Every country has a pre-defined economic substance and guidelines associated with the same. Therefore, all the free zone firms, partnerships, LLPs, and offshore organizations need to abide by the same for avoiding the EU black list. The regulations hold true for banking businesses, insurance businesses, shipping conglomerates, and almost every company that functions in the given region.
Companies are better off when the ‘Substance over form’ approach is followed. This aspect makes sure that every activity is licensed and within the existing scope of the EU-centric regulations. Firms that are looking to be in the good books of the EU must abide by the economic substance standards of the given region while keeping the activities licensed, having adequate employees, perfectly demarcating expenditure, premise spread, and more.
Companies must declare profits, taxable income, and holdings in a transparent manner for economic substance compliance. Besides that, companies must understand that substance requirements also include relevant and high-risk activities and if often becomes difficult for the in-house experts to perfect documentation, reviews, and obligation towards deadlines.
