International Tax Substance

In general this refers to whatever condition or factor that justifies the operation of a business in a jurisdiction with low taxation apart from reasons of pure tax optimization or tax evasion

Requirements of substance in Andorra

The world of companies in low cost tax havens will come to an end over the next few years.
Terms such as “aggressive corporate tax plan”, “harmful tax competition” and concepts coined by the OECD such as “tax base erosion” and “benefit transfer” (BEPS) are receiving a lot of attention media for a while now.

Substance requirements are becoming fundamental in the international tax planning of supranational companies.

Not only companies located in tax havens installed for mere reasons of tax evasion but also companies that are doing business internationally and do not have the size and resources sufficient to maintain a large international subsidiary structure can be affected by regulations on substance


When it comes to determining if the company is operating correctly in your country of residence you have to resort to substance factors.

The following factors can determine the level of substance:

  • The company has a registered and physical office in the country and not just a postal address
  • The address is located in the country and executive decisions are also taken in the same territory
  • Some countries require that up to 50% of the executive committee be residents or at least all executive meetings take place in the country
  • Accounting takes place in the country.
  • Depending on the activity and volume, there should be adequate and qualified personnel to develop activities.
  • The main banking activity takes place in the country.
  • The company has operating expenses in the country.
  • If an international trade company generates an intense activity, it is recommended that you register your activity in local administrations or become a member of chambers of commerce or similar.
  • Other factors may be less important, but also considered by other authorities such as:
  • The director in the country speaks the local language and is qualified to carry out related tasks.
  • The offices are equipped to develop a proper operation.
  • The entity has sufficient insurance coverage