The day the “office lease” stopped being persuasive
Sami thought the hard part was finished. His holding company sat in a respected jurisdiction. He had a serviced office package, a local agent, a company chop, and a clean deck describing the group. He assumed “substance” meant the company existed, the bills were paid, and the paperwork looked orderly.
Then his bank asked for something different: not the lease, but the governance.
They requested board minutes for the last 12 months, evidence of who approved major transactions, proof of who had signing authority, and a simple but uncomfortable question: where does management actually happen?
Sami’s agent could produce templates. What he could not produce was lived decision-making. Major approvals happened over WhatsApp while Sami was in two other countries. Contracts were signed electronically without recorded resolutions. The “local office” existed, but the company’s brain did not.
This is what substance has become in practice: a test of decision-making, people, and paper trails, not a test of whether you can rent a room.
The shift is not just philosophical. It is baked into international standards. The OECD’s BEPS Action 5 work explicitly points to requiring “substantial activity” in preferential regimes as part of countering harmful tax practices. And at a jurisdiction level, the UAE’s Ministry of Finance describes Economic Substance Regulations that require entities carrying out “Relevant Activities” to maintain an adequate “economic presence” and submit annual notifications and reports.
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Even when your structure is legitimate, weak substance creates three types of risk:
- Tax risk: challenges around where profits should be taxed, or where the company is resident for tax purposes
- Banking risk: KYC and ongoing monitoring friction, delays, or exits when files are inconsistent
- Deal risk: stalled transactions when counterparties ask “who controls this and where?”
Substance is now a durability requirement, not a branding exercise.
MARKET & CAPITAL REALITY CHECK
Why “show me the lease” became “show me the decisions”
Two forces tightened the definition of substance.
1) International standards reward real activity, not paper presence
BEPS Action 5 frames substantial activity as part of the minimum standard approach to harmful tax practices. The direction of travel is clear: when a regime offers advantages, other jurisdictions and regulators want to see that activity and value creation are genuinely there.
2) Authorities and banks increasingly look for “control evidence”
For corporate residence and related concepts, “where decisions happen” is not a slogan. It is a fact test.
HMRC’s guidance on company residence emphasizes that central management and control is directed at the highest level of control and is a question of fact, with board meeting location potentially important but not conclusive. This is a useful lens even outside the UK: many systems care less about where operations occur and more about where strategic control sits.
The same “people and decisions” logic shows up in other regimes too. HMRC’s CFC guidance refers to “significant people functions” that require active decision-making in relation to accepting and managing risk, particularly in financing contexts. You do not need to be running a complex tax plan to be caught by this logic. If your structure claims profit allocation in one place while the risk decisions happen elsewhere, the narrative weakens.
A Tier 2/3 reality worth noticing
In regional hubs and smaller financial centres, onboarding can be stricter than expected because institutions operate under correspondent banking pressures. They need a file that is explainable to auditors, regulators, and counterparties. If your governance looks improvised, it is treated as a risk factor, regardless of whether you are “doing anything wrong.”
This is why the best definition of substance in 2026 is not “office” or “headcount.” It is “can you prove governance reality with documents that match behaviour?”
THE PLAYBOOK
Build substance as a governance system, not a one-time setup
Who this playbook is for:
- founders with holding companies and cross-border assets
- groups with IP, financing, or distribution entities
- families and allocators with multiple entities and banking relationships
- advisors designing durable structures
Conditions that need to be true:
- you are willing to formalize decisions you already make
- your records will match reality, consistently
- you will treat the compliance file as a living asset
What “substance” actually means in practice
A useful working definition:
Substance is the ability to demonstrate, with credible records, that decision-making and key activities occur in the jurisdiction where you claim they occur, and that the entity has the people, processes, and costs that make that claim believable.
The Substance Evidence Pack (what to assemble)
This is not legal advice. It is a documentation discipline checklist you can adapt with counsel.
A) Decision-making evidence
- board and shareholder minutes for major actions
- written resolutions for bank account openings, large payments, intercompany agreements
- a decision log: date, decision, approving body, signatories
- signatory register: who can bind the entity, and why
HMRC’s framing that central management and control is a question of fact is a reminder that what matters is what you actually do, not what your documents claim.
B) People and roles evidence
- role descriptions that match what is done
- payroll or service agreements for key roles
- contractor agreements where relevant
- evidence of supervision and reporting lines
C) Operating footprint evidence
- local vendor contracts and invoices
- professional services engagement letters (audit, legal, admin)
- local spend summary that matches activity
- premises evidence only as supporting material, not the core story
D) Banking and control clarity
- beneficial ownership and control map
- source-of-wealth file that aligns with the structure
- consistent proof of address and authorised signatories across banks
E) The “truth test” folder If you had to explain the entity in one sitting to a compliance officer, can you produce:
- who owns it
- who controls it
- where decisions happen
- what it actually does
- why it earns what it earns
Governance calendar template (simple, repeatable)
- Monthly: decision log update, payments approvals, signatory review
- Quarterly: board meeting with agenda and minutes, bank file refresh
- Annually: structure chart update, beneficial ownership confirmation, financial statements, substance report and notifications where applicable
For jurisdictions with explicit economic substance regimes, requirements can include annual notifications and substance reports. UAE MoF describes both submissions within 12 months of financial year end for in-scope entities.
Common failure modes to avoid
- Board meetings held “for the minutes,” with decisions made elsewhere
- Delegations that exist on paper but are not real in practice
- Signatures without resolutions
- Entity purpose that does not match financial flows
- Local presence that is purely symbolic
Risk note: anti-abuse frameworks exist
Many jurisdictions have broad anti-abuse frameworks. The UK GAAR guidance describes GAAR as a mechanism to counteract abusive arrangements, operating alongside other rules. This is not a reason to fear structure. It is a reason to keep structure aligned with real activity and clear documentation.
DEAL & PRODUCT LENS
The market is moving toward governance-as-infrastructure
“Substance work” used to be treated as administrative. In reality, it is closer to risk engineering.
Common services and products in this lane:
- governance and minute-keeping systems for cross-border groups
- beneficial ownership mapping and KYC packs
- substance reporting support where regimes require formal notifications and reports
- entity operating playbooks for founders who travel frequently
The outcome you are buying is not “lower tax.” The outcome is durability: fewer banking interruptions, fewer disputes, and cleaner deal execution.
ACCESS & NEXT MOVES
How to improve substance without building a bureaucracy
Types of actors to speak to first:
- corporate governance specialist or corporate services governance lead
- tax counsel with dispute experience
- banking onboarding or compliance lead for your institutions
Recommended sequence:
- Map decision-making reality today.
- Align governance documents to reality (minutes, resolutions, signatories).
- Build a reusable evidence pack (ownership, control, roles, spend).
- Only then expand: new banks, new entities, new jurisdictions.
“Substance is not where the mail goes. It is where authority lives.”
Key datapoints box:
- OECD BEPS Action 5 explicitly includes requiring substantial activity for preferential regimes as part of countering harmful tax practices.
- UAE MoF states ESR requires in-scope entities to maintain adequate economic presence and submit annual notifications and substance reports.
- HMRC emphasizes central management and control is a question of fact, and board meeting location is not necessarily conclusive.
SOURCES & DISCLOSURE
Key sources used: OECD BEPS Action 5 final report (substantial activity), OECD peer review outputs on preferential regimes, UAE MoF ESR page, UAE MoET ESR submission guidance, HMRC company residence guidance (central management and control), HMRC CFC guidance on significant people functions, UK GAAR guidance PDF and GOV.UK GAAR landing page.
Standard I-Invest disclosure: This article is for informational purposes only and does not constitute investment, legal, tax, or migration advice. Readers should seek independent professional advice.
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