Substance requirements

Substance is the difference between a company that exists on a register and a company that genuinely carries on its claimed activity in a place. Tax authorities ask whether profits, residence, and treaty benefits follow real people and decisions. A mailbox, nominee director, or occasional board minute seldom answers that question on its own.

The relevant evidence depends on the business. It can include qualified employees, an office suited to the functions, local directors who make informed decisions, records of meetings, operating expenditure, assets, authority over bank accounts, and the assumption of commercial risk. An IP owner should be able to show who develops, controls, and protects the IP; a finance company should show who makes lending and risk decisions.

Substance is not a cosmetic compliance exercise. It interacts with CFC rules, permanent establishment, transfer pricing, treaty anti-abuse provisions, and company tax residence. Build the structure around the actual operating model, document it contemporaneously, and revisit it when a founder or key decision-maker moves.

The right question is not how little presence can be purchased. It is whether the claimed location can credibly perform the functions that generate the profit.

Review the answer annually and after acquisitions, senior hires, or a relocation. A structure that was credible at launch can become misaligned as the actual business changes.