Physical Presence

🔹 Definition

Physical Presence refers to the tangible, on-the-ground operations or representation of an individual, business, or organization in a specific jurisdiction. In regulatory, tax, and compliance contexts, it often determines whether a person or entity is subject to local laws, reporting obligations, licensing requirements, or qualifies for certain legal or tax status.

In the context of AML/CFT and financial services, physical presence is used to assess jurisdictional risk, company legitimacy, and potential exposure to shell companies or virtual entities.

🔹 Frequently Asked Questions (FAQs)

Q1: What constitutes physical presence for a company?

• Registered office address in the jurisdiction
• Leased or owned premises (e.g., offices, branches, warehouses)
• Employees, agents, or directors physically located in the country
• Operating infrastructure such as servers or call centers
• Local business licenses, tax registration, or regulatory approval

Q2: Why is physical presence important in compliance checks?

• Helps distinguish legitimate operating entities from shell or paper companies
• Aids in identifying economic substance for tax and AML purposes
• Essential for Know Your Business (KYB) and jurisdiction risk assessments
• Assists in determining regulatory obligations (e.g., licensing, reporting, taxation)

Q3: How does lack of physical presence raise risk?

• May indicate a virtual or nominee-operated company with no real business activity
• Increases likelihood of regulatory arbitrage, tax evasion, or money laundering
• Makes verification of directors, beneficial owners, and actual operations harder
• Often flagged in high-risk structures involving offshore jurisdictions

Q4: How do regulators define physical presence?

• Varies by jurisdiction, but often requires more than a mailing address or virtual office
• Some regulators require “mind and management” (e.g., actual decision-making) to be located locally
• Presence may be linked to permanent establishment or economic substance rules

Q5: Can digital-only businesses have physical presence?
Yes, if they meet certain criteria:

• Registered entity and compliance functions located in the jurisdiction
• Real employees or management teams residing locally
• Customer-facing or technical operations (e.g., data centers, support teams) physically based
• Local tax filings and regulatory relationships can support a claim of physical presence