Place of Effective Management and Control in the UAE 

The UAE Tax Residency as per Article 11 Clause 3(b) of the Federal Corporate Tax (“CT”) Law includes the concept of Place of Effective Control and Management (“PoEM”) for foreign persons directed and managed from the UAE.

PoEM is an internationally acceptable test to determine whether a company incorporated in a foreign jurisdiction can be considered as a tax resident in another country. As such, PoEM is the place where the key management and commercial decisions - that are necessary for the conduct of the entity’s business - are made

Objective 

-        Elimination of tax avoidance of companies incorporated outside the UAE but controlled and managed from the UAE.

-        Introduction of the concept of residency for corporates in line with the internationally accepted principles

Key Factors to determine PoEM

Primary Factors

1)   Place of Board of Directors (BoD) Meeting

2)   Place of Senior Management and Key Management Personnel’s (KMP’s)

3)   Shareholder Influence

Secondary Factors

1)   Place of Incorporation and the governing laws.

2)   Operational Management/ operational commercial decisions

3)   Place where accounting records are kept

How is POEM distinct from Permanent Establishment (“PE”) ?

A foreign person with PE in the UAE will be subject  to tax only on the income attributable to such PE. Whereas in case of POEM, the worldwide income of the foreign person will be taxable in the UAE.

Impact on Foreign Entity

·       Worldwide income liable for tax in the UAE

·       Compliance with Transfer Pricing (“TP”) Rules and documentation

·       Filling of CT Return and CT payment

·       Issue of Double Taxation and Tax Credit

Challenges Ahead

·       Time period to determine the existence of POEM.

·       Independent examination for each person as POEM is fact and circumstances specific

·       Dual tax residency issues.

·       Double taxation of income and foreign tax credit.

 How can Crowe help?

·     Perform qualitative analysis of relevant facts and circumstances and assess the potential impact of the CT law from the tax residency perspective.

·   Provide recommendations and viable solutions to mitigate the risk of POEM taking cognizance of the General Anti Abuse Rules (“GAAR”) in the UAE CT Law.

·       Ongoing review of the standard procedures, governance and internal system policies to ensure tax compliance.

·       Advising and assistance in maintaining appropriate documents for tax purposes.