Key Takeaways
- Payroll Tax in Bermuda applies to employers, self-employed persons, deemed employees, and foreign contractors, making it a core consideration for foreign-owned businesses.
- Both employers and employees contribute, with employer rates tied to categories and a progressive band structure applied to the employee portion within a capped remuneration base.
- Compliance involves registration, e-filing, quarterly remittance, and record-keeping, with penalties for late filing, non-payment, and false returns.
- Recent rate adjustments and the article's outlook section help non-resident employers anticipate where Bermuda's payroll tax may be heading.
Understanding Payroll Tax in Bermuda: An Introduction
Bermuda levies no personal or corporate income tax for most businesses, and no value added tax, sales tax, capital gains tax, or inheritance tax. In place of those, payroll tax in Bermuda functions as the principal direct tax on labour and a main source of government revenue. It is charged under the Payroll Tax Act 1995 and the Payroll Tax Rates Act 1995 on every employer, self-employed person, and deemed employee in respect of remuneration tied to services rendered in the island.
The tax is split into two portions: an employer charge and an employee charge, the latter calculated across progressive bands. This article explains who is liable, how taxable remuneration is defined, the applicable rates, the reliefs available, and the filing mechanics you must follow. It is written for foreign-owned businesses, international companies registering as exempted undertakings, and their advisers who need to budget and stay compliant. Official rate tables and calculators are published by the Office of the Tax Commissioner.
The Legal Basis: The Payroll Tax Act 1995 and Payroll Tax Rates Act 1995
Two statutes underpin the regime. The Payroll Tax Act 1995 imposes the charge, while the Payroll Tax Rates Act 1995 sets the bands and percentages applied to employers, self-employed persons, and employees.
The tax is charged quarterly on remuneration paid, given, or assessed to every employee and deemed employee. Remuneration is read widely, taking in cash wages alongside benefits such as pension contributions, stock options, housing allowances, and profit sharing.
Originally the tax fell on the employer alone, who could recover a set percentage from staff. Effective April 2017, the charge was separated into distinct employer and employee obligations, though the duty to pay the full amount still rests with the employer.
The framework has been amended repeatedly, including changes to the definition of "remuneration" effective 1 April 2018 and successive budget measures. Enforcement sits with the Office of the Tax Commissioner.
Books and records must be kept under the Tax (Accounts and Records) Regulations 1991 to support every return. Where remuneration goes undeclared, the Tax Commissioner may assess a value under section 16 of the Taxes Management Act.
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Who Pays Payroll Tax: Employers, Self-Employed Persons, Deemed Employees, and Foreign Contractors
Liability reaches every employer, self-employed person, and deemed employee on the remuneration drawn from the business. For a self-employed person or deemed employee, that remuneration is the total amount taken out of the business for personal use.
Foreign contractors and subcontractors operating in the island are within the charge as well. Officers and directors of exempted companies count as employees where a contract for services exists and they perform managerial functions on a regular, day-to-day basis.
The decisive test is where the work happens. Tax applies to remuneration for services rendered wholly or mainly in the island during a tax period, whether or not the money is actually paid there.
A narrow exit exists for short visits. Someone who ordinarily works abroad and whose period of employment on the island does not exceed four consecutive weeks is exempt entirely.
Every liable employer and self-employed person must register with the Office of the Tax Commissioner within 7 days of the end of the first tax period in which business commences. Failure to register is a criminal offence.
The Contribution Base: Defining Taxable Remuneration and the $1 Million Cap
Taxable remuneration combines wages and salaries with the value of benefits paid in cash or in kind for services provided in the island. The definition is deliberately broad.
Benefits caught by the charge include, among others:
- Fees, bonuses, and leave pay
- Profit sharing and redundancy settlements
- Housing allowances
- The positive difference between the fair market value of stock options and the option price, measured at the vesting date
- Any other payment or value passing from employer to employee
Stock options enter the base only once they have vested and become exercisable, a position effective for tax quarters beginning on or after 1 July 2014.
A ceiling caps exposure per worker. The maximum taxable remuneration is BMD 1 million per employee per annum; no payroll tax arises on earnings above that figure. A person earning the full BMD 1 million is taxed across each of the five employee bands, since part of their pay falls into every category.
Dividends carry a deductible. Effective 1 April 2026, the deductible on dividends received rises to USD 20,000 per person per year, with each dividend dollar above that threshold treated as gross remuneration up to the BMD 1 million ceiling.
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Employer Payroll Tax Rates and Employer Categories
The employer charge depends on the category of business or the size of the annual payroll, and it applies to gross taxable remuneration as defined in the Payroll Tax Act 1995. Graduated employer rates run from 0 to 10.25%, effective 1 April 2020.
International businesses, which typically register as exempted undertakings, fall into the top employer category at a flat 10.25% of applicable employee remuneration. The same 10.25% maximum bracket applies to any business with an annual payroll above BMD 1 million.
| Employer category | Employer portion |
|---|---|
| Exempted undertakings / annual payroll over BMD 1 million | 10.25% |
| Hotels and restaurants | 5% |
| Self-employed caregiver (in-home illness or incapacity care) | 0% |
Sector-specific rates exist for farmers, fishermen, restaurants, hotels, and retailers. For hotels and restaurants the reduced 5% applies to the employer portion only, with the standard rate still applied to the employee portion.
An employer-portion exception also applies to new Bermudian hires and certain other situations, covered further below.
The Employee Portion: Progressive Bands and the 5-Band Structure
The employee portion uses a marginal, progressive structure across five bands. Each dollar earned above a given level is taxed at a higher rate than the dollar below it.
A reduction took effect on 1 April 2023 for all workers earning less than BMD 48,000, with incremental increases applied to the four remaining bands. The downward movement for lower earners has continued since.
Two worked examples published by the government show the direction of travel:
| Period | First USD 48,000 (Band 1) | USD 1,000 balance (Band 2) |
|---|---|---|
| 1 April 2024 – 31 March 2025 | 0.50% | 9.25% |
| 1 April 2026 – 31 March 2027 | 0.25% | 7.75% |
The employee portion is computed separately from the employer portion. Employers may deduct the employee share from pay, but the obligation to remit the full amount stays with the employer.
Rates apply to each worker's annual rate of pay. For staff with fluctuating earnings, the annual rate must be recalculated each pay period so the tax is adjusted accordingly. The government posts pay-period calculators and the full current band thresholds under the Resources section of its annual payroll tax page.
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Social Insurance Contributions (Contributory Pension Fund) for Employers and Employees
Social insurance is separate from payroll tax. It is governed by the Contributory Pensions Act 1970 and administered by the Department of Social Insurance, which collects contributions and pays benefits.
Contributions are due for every employee over 18 for each week in which the person works more than four hours. The self-employed who work more than four hours weekly contribute as well.
The standard weekly contribution was revised to BMD 75.30 per employee, effective 4 August 2025. Employer and employee each cover BMD 37.65, a 50/50 split, while a self-employed individual pays the full BMD 75.30.
Several groups sit outside the scheme. Employees over 65 need not pay their half, although the employer still contributes its share. Full-time students under 26 working during holidays, weekends, and summer breaks are exempt, as are their employers.
Billing runs monthly, based on the number of registered employees, and must be settled by the last Friday of the month. Each qualifying worker must obtain a social insurance number; civil and criminal penalties may follow a failure to register or pay.
A second, distinct obligation applies. Under the National Pension Scheme (Occupational Pensions) Act 1998, employers must engage a private pension provider, with employer and employee each paying 5% of pensionable earnings.
Budget for payroll tax, the weekly social insurance contribution, and the 5% occupational pension as three distinct lines. They are administered by different bodies and fall due on different dates.
Exemptions, Reliefs, and Special Rates Within Payroll Tax
A number of reliefs reduce or remove the charge. Employer contributions to approved pension, life insurance, and health insurance schemes are exempt from payroll tax.
Maternity and paternity leave attracts relief on the employer side. For remuneration paid to staff on such leave under sections 16 and 16A of the Employment Act 2000, the employer portion is exempt, though returns must still be filed and the employee portion remains payable.
New Hire Relief is now a recurring policy tool, re-enacted across 2018, 2020, 2024, and 2026. The 2026 iteration repeals and replaces the 2024 version and grants an employer-portion exemption on remuneration paid to qualifying employees hired between 1 April 2025 and 31 March 2026 (and still employed after 1 April 2026), and to those hired between 1 April 2026 and 31 March 2028.
- Applications must be filed by the quarter end in which the employee qualifies. Retroactive approval is not considered.
Other reliefs of interest to a foreign-owned employer include:
- Senior Bermudian workers: retaining or hiring a Bermudian aged 65 or over qualifies an employer for relief in that quarter, with remuneration up to USD 24,000 per tax period not taxable under this measure.
- Redundancy and severance: effective 1 July 2025, payments or benefits connected with permanent termination of employment, whether for redundancy or other reasons, are exempt from payroll tax, with no relief for payments made before that date.
- In-home caregivers: no payroll tax applies to staff caring for a person with a physical or mental disability at that person's home, subject to ministerial approval processed by the Office of the Tax Commissioner.
- Short assignments: workers based abroad whose island employment does not exceed four consecutive weeks are fully exempt.
A simplified regime also applies to minibus operators. From 1 April 2025, these companies no longer file quarterly returns and instead pay a flat fee per vehicle across three tiers based on seating capacity.
Registration, e-Filing, Quarterly Remittance, and Record-Keeping Obligations
Registration is the first step, completed at www.etax.gov.bm within 7 days of the end of the first tax period in which the business begins. The tax is then paid quarterly, with periods commencing on 1 April, 1 July, 1 October, and 1 January.
Returns are filed on form PR1 and payment is due within 15 days of each quarter end. The tax must be paid at the time the return is filed.
| Earnings period | File between |
|---|---|
| January – March | 1 – 15 April |
| April – June | 1 – 15 July |
| July – September | 1 – 15 October |
| October – December | 1 – 15 January |
Electronic filing is compulsory above a payroll threshold. Taxpayers with payrolls of USD 200,000 or more per annum must e-file, a requirement in force from the April–June 2021 quarter, and all exempted companies fall within that online obligation.
Records must be retained. Books kept under the Tax (Accounts and Records) Regulations 1991 must support each return, and payroll reports must be held for at least ten years.
Penalties for Late Filing, Non-Payment, and False Returns
Late filing carries consequences. With the 15-day grace period exhausted, employers and self-employed persons who file late face late penalties and assessments.
The serious offences attract heavy fines. Submitting false returns, failing to keep or produce adequate records, or evading tax in any way is an offence punishable by fines of up to USD 500,000.
Two further points matter for an international business. Filing on paper where e-filing is mandatory triggers a penalty, and a failure to register with the Office of the Tax Commissioner is itself a criminal offence. Civil and criminal sanctions likewise attach to a failure to register or pay social insurance for each qualifying employee.
The Outlook: Recent Rate Cuts and the Future of Bermuda's Payroll Tax
The recent direction has favoured lower earners. The 2023 reform cut the Band 1 rate for workers earning under BMD 48,000 while raising the four upper bands, and the 2026 schedule cut Band 1 again to 0.25% on the first USD 48,000, down from 0.50% in 2024–25.
Legislative activity is steady rather than occasional. Budget statements in 2024, 2025, and 2026 each introduced amendments, with the 2025 measures adding the redundancy exemption from 1 July and the minibus flat-fee structure from 1 April.
A separate development sits alongside, not within, the payroll regime. The Bermuda Corporate Income Tax Act 2023 became law on 27 December 2023 and imposes a 15% corporate income tax on businesses in multinational groups with annual revenue of EUR 750 million or more, beginning in 2025. For all other employers, the payroll charge remains the principal employment-related tax.
Expect periodic recalibration. The bands and rates are revised to track fiscal policy, inflation, and labour-market conditions, and reliefs such as New Hire Relief have become standing instruments rather than one-off concessions.
Conclusion
Payroll tax is not a peripheral cost in Bermuda; for a foreign-owned business, it sits at the centre of every hiring and structuring decision, because the obligation follows the worker, not the owner's country of residence. The category assigned to your business and the remuneration cap together determine your actual liability more than any other variable, so confirming both before your first hire is the concrete next step that matters.
Rate adjustments are still in motion, and the direction of those changes will shape the real cost of employing staff in Bermuda over the coming years, making it worth revisiting your payroll projections against any new rate announcements rather than treating current figures as fixed.
How Expanship Can Help Your Business in Bermuda
Expanship supports foreign-owned entities with payroll tax registration, quarterly PR1 filing, and the calculation of both the employer and employee portions, alongside social insurance and occupational pension administration. The same team handles the wider compliance picture for a non-resident business setting up or operating on the island.
- Company incorporation and exempted undertaking setup
- Registered agent and registered office services
- Tax registration and quarterly payroll tax filing
- Ongoing compliance management and statutory deadlines
- Accounting and bookkeeping aligned to record-keeping rules
- Banking introductions for the new entity
To discuss your payroll and compliance obligations, contact Expanship Bermuda.
Frequently Asked Questions
Yes. The island levies no personal or corporate income tax for most businesses, but payroll tax is charged under the Payroll Tax Act 1995 and the Payroll Tax Rates Act 1995 as the main direct tax on labour. It applies to employers, self-employed persons, and deemed employees on remuneration for services rendered in the island.
The employer carries the payment obligation for the full amount, including both the employer and employee portions. An employer may deduct the employee portion from staff pay, but the duty to remit it to the Office of the Tax Commissioner remains the employer's. This has been the position since the tax was split into two portions effective April 2017.
International businesses normally register as exempted undertakings and fall into the top employer category at a flat 10.25% of applicable employee remuneration. A separate employee portion, calculated across five progressive bands, also applies. No payroll tax arises on remuneration above the BMD 1 million per-employee annual ceiling.
Returns are filed quarterly on form PR1, with periods beginning on 1 April, 1 July, 1 October, and 1 January. Each return and its payment are due within 15 days of the quarter end, for example between 1 and 15 April for January-to-March earnings. Businesses with payrolls of USD 200,000 or more per annum, and all exempted companies, must file online at www.etax.gov.bm.
A person who ordinarily works outside the island and whose employment there does not exceed four consecutive weeks is exempt from payroll tax entirely. Social insurance is treated separately: non-residents who work fewer than 26 consecutive weeks are not required to make contributions.
The New Hire Relief grants an employer-portion exemption on remuneration paid to qualifying employees, with the 2026 iteration covering hires between 1 April 2025 and 31 March 2028 who remain employed after 1 April 2026. Applications must be submitted by the quarter end in which the employee qualifies, since retroactive approval is not available.
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.
