Economic substance for a company to the requirementsof the jurisdiction and the bank

Economic substance laws are in force in the British Virgin Islands, the Cayman Islands, Jersey, Guernsey, the Isle of Man, Bermuda and a number of other jurisdictions. They cover the activities the law lists — banking, insurance, financing and leasing, fund management, headquarters functions, shipping, intellectual property, distribution and service centres, holding activity. The lists and requirements differ from country to country: whether they apply is checked under the law of the particular jurisdiction.

The economic substance reporting requirements in the UAE are limited to the financial years from 1 January 2019 to 31 December 2022: Cabinet Decision No 98 of 2024 lifted their application to later periods and cancelled the penalties for them. That does not mean presence in the UAE has stopped mattering: for the free zone companies’ preferential regime the corporate tax rules require the core income-generating activities to be carried out in the zone and sufficient assets, staff and expenditure to be held for them. That is checked under the tax legislation instead.

A registered address answers where official correspondence should be sent. Presence answers where the company actually works: who takes the decisions, who performs the functions, where the people are and what expenditure arises. An address is the compulsory minimum for registration, but it does not meet the requirements as to presence.

As a rule no. A director in the jurisdiction is one element of management, and they count where they genuinely discharge their duties and take decisions. What is assessed is the whole: where the premises are, who works, which functions are performed, where the meetings are held and where the expenditure goes.

Sometimes yes, sometimes no. For a small company with limited functions a workplace may match the scale of the activity if it is genuinely used and evidenced by a contract and expenditure. For regulated activities and companies with staff, full premises are usually required. The answer is given for the particular jurisdiction and activity.

It depends on the requirements and on which functions the company performs itself. In some places functions may be outsourced to a contractor in the same jurisdiction provided the company keeps control; in others its own staff are required. The number and qualifications of the people are assessed against the volume of activity.

Presence in a jurisdiction is created by people working in that jurisdiction. Staff in other countries do not count towards it and may, moreover, raise questions of a tax connection in the country where they work. Sometimes moving part of the functions on-site costs less than hiring again.

The key decisions have to be taken where the company says its management is, and that has to be visible from the documents: the minutes, the resolutions, who attended the meetings and where they were held. A formal signature on a decision actually taken in another country is weak evidence on an inspection.

The lease and evidence of the use of the premises, the agreements with staff or contractors and the payments under them, invoices for services and equipment, bank statements, contracts with clients and suppliers, the minutes of meetings and the resolutions, the accounting records and the reporting. There is no list compulsory for everyone: what is needed depends on the jurisdiction, the activity and who is asking.

Directly, but not automatically. In many countries a company’s residency is settled by the place of effective management, and in some by the place of registration too. Presence is the main argument on that question, but the conclusion on residency is drawn under the law of each country concerned, the owner’s country included.

No. Treaties have conditions of their own, a test of the business purpose of the structure among them, and the decision on applying them is the tax authority’s. Presence strengthens a company’s position and makes it explicable, but it is not a guarantee — and we do not promise one.

The bank asks where the company works, who takes the decisions, who carries out the operations, whether there are staff and premises, what expenditure passes through the account and why this bank was chosen. Its requirements do not coincide with the law’s: it may ask for more and takes its decision on its own.

It depends on the model. If the owner sits on the governing organs, taking part in meetings there in person is a strong argument. If the management is with a director in the jurisdiction, the owner may not need to travel. The arrangement is settled at the design stage.

The archive lives along with the company: documents are added as meetings, payments, contracts and reporting actions happen. A full reconciliation is usually timed to the annual reporting cycle, and also to the moments when a request from a bank, a tax authority or a party to a transaction is expected.

An exact figure can be given only for a particular jurisdiction and model. The budget is made up of the premises, the pay or contractors’ fees, the director’s services, the accounting and reporting, the compulsory fees and the work of outside specialists. We work out two sums — the launch and the regular annual upkeep — and show them before the work starts.

Compare it with the alternatives. Sometimes documenting the activity that already exists is enough; sometimes it is wiser to change the structure, move the company to a jurisdiction with manageable requirements or reconsider where the activity is actually carried on. We work out both paths; the decision stays yours.

In some cases yes — through redomiciliation, a reorganisation or creating a new structure and moving the activity across. Whether it is permissible is checked in both countries, and the consequences for taxes, contracts, licences and accounts are worked out in advance. A separate service handles that — changing the structure.

Where an economic substance law is in force there are fines, the exchange of information with other countries and, on repeated breaches, up to being struck off the register. Separately from the law, tax consequences and banks’ questions arise: service to a company with no coherent presence may be ended with no law involved at all.