The glossary to understand and take action

Economic substance

Economic substance refers to the actual elements of organisation, resources and decision-making assessed in the analysis of an activity or structure.

Notion comptable, fiscale ou juridique · Luxembourg Fiduciaries Editorial Team · Reviewed on

Understand the scope

Definition and points to distinguish

There is no universal number of employees or square metres that resolves every situation. An address, a meeting or a contract must be assessed against the functions actually performed.

In your file

What this changes in practice

Substance is assessed on the basis of facts consistent with the activity: functions performed, decisions, persons, resources and risks actually assumed. There is no universal list that would be sufficient for all companies and all regimes. Minutes or an address do not compensate for a fictitious organisation. The analysis must link the documents to what actually happens.

A scenario to help you understand

Educational example

A service company describes who negotiates contracts, performs the engagements and makes decisions, then checks consistency with its premises and teams.

Fictitious situation, presented to illustrate the concept.

Prepare for what comes next

Points to check

  • Décrire les fonctions effectivement exercées
  • Conserver les preuves des décisions
  • Adapter les moyens à l’activité

The practical question

Find out more

Quels faits documenter au-delà des procès-verbaux ?

Les documents doivent refléter la réalité : personnes qui préparent et prennent les décisions, lieux de travail, moyens disponibles, prestations réalisées et risques gérés. Les contrats, échanges et livrables peuvent éclairer cette organisation. L’objectif n’est pas d’accumuler des pièces artificielles, mais de pouvoir expliquer comment l’entreprise exerce effectivement son activité et assume ses fonctions.

Connecting concepts

Terms to know as well

Continue with the concepts, contacts and procedures related to this topic.

Tax residenceTax residence determines the tax connection of an individual or a company under national rules and, where applicable, a treaty.Registered officeThe registered office is a company's statutory address, linked to its legal organisation.Transfer pricingTransfer pricing concerns the terms of transactions between related companies and their assessment under the arm's length principle.Tax optimisationTax optimisation consists of comparing lawful choices in light of their tax, economic and administrative effects.DomiciliationCompany domiciliation organises, in situations provided for by law, the establishment of a registered office with an authorised third party and the agreed services.SOPARFISOPARFI commonly refers to a financial holding company subject to ordinary law, incorporated in a legal form such as an SARL or an SA.

Put it into practice

Explore further with our guides

Practical guideSPF in Luxembourg: asset management purpose and limits to reviewPractical guideSetting up a business in Luxembourg: assessing the feasibility of the projectPractical guideParent-subsidiary regime in Luxembourg: conditions to reviewPractical guideInvention patent: preparing the filing and protection budget

Sources and verification

References consulted on 20 September 2026. Official procedures specify the applicable conditions and exceptions.

This guide explains a general process. The applicable rules depend on your situation; it does not constitute personalised advice. Report a correction.

A definition gives you a reference point. To examine your situation, clarify your question with a professional.