Substance Requirements

Substance requirements are rules imposed by jurisdictions to ensure that companies claiming tax residency or benefits in that jurisdiction have a genuine economic presence there, rather than being mere shell entities. Typical substance requirements include having a local director, employees, physical office space, and board meetings held in the jurisdiction. The OECD Base Erosion and Profit Shifting project and the EU's anti-tax avoidance directives have driven significant strengthening of substance rules globally. Failure to meet substance requirements can result in companies being treated as tax resident elsewhere or denied treaty benefits.