Economic Substance Regulation in Bahrain is an additional compliance requirement for those businesses registered in the Kingdom of Bahrain. Bahrain has become a part of the Organization for Economic Co-operation and Development (OECD) framework on Base Erosion and Profit Shifting (BEPS), progressing their commitments to apply minimum standards in the Kingdom.
The CBB Directive No. OG/499/2018 Concerning Economic Substance Requirements for certain Financial Institutions in Bahrain was issued by the Central Bank of Bahrain (CBB)on 22nd November 2018. The Ministerial Order No. (106) of 2018 concerning Economic Substance requirements in the Kingdom of Bahrain issued by Ministry of Industry, Commerce and Tourism (MOICT) on 27th December 2018 will be applicable to all Non-CBB businesses who has Commercial Registration (CR) that undertakes “Relevant Activities” under Economic Substance Regulation in Bahrain.
What are the “Relevant Activities” under Economic Substance Regulations in Bahrain?
The “Relevant Activities” under ESR in Bahrain are as mentioned below:
For Non-CBB licensed entities undertaking non-regulated activities:
- Distribution and Service Center Business
- Headquarters Business
- Holding Company Business
- Lease Finance Business
- Shipping Business
- Intellectual Property Business
For CBB licensed entities undertaking regulated activities:
- Banking Business
- Financing Business
- Insurance Business
- Investment Fund Management Business
Applicability of Economic Substance Regulation in Bahrain?
Economic Substance Regulation in Bahrain is applicable from 1st January 2019 to certain Financial Institutions in Bahrain licensed to do activities from Central Bank of Bahrain (CBB). All the Licensed Entities are obliged to submit an annual report to the Central Bank of Bahrain (CBB) confirming their compliance with Economic Substance Regulation in Bahrain.
It shall be applicable from 1st January 2019 for:
- Traders applying for new commercial registrations
- Existing traders with respect to new relevant activities or acquiring new Intellectual Property Assets
For all the existing traders carrying on relevant activities, it shall be applicable from 1st July 2019.
For how long do you have to Maintain your Books of Records to Comply with Economic Substance Regulation in Bahrain?
To comply with Economic Substance Regulation in Bahrain, you have to maintain your books of records for a period of 6 years from the end of Financial Year in which the Information Notification is Filed with Authority.
Are there any penalties for non-complaince with Economic Substance Regulation in Bahrain?
Non-compliance of ESR in Bahrain will attract penalties that could reach BD 100,000 or even imprisonment.
What is the purpose of Economic Substance Regulation in Bahrain?
- By the application of ESR in Bahrain, the country is expected to move a step ahead in providing support and ensuring that the investments made in the Kingdom was not driven only to benefit from a privileged tax regime.
- To ensure the pro-active measures to address concerns of the EU on shifting of profits.
- The aim is to improve the international competency of the Country.
How to Conduct Economic Substance Regulation Test?
To conduct ESR Test in Bahrain you should check if:
- the “Relevant Activity” is a “Core Income-Generating Activities” in the Kingdom of Bahrain itself.
- the activities are adequately managed and directed in the Kingdom of Bahrain.
- there is adequate number of qualified full-time employee being employed in the Kingdom of Bahrain.
- there is adequate amount of operating expenditure and adequate physical assets in the Kingdom of Bahrain.
How can Emirates Chartered Accountants Group Bahrain support you for assessment on Economic Substance Regulation in Bahrain?
Step 1: To have a preliminary check done for your business on the applicability of ESR.
Step 2: If Economic Substance Regulation is applicable, then to have check in place on satisfaction of Economic Substance Regulation’s Criteria.
Step 3: If the criteria are not met, then to identify the gaps. Providing suggestions and improvements to ensure compliance of Economic Substance Regulation.
Step 4: To assist the Commercial Registered Licensee to file Information Notification & Reporting with the Relevant Authorities.
Emirates Chartered Accountants Group offers support to the business community in Bahrain with meticulousness in compliance with Economic Substance Regulation in Bahrain. We house highly efficient and professionally well-equipped qualified professionals in the related field of work with practical experience in the related field in various industries. Since inception, we understand that each business is different. That is why we always have special tailored approaches for every single entity for every service.
For more information on Economic Substance Regulation in Bahrain, please contact us:
Mr. Bichin
Asst. Manager, Bahrain Operations
+973 3619 8998
