An entity (other than a holding entity, and entities that conduct intellectual property business, for which there are different criteria) conducting a Relevant Activity will satisfy the economic substance requirements if:

• it is managed and directed in Bermuda;
• core income generating activities are undertaken in Bermuda in relation to the Relevant Activity;
• it maintains adequate physical premises in Bermuda;
• there are adequate employees in Bermuda with suitable qualifications;
• there is adequate expenditure incurred in Bermuda in relation to the Relevant Activity; and
• it files a confidential economic substance report each year with the Registrar of Companies in Bermuda which will assist the authority in assessing compliance.

The Substance Regulations also set out the circumstances where the above activities may be outsourced.

An entity conducting the business of a holding company will satisfy economic substance requirements if:

(a) Pure holding company (ie a holding company where it only holds or manages equity participations, and earns passive income from dividends, distributions, capital gains and other incidental income only)

• complies with the minimum economic substance requirements; and
• has adequate employees for holding and managing equity participations, and an adequate premises in Bermuda.

(b)  Holding companies holding a variety of assets and earns different types of income (such as interest, rents and royalties), the core income generating activities are those activities that are associated with the income that the holding company earns.

An entity conducting intellectual property business will satisfy economic substance requirements if:

1. Enhanced IP Economic substance requirements

Where such entity’s IP core income generating activities (as set forth in regulation 15(3)(a) and (b)) are not undertaken in Bermuda during a relevant financial period, it is presumed that the entity does not comply with economic substance requirements, unless it is shown to the contrary that the entity:

 (i) undertakes other core income generating activities associated with IP income in Bermuda as demonstrated by

• taking the strategic decisions and managing and bearing the principal risks related to the development and subsequent exploitation of an IP asset;
• taking the strategic decisions and managing and bearing the principal risks related to any third party acquisition and subsequent exploitation of an IP asset;
• carrying on the underlying trading activities through which IP assets are exploited and which lead to the generation of IP income from third parties; and

(ii)  has an adequate number of employees with the suitable qualifications who reside and perform the IP related relevant activities and adequate premises in Bermuda.

      b. High risk IP economic substance requirements

Where an entity engages in high risk IP activities, it is presumed (whether or not the entity’s IP core income generating activities as set forth in regulation 15(3) are undertaken in Bermuda) that the entity does not comply with economic substance requirements unless it is also shown to the contrary that

1. the entity satisfies the requirements set forth in paragraph (2)(a) and (b) of the Regulations; and

1. the entity does not merely passively hold and generate IP income from IP assets in Bermuda, but a high degree of control over the development, exploitation, maintenance, enhancement and protection of the IP asset is, and historically has been, exercised by an adequate number of employees with suitable qualifications who reside and perform their IP related activities in Bermuda as demonstrated by the following:

• a detailed business plan;
• information demonstrating the presence of an adequate number of employees in Bermuda during the relevant financial period who are suitably qualified and are responsible for control and oversight or execution of, and decisions in respect of, its IP core income generating activities; and
• such additional information as the Minister may reasonably require forth is purpose.