Substance
What is Substance?
Substance are services that ensure the company’s presence in the territory of a certain country. Requirements for the presence of companies have appeared since 2019, after the Organization for Economic Co-operation and Development adopted the BEPS (Base Erosion and Profit Shifting) plan. To combat tax evasion, BEPS practices are used, and one of the practices is to determine the real presence of a company in the country, according to the legislation of which the company is going to pay taxes.
Substance has two criteria – economic and physical.
Physical substance is the real presence of the company in the country of incorporation. For example, renting a physical office, presence of a director, secretary, other staff, payment of salaries to staff through local banks, local website, telephone, etc.
Economic substance is the presence of a company’s real activities in the country of incorporation. For example, the presence of a bank account, agreements with partners, the movement of funds on accounts, receipt of income, confirmation of the company’s expenses in the country of registration (payment for office rent, utility bills, Internet, telephony, business maintenance costs), etc.
What problems can a company that lacks substance face?
- Problems with banks
When opening accounts, banks require to prove the real presence of the company in the country. As a rule, a lease agreement is required, the presence of a director at a bank branch when opening an account, etc. If you do not comply with the requirements of the bank, then you simply will not open an account, which will greatly complicate the conduct of activities, payment of taxes, payment of wages and other operations that require a bank account.
- Loss of tax incentives and double taxation
Without proof of tax residency, it is impossible to apply a double taxation treaty, which will lead to high tax costs and probably call into question the appropriateness of doing business in the chosen jurisdiction. Therefore, it is so important to provide the company with economic substance.
- Problems with law
Without confirmation of the presence of the company in the country of registration, after appropriate checks by the regulatory authorities, fines will be imposed on the company, possibly criminal liability for tax evasion and exclusion from the register of companies.
We provide the following types of substance
- Physical office
This is one of the main signs of the real presence of the company in the country of registration. We will help you find an office or premises for your company’s needs. We will accompany the transaction of rent or purchase and sale of premises.
- Virtual office
In some jurisdictions, it is currently sufficient to have a virtual office, which is confirmed by telephony, postal address, lease agreement, and others.
- Accounting
Accounting is a mandatory requirement for running a business. We will help you find a specialist who will be well versed in local accounting, will submit reports and declarations, and prepare the company for an audit.
- Telephony and hosting
Another important sign of the presence of the company is the presence of a local telephone number, fax, connection of an Internet provider, and a website on a local hosting.
The substance is extremely important in today’s business environment. By complying with the BEPS requirements, you can be sure that financial institutions and government agencies will not create problems for you, and you will be able to do business in the chosen jurisdiction much easier. Please contact our specialists for the organization of substance.
If you have any questions or would like to order a service, contact the specialists of White and Partners for a detailed consultation or an individual calculation of the service by following this Link.