Ecnomic Substance
Regulations
ESR CONSULTATION SERVICE
Key Features and Compliance of ESR
The Economic Substance Regulations (ESR) is a regulatory framework implemented by various jurisdictions to ensure that businesses engaged in specific activities have substantial operations locally. This framework aims to curb profit shifting and ensure that profits are taxed where economic activities generating the profits are performed. Key features of the ESR include:
Scop
ESR is applicable to entities operating in specified sectors, including but not limited to:
- Banking: Financial institutions engaged in accepting deposits and extending credit.
- Insurance: Companies offering risk management through the sale of insurance policies.
- Fund Management: Entities involved in managing investment funds.
- Headquarters Business: Companies providing management services to group entities.
- Shipping: Businesses involved in the operation of ships.
- Holding Company: Companies whose primary function is holding equity interests in other entities.
- Intellectual Property (IP): Entities holding and managing IP assets.
- Distribution and Service Centers: Businesses providing distribution and logistics or service support.
Substance Requirements
Entities within the scope of ESR must demonstrate substantial economic presence by conducting core income-generating activities (CIGA) locally. These requirements typically include:
- Physical Presence: Maintaining an adequate physical office space within the jurisdiction.
- Qualified Employees: Employing a sufficient number of qualified employees who are physically present in the jurisdiction.
- Expenditure: Incurring adequate operating expenditure locally proportional to the level of activities conducted.
- Management and Control: Ensuring that strategic and management decisions are made within the jurisdiction, often requiring local board meetings.
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