Key management and business decisions essential to a company’s operations are made at the Place of Effective Management (PoEM) as defined by the corporate tax regime of the United Arab Emirates. It is essential to determine whether a business is regarded as a resident for UAE tax purposes or if it may be liable for taxes in other jurisdictions.
The Important Facts about the UAE Place of Effective Management (PoEM):
PoEM will be the place where central management and control of the business are exercised. PoEM is the place where the board of directors of the company usually makes important decisions.
A company shall be governed by the corporate tax laws of the United Arab Emirates if it is deemed to be a tax resident of the country. The location of efficient management is one of the primary factors considered when determining a company’s tax residency under the UAE’s new tax structure. The PoEM of a business must be in the UAE for it to be regarded as a resident of the UAE for tax purposes. This implies that the business will be considered a UAE tax resident and be liable for corporate tax on its worldwide income if important management and control decisions are made there.
Implications of PoEM for the businesses in UAE:
- Since the UAE corporate tax system levies taxes on resident companies’ foreign businesses with a PoEM in the country must pay corporate tax on their income.
- If they fulfill the requirements, free zone businesses may be eligible for specific corporate tax exemptions
Determining PoEM: The following variables may help determine the PoEM location
1. Where board of directors’ meetings are held.
2. The majority of board meetings take place there.
3. The place where important operational decisions are made
4. The residence and workplace of key management or senior executives.
PoEM and Double Taxation Agreements: The UAE has signed agreements with several nations regarding double taxation. Under these agreements, a company tax residency may be determined in large part by the PoEM concept. The PoEM is usually used in the DTA between two countries to address the problem of dual residency if the company is deemed a resident of both countries under their respective domestic laws.
For example, although a company is registered in the United Arab Emirates it conducts the majority of its board meetings and makes important management decisions from its parent company in another nation like the United Kingdom. In this instance, the PoEM—in the UK—would probably be regarded as the venue for those decisions. The business will not be regarded as a UAE tax resident for UAE corporate tax. In contrast, if the business decision-making (i.e. board meetings and important management tasks) occurs in the United Arab Emirates the PoEM will be in the UAE and will be liable for UAE corporate tax on its global earnings.
Conclusion
One important factor in figuring out whether a business is liable for UAE corporate tax is the Place of Effective Management (PoEM). Even if they are incorporated outside of the UAE companies that have made important management decisions, they are probably considered UAE tax residents. To understand their possible tax obligations under UAE law businesses must carefully evaluate the location of their key decision-making processes.