An address is no longer enough. Under ATAD and BEPS, genuine presence governs the tax regime and access to treaties. Here are the pillars of solid substance.
Economic substance has become central to Luxembourg structuring. A company must demonstrate a genuine presence and effective management in Luxembourg to secure its tax treatment and access to treaties.
Why is substance required?
Driven by the OECD's BEPS work and the EU's ATAD directives, authorities seek alignment between where profits are located and where economic activity actually takes place. A structure lacking substance risks losing treaty benefits and facing anti-abuse rules.
The pillars of solid substance
- Effective management in Luxembourg : decisions and board meetings genuinely held locally.
- Competent directors : a majority of residents involved in managing the company.
- Own means : offices, equipment and, depending on activity, staff.
- Decision-making autonomy : not merely executing instructions from abroad.
- Local accounting : accounts kept and held in Luxembourg.
Substance and transfer pricing
Intra-group transactions must reflect arm's-length conditions and be documented. A company assuming functions and risks must hold the matching human and financial resources.
Indicators under scrutiny
Beneficial owner and transparency
Registration with the beneficial owner register (RBE) and compliance with AML/CFT obligations complete the picture, also verified during domiciliation and bank onboarding. See our director services.