Economic Substance Regulations (ESR) compliance
in the UAE and Bahrain
The Economic Substance Regulations (ESR) in both the UAE and Bahrain are designed to ensure that companies engaging in certain activities have substantial economic presence in the respective countries. These regulations are part of the OECD's Base Erosion and Profit Shifting (BEPS) Action 5 initiative to counter harmful tax practices.
In the UAE, the ESR were introduced in April 2019 and updated in August 2020. The regulations require UAE onshore and free zone companies, as well as certain other business forms, to demonstrate adequate economic presence in the UAE relative to the activities they undertake.
Similarly, Bahrain has implemented ESR to align with international standards. The regulations apply to entities engaged in relevant activities.
The relevant activities include:
>> Banking Business
>> Insurance Business
>> Investment Fund Management Business
>> Lease-Finance Business
>> Headquarters Business
>> Shipping Business
>> Holding Company Business
>> Intellectual Property Business
>> Distribution and Service Center Business
Entities in the UAE must submit an annual notification and an Economic Substance Report within 12 months from the end of their financial year.
Entities in Bahrain must file an ESR return through the ITIES web portal within three months from the end of their financial year.
Both countries have established these regulations to ensure transparency and compliance with international tax standards.
If you need more detailed guidance on how to comply with ESR in either country, feel free to get in touch with us.
Email: info@quantumauditing.com
