Glossary
Economic substance
Rules requiring a company to have real activity — staff, an office, decisions made locally — in the country where it is registered, not just a paper presence.
Economic-substance rules were introduced across low- and zero-tax jurisdictions under OECD and EU pressure to stop companies booking profits where they have no real operations. To keep its tax treatment, a company carrying on a “relevant activity” must show adequate local substance: qualified staff, physical premises and core decisions taken in the jurisdiction.
Why it matters
A shell with no substance can lose its local tax status, be struck off, or be taxed where it is actually managed. Substance is now the price of admission for offshore structuring — not an optional extra.
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