Halvorsen & Reith

Substance requirements assessment for multi-jurisdiction boards

A substance requirements assessment establishes whether a company's board, its actual decision-making and its physical footprint in a given jurisdiction match what that jurisdiction's law expects of it. For a cross-border structure with directors, a registered office and beneficial owners spread across several countries, the answer is rarely the same everywhere: what a register treats as adequate presence in one jurisdiction can fall well short of the test applied in another. The assessment sets out, jurisdiction by jurisdiction, what is required, what is currently in place, and where the gap sits.

A holding company incorporated in one jurisdiction, managed by directors resident in another, and owned through a chain of entities registered in a third, is the ordinary case rather than the exception. The board meets by video call across three time zones. Board resolutions circulate for signature rather than being adopted at a single meeting in one room. Nobody has confirmed, in writing, whether that pattern still satisfies the substance test the incorporating jurisdiction actually applies to it.

This page sets out when a substance requirements assessment becomes necessary, what it produces and in what order, and what it does not cover under the firm's advisory perimeter.

The situation a substance requirements assessment addresses

Most groups do not set out to build a structure with a substance problem. It accumulates. A director resigns and is replaced by someone based somewhere else. A subsidiary is added for a transaction and never wound up afterwards. A beneficial owner moves country. Each change is defensible on its own; taken together, they can leave the board of directors of a jurisdiction's registered entity meeting, deciding and signing from somewhere that jurisdiction's law does not recognise as sufficient presence.

The problem is rarely spotted from inside the group. It surfaces when someone outside the structure asks the question directly: a bank reviewing account documentation, an investor's due diligence team, a counterparty's legal function reading the constitutional documents before signing. A substance requirements assessment for an Abu Dhabi Global Market entity follows the same logic as one for any other cross-border structure: confirm what the local rule actually asks for, then test the structure against it, rather than against what worked when the entity was set up.

What triggers it and why the timing matters

Four events reliably surface a substance question that had previously gone unasked: a change of director or registered agent, a financing round with lender or investor due diligence, an intra-group restructuring that moves a decision-making function between entities, and an enquiry from a tax authority or a counterparty's compliance team. None of these events creates the substance gap. They only make an existing gap visible to someone who was not looking for it before.

Once a counterparty's due diligence team asks for board minutes covering the relevant period and finds none that show a decision actually being taken in the jurisdiction of incorporation, that absence becomes visible to them directly, and it is not something that can be explained away after the request has been made. The timing that matters is not the deadline for a filing. It is the point at which someone else, outside the group, first goes looking.

A group that commissions an assessment before that point controls the sequence: identify the gap, close what can be closed, and document the position taken on what cannot be closed immediately. A group that waits is answering someone else's question on someone else's timetable, with none of those choices left open.

What the work produces, in sequence

The assessment does not end in a single opinion letter. It produces a sequence of artefacts, each one usable on its own by the board or by whoever inside the group is dealing with the counterparty asking the question.

The board resolutions a group typically needs to adopt once an assessment is complete follow directly from the matrix: they are drafted to close a named gap, not as a generic template. Where the gap is severe enough that a regulator or counterparty enquiry looks likely, the assessment feeds directly into a substance defence file, which is the document a board relies on if that enquiry actually arrives.

Before the assessment can begin, the board should have the following to hand:

A group facing a live enquiry, or a financing deadline that depends on the answer, is not in the position to wait for a slower process. The bridge from what has already been found to what the board decides next is where the assessment stops and the client's own decision begins.

Check what your jurisdiction requires. Write to info@hreithlaw.com with the jurisdiction and the structure.

Where this differs by jurisdiction

Substance rules are not one rule with local variations. They are several distinct tests, applied for different reasons, and a structure can pass one while failing another entirely. Some jurisdictions test substance to decide whether a tax benefit applies. Others test it to decide whether a company is genuinely managed where it says it is managed, for the separate purpose of a beneficial ownership register or a corporate registry filing. A cross-border structure can be asked both questions by two different authorities, on two different timetables, using two different definitions of what counts as adequate presence.

Common-law offshore centres tend to set out an economic substance test with defined categories of relevant activity. A number of onshore European jurisdictions instead rely on general company law concepts of central management and control, tested case by case rather than against a published list. A comparison across how Cyprus, Delaware and US federal treatment approach substance and control differently shows how far the underlying logic diverges even where the surface language, "management and control", looks the same.

The constitutional documents themselves can also carry local substance-adjacent obligations that have nothing to do with tax. Norwegian articles restricting share transfers are one example of a jurisdiction using the constitution, not a substance statute, to keep a form of local control over who actually holds and exercises rights in the company. A beneficial ownership register update filed to reflect a change of that kind becomes visible to any counterparty running a company search from the moment it is filed. A mismatch between what the register shows and the substance actually in place is then a fact on the public record, not a risk that is still open to be managed quietly beforehand.

Coverage across the firm's practice spans core jurisdictions where the applicable test is well settled and documented, second-tier jurisdictions where the structure of the test is clear but one point typically needs local confirmation, and a smaller number of perimeter jurisdictions where the honest position is that more of the analysis rests on first principles of local company law than on a single named provision. Which category a jurisdiction falls into for a given entity is confirmed at the outset of the assessment, not assumed from its reputation.

What this service does not include

The assessment identifies what a jurisdiction requires and where a structure currently stands against that requirement. It does not include acting as a director, secretary, nominee shareholder or trustee for any entity in the structure, and it does not include supplying, sourcing, introducing or arranging for another person to take on any of those roles. That boundary is set by licensing law in a number of the jurisdictions covered, not by preference: acting in those capacities, or arranging for someone else to, is a regulated activity that requires a trust or corporate service provider licence the firm does not hold.

What the client receives instead is the analysis needed to make the decision: the requirement mapped against the structure, the criteria a genuine appointment would need to satisfy, the existing appointment terms reviewed against those criteria, and the exposure that follows if nothing changes. Filling the gap identified is then a decision for the board, made with a named provider of its own choosing.

A structure that has been told its ownership will stay confidential has been told something no substance or beneficial ownership regime in this coverage can actually deliver. The assessment is written to be relied on precisely because it does not promise what the law in the relevant jurisdiction does not allow.

A group weighing whether its current director arrangements would survive a closer look should treat that question as separate from, and prior to, any decision about who should hold the role instead.

Check what your jurisdiction requires. Write to info@hreithlaw.com with the jurisdiction and the structure.

Frequently asked questions

What happens if a substance requirements assessment is not addressed?
The gap between the substance a jurisdiction requires and what the structure actually has does not resolve itself. It stays latent until a counterparty, lender or authority asks the question, at which point the group is answering under someone else's timetable rather than its own.
How often should a substance requirements assessment be reviewed?
A structure that has not changed its directors, its registered office or its ownership chain in the past year carries a lower risk of drift than one that has. As a working rule, review after any change to director residence, board meeting pattern or ownership, and independently of that, at least once every year.
Does a substance requirements assessment change for a foreign-owned company?
The test applied by the incorporating jurisdiction generally does not depend on who owns the company, but a foreign-owned structure is more likely to have directors and decision-making spread across borders, which is exactly the pattern most substance tests are designed to examine.
What does a substance requirements assessment require in practice?
It requires the constitutional documents, recent board minutes and resolutions, a current chart of directors and beneficial owners, and an honest account of where decisions are actually taken, not only where the company is registered.
Who inside the company is responsible for a substance requirements assessment?
Responsibility for commissioning it sits with the board, since it is the board's own decision-making pattern being tested. Responsibility for acting on the findings, once identified, cannot be delegated to an adviser who is not authorised to hold the office in question.
By Jonas Kittel