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Economic substance refers to the operational reality of a corporate structure established for international tax optimization purposes. Many international TAX planning structures, including finance companies, holding and sub-holding companies, intellectual property (IP) structures, and trading companies, are set up to benefit from tax laws in foreign jurisdictions or favorable conditions outlined in double taxation treaties.

The term “economic substance” represents the actual activities and effective role a company plays within the broader context of international operations. Companies engaged in relevant activities are required to submit ESR returns annually by March 31st of each year.