Entity Setup
Structuring Entities in a GMT World: Choosing Your Jurisdiction and Setup
Best practices for choosing entity types, jurisdictions, and tax structures under global minimum tax and treaty landscapes.
By NomadicTax Research Team • 5-8 min read • August 29, 2026
## The Global Context for Entity Setup
With the implementation of Pillar Two GMT rules and increasing transparency (via DAC recasts in the EU, treaty updates), cross-border entity design has to factor in both taxation and compliance burdens. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/a654ad8e-606b-4ad5-a8ff-3309554224d7_en?filename=Executive+Summary+of+Impact+Assessment_DAC_Proposal+for+a+Council+Directive+-+Taxation%E2%80%99.pdf&utm_source=openai))
## Key Criteria for Entity Setup Decisions
- **Qualified Domestic Minimum Top-up Tax (QDMTT)**: Entities located in jurisdictions with strong domestic top-up regimes can reduce complexity and keep more income domestically taxed.
- **Treaty network strength**: Access to treaties that reduce withholding rates, prevent double taxation, and offer clarity on permanent establishments.
- **Withholding tax rules**: EU simplification efforts (revised DAC) are aiming to reduce burdens in withholding taxes for royalties, dividends, interest. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/bee8b767-1f9e-44aa-9910-faa8bc31a880_en?filename=190626_Tax+Simplification+Package_Factsheet_.pdf&utm_source=openai))
- **Local substance requirements**: Tax authorities increasingly look for real economic activity—staff, premises, decision-making roles etc., not just letter-box entities.
## How the EU’s DAC Recast Affects Entities
- Streamlines administrative cooperation and reporting obligations. The recast codifies DAC1 through DAC9 into one legal act. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/a654ad8e-606b-4ad5-a8ff-3309554224d7_en?filename=Executive+Summary+of+Impact+Assessment_DAC_Proposal+for+a+Council+Directive+-+Taxation%E2%80%99.pdf&utm_source=openai))
- Simplifies cross-border reporting burdens, especially around country-by-country reporting and top-up tax info. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/bee8b767-1f9e-44aa-9910-faa8bc31a880_en?filename=190626_Tax+Simplification+Package_Factsheet_.pdf&utm_source=openai))
- Reduces reporting threshold burdens for private sellers and second-hand goods sellers—fewer small players needing to comply. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/bee8b767-1f9e-44aa-9910-faa8bc31a880_en?filename=190626_Tax+Simplification+Package_Factsheet_.pdf&utm_source=openai))
## Example Structures Based on Purpose
| Goal | Suggested Entity Jurisdiction & Type |
|---|---|
| Holding royalties/dividends | Jurisdiction with treaties and low withholding, strong substance (e.g. EU country with participation exemption) |
| Operating in high tax Asia / LATAM | Local subsidiary with cost-sharing agreements; align with IIR rules where possible |
| Global trading or licensing | Use QDMTT-prominent jurisdictions to limit additional top-up exposure; avoid overuse of shell holding companies |
## Practical Steps When Setting Up
1. Choose the jurisdiction not only for rate but for **administrative capacity and reputation**.
2. Ensure physical presence—maintain offices, hire staff, hold board meetings locally.
3. Maintain proper documentation—contracts, invoicing, accounting records that show substance.
4. Monitor local legislative changes: Denmark, France, etc., may tweak local implementation of GMT and substance.
5. Use the DAC Recast factsheet from the EU to anticipate upcoming reporting obligations. ([taxation-customs.ec.europa.eu](https://taxation-customs.ec.europa.eu/document/download/bee8b767-1f9e-44aa-9910-faa8bc31a880_en?filename=190626_Tax+Simplification+Package_Factsheet_.pdf&utm_source=openai))
## Risk Management
- Entities in jurisdictions that do **not** meet GMT qualification may trigger foreign top-up taxes or suffer denial of treaty benefits.
- Without real substance, facing scrutiny under anti-avoidance or transfer pricing rules.
- Watch out for hourly cross-border digital platform income—DAC7 and related measures.
## Key Takeaways
- Choose jurisdictions with clear treaty networks, strong domestic minimum tax regimes, and substance requirements.
- Leverage recent harmonization (e.g. EU DAC Recast) to reduce compliance overlap.
- Keep abreast of updates to OECD Model Treaties for remote work, natural resource income, and beneficial ownership rules.