Organization of a real company presence - substance

Substance is the economic presence of a company in a jurisdiction. Legal entities that meet the requirements for substance can take advantage of benefits for residents, special taxation regimes, and other benefits. The requirements for economic presence in different countries are different. As a rule, they include the presence of a physical or virtual office, registration with local regulatory authorities, a local website, email domain, telephone line, etc.

Substance

Since the OECD introduced the BEPS Plan, company owners are faced with the requirements of their business presence in a particular country, in other words, the substance. The concept of substance was included in the national legislation of many offshore countries in 2019, which thereby confirmed their determination to combat tax evasion and deoffshorization. In order to confirm the company's presence in the country, it is necessary to meet two criteria - physical and economic substance:

physical substance means the real presence of the company in the territory of a certain country (the presence of a real office, employees, director, etc.);
economic substance - this is the actual activities of the company in the territory of a particular country (the presence of local expenses, contractors, profit generation, etc.).

Thus, if a company complies with the requirements of substance, it automatically confirms its tax residence in a particular country.

Why is substance so important?

In order to fully conduct activities and establish business processes, it is necessary to comply with the requirements of substance. When familiarizing themselves with a company’s profile, financial institutions and government bodies somehow pay attention to substance, they can even check whether a company has its own official website in a jurisdiction, fax or phone. The substance should not be formal. If a company is a tax resident of a certain country and shows the real presence of its business in that country, such a company will have undeniable competitive advantages in all areas, especially when opening bank accounts or interacting with counterparties.

Regulators, including international ones, tighten requirements every year. Therefore, in some cases, without substance, conducting activities in a jurisdiction will simply be impossible.

BASIC SUBSTANCE SERVICES

The economic and physical presence of a company in a jurisdiction includes the variability of services. Jurisdictions have different requirements, but we recommend that you have a full, comprehensive presence in the country. Law&Trust will help you with this. We provide the following assistance in an economic and physical substance

Type of service

Description

Office in the chosen jurisdiction

Own office is one of the main signs of a physical presence in the jurisdiction. Our accompaniment in the search for an office will help you quickly find the right option and speed up the process of buying or renting the space.

Our lawyers will help you find the right office space or warehouse, depending on the specifics of the legal entity. We will select an office for you to buy or rent, help you prepare the necessary documents and draw up a contract of sale. Our law firm provides full real estate support activities.

Virtual office

In some cases, a more profitable option would be the organisation of a virtual office. This service includes:

receiving phone calls;
receiving messages by fax;
own mailing address;
receiving correspondence, etc.

A virtual office does not require rental or purchase of premises, you do not need to pay utility bills, buy furniture, office equipment, etc.

Tax residency

One of the important components of the company substance is tax residency. This service includes:

tax registration of a foreign company;
choosing the tax system;
Obtaining a Tax Residence Certificate.

Our lawyers will help you fulfill all the requirements for recognizing an organization as a tax resident of a jurisdiction. We will submit the necessary requests to the regulatory authorities, help prepare a package of documents, and fulfill the internal requirements of each jurisdiction.

Bookkeeping

Bookkeeping and tax accounting are a mandatory requirement in some cases. Law&Trust specialists offer the following services:

accounting for companies;
preparation and filing of financial statements for the reporting period;
preparation and filing of tax returns for the reporting period;
preparation of audited reporting.

We also provide advice on reporting requirements in various countries.

Records management

State laws oblige companies to keep accounting documents for a certain period of time, usually 3-5 years. In some jurisdictions, storage requirements apply even after the closure of the organization. Therefore, the substance also includes records management requirements.

Our company organizes archiving of documents in the necessary jurisdiction. We will conclude a contract with the archive and arrange the delivery of documents to the warehouse. We will help you choose the most profitable option.

Hiring

Our lawyers will help you hire the necessary staff. Our services include:

search for candidates;
official employment;
calculation of salaries, bonuses, sick leave, vacation pay, other obligatory payments;
registration of the company with regulatory authorities;
reporting filing.

With our services, you will find the the right staff in the shortest possible time.

Communication

The physical presence of a company requires communication. In particular, the company needs: