Compliance
Economic substance
Also known as economic substance requirements, ESR
Economic substance rules require a company incorporated in a no-or-nominal-tax jurisdiction and carrying on a listed relevant activity to be directed and managed there, to conduct its core income-generating activities there, and to have adequate employees, expenditure and premises in proportion to what it does.
In plain terms: An offshore company now has to actually be somewhere, and prove it every year.
Why it matters
Introduced across the BVI, Cayman, Bermuda, Belize, the Seychelles and others in 2018–2019 under pressure from the EU's listing process. Where an entity fails the test, the jurisdiction spontaneously exchanges that fact with the tax authorities of the beneficial owner's country — which is usually a larger problem than the local penalty.
Common misunderstanding
Thinking that passing it solves the residence question. Substance rules ask whether the company has enough presence offshore. Your own country separately asks whether the company is managed from where you are. A one-person company routinely fails both at once.
Read the full guideEconomic substance rules killed the shelf company