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Economic Substance Act

The Economic Substance Laws ("the Law") ensure that Bermuda does not facilitate the use of structures which attract profits but which do not reflect real economic activity that is being undertaken in Bermuda.

Entities in scope of this law have to satisfy the requirements of the Law.

Economic Substance

What are Economic Substance Requirements?

  • Managed and Directed;

  • Core Income Generating Activity ("CIGA") undertaken;

  • Adequate full-time employees with suitable qualifications;

  • Adequate physical presence;

  • Adequate operating expenditure;

    • in Bermuda

Legislation and Guidance

  • Economic Substance Act 2018

  • Economic Substance Regulations 2018

  • Economic Substance Guidance Notes (General Principles)

  • Economic Substance Sector-Specific Guidance Notes

Guidance Notes

Update to the Act


Effective 1 January 2022, the Substance Regulations were updated by the Economic Substance Amendment (No. 2) Regulations 2021 (Amendment Regulations). 

Following the Amendment Regulations, a registered entity now engages in the relevant activity of “fund management” if it:

…manages investments for an investment fund (as that term is defined in section 2(1) of the Investment Funds Act 2006), in accordance with the Investment Business Act 2003.


The Amendment Regulations now bring any fund manager who manages investments for investment funds into the scope of the ES Requirements. For these purposes, “investment fund” has the meaning given to such term in the Investment Funds Act 2006, and the phrase “managing investments” is to be construed in accordance with the IBA.

This means that any fund managers who are outside the IBA’s regulatory scope or who rely on an exemption from the IBA, may now be subject to the ES Requirements in respect of their “fund management” activities.

Who is in Scope?

Who is in Scope?

Registered Entity

Companies (including permit companies)


Limited Partnerships that have elected separate legal personality

Relevant Activity

Carrying on as business any one or more of:

  • Banking

  • Insurance

  • Fund Management

  • Financing & Leasing

  • Headquarters

  • Shipping

  • Distribution & Service Centre

  • Intellectual Property

  • Holding Entity

Not a "Non-resident entity"

i.e. not resident for tax purposes in a non-blacklisted jurisdiction outside Bermuda

Role of the Board

Role of the Board

Managed & Directed in Bermuda

Meetings in Bermuda;

  • Adequate number of Board, Committee and/or senior management meetings

  • Strategic decision-making is key, risk and operational decision-making is secondary

  • Minutes should be kept to evidence nature of meetings held

Directors/senior employees resident in Bermuda​

CIGA Requirements

  • CIGA (set out for each relevant activity) must be performed in Bermuda

  • Outsourcing of CIGA (to affiliate or service provider) is acceptable 

  • Management and oversight is important, but activity in Bermuda must generally be more than just oversight in order to meet CIGA requirement


  • Boards should address their minds to the application of the Economic Substance Requirements and make their determination of compliance in good faith

  • The Economic Substance Declaration will be primary source of compliance data for the Registrar of Companies

Hamilton, Bermuda

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