Under the pressure of the EU and the OECD, offshore jurisdictions have enacted rules regarding economic presence (substance) in respect of the offshore companies. Such requirements rise from the general concept that tax benefits should be used by “real” residents of jurisdictions, not by companies that do not carry out real economic activity at the place of registration.
Economic substance means presence of:
● staff
● office
● relevant business expenses at the place of registration
● effective management of the company
Effective management means the activities of Executive bodies in the territory of registration, their respective competence and management workflow.
In case your offshore company does not comply with the requirements above, you should prepare for significant fines and other sanctions (depending on the jurisdiction).