The term Economic Substance has been hotly searched since last year, and many countries or regions that“no or only nominal tax jurisdictions“ including the Cayman Islands (Cayman) and the British Virgin Islands (BVI) as responding to OECD and BEPS Action 5, and the blacklist and watchlist of tax non-cooperative countries announced and updated by the European Union, have successively announced economic substance legislation and related guidelines.
As soon as the legislation came out, it has completely changed the status of tens of thousands of offshore companies those are on the edge of global tax regulations. What kind of substantive impact will it bring in the context of global tax transparency? Can the offshore companies continue to be utilized? How should different offshore structures respond to the legislation? What kind of offshore structures can adapt to higher compliance requirements?
On July 25, 2019, U&I GROUP held sharing sessions titled ”’ Paradise Still?’- ES Explanation”respectively in Qingdao and Jinan. The Founding Partner and CMO of U&I GROUP, Mr. Brian Bian gave a special interpretation on the sessions.
This special lecture aimed to answer the questions from cross-border enterprises, analyze the relevant measures and scope of influence of economic substance, and further, he explained how to use the offshore company and top-level structure design to fulfill the requirements of ES law, and actively respond to the ES requirements.
Mr. Brian Bian, a senior expert in cross-border affairs, was interpreting the policy.
Overview of the main points of policy interpretation
Mr. Brian Bian’s conclusions:
- Grasp the basic core words: “tax resident”, “relevant entities”, “relevant activities”and“core income generating activities”.
- Judgment process guidance: After the judgment of “yes” or “no” under the above basic core words, it shall be diverted to: registration and filing / reduced requirements / standard
- requirements / higher evidence requirements.
- Five related activitiesfocused on by Chinese companies with a high probability: holding business, distribution and services centre business, headquarters business, financing business and fund management business.
- Chinese companies in the new economy pay extra attention to related activities: higher evidence requirements for high risk intellectual property business (such as TMT, e-commerce, biopharmaceuticals, technology-intensive manufacturing, etc.)
At present, it is recommended that: register agent outsourcing service, or tax residents in low-tax areas (such as Hong Kongis a better choice)
In many cases, Mr. Brian Bian believed that the role of offshore companies in cross-border business was always irreplaceable, but the extensive tax structure was outdated. In the future, companies that are at the forefront of the era are bound to integrate high-quality external resources based on reasonable strategic goals, to avoid speculative psychology and will voluntarily sacrifice controllable short-term profits in exchange for maximizing the long-term development of the companies.
The U&I research team conducted on-site concrete consultations for many entrepreneurs and friends after the tea break.
U&I GROUP is a cross-border service professional organization, adhering to the service philosophy of “expertise, efficiency and fulfillment”and the culture of“ satisfying others, fulfilling ourselves”, and provide one-stop solutions for high-quality companies in areas such as overseas M&A, overseas listing, overseas financing, offshore structuring, cross-border wealth planning and allocation and inheritance of family wealth .
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