LTB

Incorporation

We were told our offshore company now needs real substance.

Economic substance rules were introduced across most low-tax jurisdictions following EU and OECD pressure, and they replaced registration with demonstration. An entity carrying on a relevant activity (holding, financing, intellectual property, distribution, service centre, headquarters) must show that its core income-generating activity happens locally: adequate premises, adequate qualified employees, adequate local expenditure, and board decisions genuinely taken in the jurisdiction.

The tests are annual and evidential. Registers of directors' physical attendance, employment records, lease agreements, and expenditure are filed or produced on request. Failure carries escalating penalties, exchange of information with the jurisdiction of the beneficial owner and the parent, and in persistent cases strike-off. Intellectual property holding entities face the strictest treatment, and a company with no more than a registered address and a signature-only director fails plainly.

The consequence rarely stays local. A substance failure reported to the owner's home tax authority is precisely the fact pattern that triggers controlled foreign company treatment, so the offshore tax position collapses in two places at once.

How LTB Resolves It

LTB reviews each entity against the relevant activity definitions in its own jurisdiction and states plainly which ones are exposed. Where substance is worth building, the practice arranges what the test actually requires (premises, local directorship and resident staff, documented board meetings held in the jurisdiction, and a local expenditure record) through the corporate service providers, accountants, and directors in its network there.

Where substance cannot realistically be built for the income involved, the sound answer is to move the activity to a jurisdiction where the company's real operations already sit, and LTB restructures accordingly. Filings, notifications, and returns are made by the licensed professionals in the relevant jurisdiction, coordinated throughout by LTB.

Questions

Frequently Asked

No. The rules apply to defined relevant activities, and a pure holding entity is often subject to a reduced test. Which category an entity falls into is established before anything is built.

Rarely on its own. The tests look at where core income-generating activity happens: premises, qualified people, expenditure, and decisions taken locally, with records to evidence each.

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