UAE Corporate Tax: Place of effective management deciphers tax residency for global companies

UAE has laid down comprehensive guidelines for determining the tax residency of entities

By Sheetal Soni

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Published: Tue 16 Jan 2024, 3:25 PM

Last updated: Tue 16 Jan 2024, 3:26 PM

In a move to ensure a fair and transparent corporate tax regime, the UAE has laid down comprehensive guidelines for determining the tax residency of entities, be they local or foreign.

At the heart of this taxation framework lies the crucial concept of place of effective management (PoEM), a globally recognised test that assesses where vital management and business decisions essential for a company’s operation are made, where it is effectively managed and controlled from. The companies incorporated outside the UAE can become deemed resident, if the company is effectively controlled and managed from the UAE. PoEM serves as the epicentre where pivotal decisions shaping the entity’s business operations are executed.

The determination of a juridical person’s PoEM in the UAE is contingent on the specific facts and circumstances of that entity and its activities. While the location where the highest level of management decisions is made is a key factor, other considerations, such as the residence of controlling shareholders, delegated decision-making powers, or the location of board members and executive management, may also come into play. Crucially, only one place of effective management and control is admissible at any given time. Notably, it is not mandatory for the board members (or equivalent) of a juridical person to be residents of the UAE for the PoEM to be considered within the UAE.

Sheetal Soni, Partner, MICS
Sheetal Soni, Partner, MICS

PoEM stands distinct from the concept of permanent establishment (PE), wherein the income of such establishments is taxable in the UAE. Conversely, if a company satisfies the PoEM criteria, its entire global income becomes subject to taxation under UAE’s jurisdiction.

In this era of global commerce, the UAE’s taxation framework, anchored by the PoEM concept, seeks to strike a balance between fostering international business and ensuring that entities contribute their fair share to the local economy. As businesses navigate this intricate tax landscape, adherence to PoEM guidelines becomes paramount for a transparent and compliant global presence.

The wrtier is Partner, MICS.

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