Economic substance

Many traditional offshore jurisdictions have recently tabled the economic substance legislation to meet their commitments to the European Union under the Conduct of Business Group’s requirements. The respective legislations force companies to establish substantial presence in the jurisdiction of incorporation and require operational substance to be maintained locally in relation to the activities performed by the affected entities. The term “substance” is generally understood as the office space, qualified staff, local operating expenditure and management activity.  The level of the required substance however is not well defined and still to be clarified. Yet the legislative objective is well pronounced and aims at aligning economic activity of the income generating structures with their respective tax residence. 

While trading, operational or IP holding companies are likely to be significantly affected by the substance legislation, traditional holding or investment entities may have a lighter impact, in best cases limited to additional reporting liabilities. Anyway, the existing offshore companies as well as the manner of their operational management will have to be revisited to ensure compliance to the rules and regulations in force. 

MP Part can support in assessing the impact of the substance legislation on your business and asset holding structures. We offer a range of services customised to our clients’ needs, including:

  • review of the offshore structures to evaluate the implications of the applicable legislation;
  • analysis of the costs and benefits to maintain the entity in offshore jurisdiction;
  • tax migration and re-domiciliation services;
  • planning and implementation of the “onshoring” strategy.