Economic Substance Explained

Economic substance means the structure has real activity, people, decision-making or proof behind it.

What substance can include

  • Local director or manager involvement.
  • Office, registered address or operating presence.
  • Local accounting and records.
  • Board minutes and decision evidence.
  • Employees, contractors or local spend where relevant.

When it matters most

  • Holding companies.
  • IP companies.
  • Finance or treasury companies.
  • High-profit low-staff businesses.
  • Bank account opening and due diligence.

Weak substance signs

  • No local decisions.
  • No contracts or invoices.
  • No proof of business.
  • Owners manage everything from another country.
  • Only a registered agent and nothing else.

Practical rule

  • The more tax advantage a structure claims, the more proof it usually needs.

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