Economic substance compliance for international companies

The rules apply to entities that carry on a relevant activity, which typically covers banking, insurance, fund management, financing and leasing, headquarters, shipping, distribution and service centres, intellectual property and holding businesses. Each jurisdiction defines these slightly differently. Many entities still need to notify the registry even when they have no relevant income, so doing nothing is rarely an option.

An in-scope entity usually needs to show three things: that it is directed and managed in the jurisdiction, that its core income generating activities are carried out there, and that it has adequate employees, premises and expenditure for the income it earns. Pure equity holding companies often face a reduced test, while intellectual property businesses face the strictest scrutiny.

Adequate means proportionate to the business. A holding company that only receives dividends needs far less than a financing company with active loan books.

Useful evidence includes board minutes showing decisions taken locally, directors with real knowledge of the business, service agreements with local providers, payroll or outsourcing records, office arrangements and accounts that tie income to activity. Outsourcing to a local provider can count, but the entity must be able to show it supervises that work.

Substance compliance is about meeting statutory obligations honestly. It is not a way to create the appearance of activity that does not exist, to shift profits that belong elsewhere or to avoid reporting in the owners' home countries. Where an entity cannot meet the test, the right step is often to restructure or move the activity, and that needs tax advice from a qualified firm.

The BVI and Cayman Islands require an annual economic substance return through the registered agent or the local tax portal, and the return asks for income, expenses, employees, premises and the board meetings held locally. Bermuda requires an annual declaration with similar detail. In the UAE, the economic substance regulations were withdrawn for financial years starting after 2022, and the focus moved to corporate tax and, for free zone companies seeking the qualifying rate, adequate substance in the free zone. Deadlines and forms change, so confirm the current position with the local provider before each filing season.

We review your entity, activity and current arrangements, highlight gaps and connect you with licensed local corporate services providers and accountants who prepare and submit filings. Good substance records also make banking reviews smoother, and we can align the two.