Entity Setup
Entity Setup Simplified: Structures That Will Prevail Under New Global Tax Regimes
With developments like Pillar Two, EU’s Omnibus tax proposals, and BEPS reforms, some entity types and jurisdictions are becoming less favourable. This article dissects where to set up and what to consider now.
By NomadicTax Research Team • 5-8 min read • August 10, 2026
## Introduction
Recent international policy shifts are redefining what makes an entity structure efficient and compliant. With the EU’s push to simplify tax directives and the OECD introducing new safe harbours under GMT, choosing the right type of entity and jurisdiction is more critical than ever. The wrong choice can lead to excessive taxable income, double taxation, or loss of treaty benefits.
## Key factors in deciding entity setup
| Factor | Why It’s Important |
|--------|----------------------|
| **Jurisdiction’s tax regime** | Whether the jurisdiction has Qualified Income Inclusion Rules or Domestic Minimum Top-up Tax under GMT strongly influences effective tax rates and compliance burdens. ([oecd.org](https://www.oecd.org/en/about/news/announcements/2026/05/global-minimum-tax-release-of-a-common-understanding-of-implementing-jurisdictions-and-further-administrative-guidance-to-support-compliance.html?utm_source=openai)) |
| **Substance vs passive activities** | The OECD’s “substantial activities” standard under harmful tax practices (Action 5) is being applied globally. Tax benefits can be challenged if core business functions are not tied to where the entity is. ([oecd.org](https://www.oecd.org/en/topics/harmful-tax-practices.html?utm_source=openai)) |
| **Reporting obligations** | Some entities within multinational groups will soon need to file or participate in GloBE Information Returns, Country-by-Country Reporting, or new DAC reporting standards in EU jurisdictions. Complex structures may multiply obligations. |
## Structures to consider now
- **Hybrid entities**: If an entity is considered a hybrid under tax law, mismatches may arise—especially in jurisdictions with GMT Safe Harbours providing relief from UTPR. Ensure classification as a corporation or flow-through is clear and documented.
- **Holding companies**: The EU’s proposed Omnibus abolishes withholding tax on cross-border payments among EU entities for dividends, interest, and royalties—making EU hub structures more attractive for intra-EU payments. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/news/european-commission-proposes-landmark-tax-simplification-package-streamline-compliance-and-boost-2026-06-24_en?prefLang=fi&utm_source=openai))
- **Entities in low-tax or special regimes**: Regions with zero or nominal tax will now need substantial activities to benefit from preferential treatments. Without substance, safe harbours or incentives may fail under Harmful Tax Practices reviews. ([oecd.org](https://www.oecd.org/en/topics/harmful-tax-practices.html?utm_source=openai))
## Practical setup checklist
1. **Assess jurisdiction qualification**: Check if local rules are recognised as QIIR/QDMTT under OECD's Central Record. If not, you may lose Safe Harbour benefits. |
2. **Substance documentation**: Have clear payroll, operations, management offices matching where income is generated. For example, board meetings held in entity jurisdiction, employees located there. |
3. **Evaluate withholding vs entity benefit**: In the EU, if the entity is structured as an EU holding entity, dividends from EU subsidiaries may no longer face withholding taxes—important for cash flow planning. |
4. **Tax incentive alignment**: Structure investment to make incentives eligible for “substance-based tax incentive safe harbour” status where allowed. |
## Example scenarios
- **Scenario 1 – EU-based AI startup**: A company uses an EU holding entity to receive royalties from other EU states; it benefits from no withholding under Omnibus and full expensing for R&D assets. Good structure.
- **Scenario 2 – Trust or shell jurisdiction with little local presence**: If core business functions are absent locally, and Safe Harbour requires substance, that entity risks losing tax preferential status and being in scope of UTPR or STTR claims.
## Conclusion
Entity setup strategy must adapt to new global minimum tax rules, Anti-BEPS measures, and EU-level simplification proposals. Choosing a jurisdiction with qualified rules, ensuring genuine substance, and aligning structures with new safe harbours will set up businesses for compliance and tax efficiency.