more, aligning with the OECD's Pillar Two framework.
The governing measure, the Corporate Income Tax Act 2023, received assent on 27 December 2023. Smaller businesses and local companies keep the traditional 0% rate, so the change touches only the largest international corporations.
The reform fulfils Bermuda's commitment to the global minimum tax and is built to mesh with the GloBE Rules, under which a top-up tax arises where a jurisdiction's effective rate falls below 15%. Because the new rate sits above the 9% threshold for the Subject to Tax Rule, that particular STTR obligation does not bite.
For treaties, the implication is gradual rather than immediate. A domestic tax now exists that could, in principle, be relieved by a partner, which gives a logical basis for future negotiations, yet as of mid-2026 no new comprehensive income tax treaty has been concluded and none is publicly confirmed.
Conclusion
For nearly every foreign owner, the absence of a Bermuda treaty network is a non-event rather than a drawback: with no tax at source and no withholding on outbound payments, there is simply nothing for a treaty to relieve. The single US insurance convention serves a specialised audience, while broad transparency obligations run through TIEAs, FATCA, and CRS. Your real planning work belongs at home, under your own country's foreign tax credit, participation exemption, CFC, and anti-abuse rules. The arrival of a 15% corporate tax for the largest groups may seed a future treaty network, but that prospect remains untested and should not shape decisions made today.
How Expanship Can Help Your Business in Bermuda
Expanship advises foreign owners on how the island's treaty position, TIEA obligations, and economic substance rules apply to a specific structure, and on whether the new corporate income tax reaches your group. From that starting point we manage the full lifecycle of a foreign-owned entity on the island.
- Company formation and entity structuring
- Registered agent and registered office services
- Tax registration and filing support
- Ongoing compliance and statutory maintenance
- Accounting and bookkeeping
- Introductions to banking partners
To discuss your situation with our team, contact Expanship Bermuda.
Frequently Asked Questions
Bermuda has exactly one, a 1986 convention with the United States covering insurance enterprises and mutual tax assistance. It is not a general income tax treaty and does not relieve double taxation of ordinary income, so most foreign owners gain nothing from it.
No double taxation agreement exists between the United Kingdom and the island. The two are connected through a Tax Information Exchange Agreement that entered into force on 10 November 2008 and was replaced by an exchange of letters in June 2017, which concerns information sharing rather than tax relief.
Because the island imposes no tax at source on most income, there is little double taxation to relieve and little reason for partners to negotiate a comprehensive treaty. Information exchange agreements meet the transparency standards set by the OECD and FATF, and Bermuda holds well over the minimum of 12 such agreements through its TIEA network and the OECD multilateral convention.
Bermuda levies no withholding tax on dividends, interest, or royalties paid to non-residents, so payments leave the island without deduction. Any tax instead arises in the recipient's home country under its own rules, which apply in full because no DTA reduces them.
The island is not a signatory to the BEPS Multilateral Instrument. With only the narrow US insurance convention and the United States itself outside the MLI, there is no Bermuda treaty the instrument could modify; the OECD positions database holds the current status.
From 1 January 2025 a 15% corporate income tax applies to multinational groups with annual revenue of EUR 750 million or more, while smaller and local companies keep the 0% rate. A domestic tax now exists that a partner could in principle relieve, which gives a basis for future treaty talks, though no comprehensive income tax treaty has been concluded.
Legal Disclaimer
The information provided in this article is for general informational purposes only and does not constitute legal, tax, or professional advice. While we strive to ensure the accuracy and timeliness of the content, laws and regulations are subject to change, and the application of laws can vary widely based on specific facts and circumstances.
Readers should not act upon this information without seeking professional counsel tailored to their individual situation. Expanship and its authors disclaim any liability for actions taken or not taken based on the content of this article.
For specific advice regarding your business setup, compliance requirements, or any legal matters, please consult with qualified legal and tax professionals in the relevant jurisdiction.
