Substance means the actual economic presence of a company in the jurisdiction of its registration. This implies that the business has a physical office, employees, assets, and operational activities in the country of registration, rather than existing only “on paper” for tax or legal benefits.
Why Is Substance important?
- Tax Requirements. Many countries have introduced anti-offshore legislation requiring verification of a company’s actual activities. If tax authorities determine that a company lacks substance, it may be required to pay taxes based on its place of actual management or face penalties.
- Banking Requirements. Banks increasingly require proof of substance, especially when opening accounts and undergoing KYC (Know Your Customer) procedures. This may include office rental, contracts with local suppliers, or the presence of employees.
- International Reputation. Businesses with real substance inspire more trust among partners, banks, and clients.
- Avoiding “Nominal Company” Status. Some jurisdictions may classify a company as a shell entity if it lacks a physical office, local staff, or actual management. This can lead to additional tax assessments and restrictions on international transactions.
Real business presence – Substance with Finevolution
The Finevolution team has years of experience in setting up and launching business representations across the EU, USA, and Asia.
We have an in-depth understanding of the entire process – from the first step to full business operations. Our experts will help you navigate the complexities of international registration and ensure a fast, efficient, and seamless establishment of your company’s presence in foreign markets.
