InCorp Advisory

Company Registration In India

Business Enquiry: +91 7738066622
Career Enquiry: +91 8655857164
  • Home
  • Services
    • Corporate Secretarial
      • Entity Incorporation
    • Advisory And Assurance
      • Risk Advisory
      • Transaction Advisory
        • Due Diligence
        • Valuations
        • Corporate Restructuring
      • Accounting Advisory
    • International Presence
      • Australia
        • Company Incorporation
        • Corporate Secretarial
        • Tax & Advisory
        • Finance Function
        • Government Incentives
        • Corporate Governance
      • Indonesia
        • Company Incorporation
        • Outsourcing
        • Taxation
        • Visa Options
      • Philippines
        • Company Incorporation
        • Tax Incentives
        • Visa Options
      • Singapore
        • Company Incorporation
        • Immigration
      • Hong Kong
      • Vietnam
        • Company Incorporation
        • Taxation & Accounting
      • Malaysia
        • Company Incorporation
        • Accounting & Bookkeeping
        • Corporate Secretarial
        • Tax Advisory & Compliance
        • Immigration
    • Taxation
      • Direct Tax Services
      • Indirect Tax Services
      • Transfer Pricing
      • International Tax
      • M&A Tax
      • Tax Controversy & Dispute Resolution
    • FEMA
    • Investment Banking
      • Private Equity Syndication
      • Debt Syndication
      • M&A Advisory
    • Corporate Recovery
    • Trademark Registration
    • Family Office Management
    • Business Legal Compliance
    • Operational Support
      • Finance (CFO Services)
      • Accounting Services
      • Payroll Management
  • About Us
    • Our Team
    • Client Stories
    • Press Release
  • Learn
    • Tools
      • Company Name Search
      • Income Tax Calculator
      • HSN SAC Code Search
      • IFSC Code Search
      • GST Calculator
      • Loan Restructuring Tool
      • Residential Status Calculator
      • What My Family Should Know?
      • Trademark Search
    • Blogs
    • Guides
    • Infographics
    • Events
    • Insights
  • ESG Advisory
  • Virtual Office for GST
  • Careers
  • Contact Us
Home » Blogs » What is the Place Of Effective Management (POEM) under the Income Tax Act?

What is the Place Of Effective Management (POEM) under the Income Tax Act?

December 18, 2021 by InCorp Advisory

Reading Time: 3 minutes

The Finance Bill, 2015 introduced the concept “Place of Effective Management” (POEM) to determine foreign companies’ residential status. This resulted in an amendment in the Income Tax Act, the word “control and management” was replaced with “POEM.”

Accordingly, Indian companies started setting-up subsidiaries in tax havens jurisdictions and vested superficial control of their international operations to continue paying taxes only on Indian operations and avoid paying taxes on overseas operations. To curb such malpractices and avoid erosion of profits from India, the concept of Place of Effective Management (POEM) was introduced by Finance Act, 2015 w.e.f. 1st April 2016.

Table Of Contents


What is POEM?
How to determine POEM?
What is Active Business Outside India?
What are the key points which help to determine POEM of any entity?
What are the implications of POEM in India for any Foreign company?
Conclusion
How can InCorp help you?
Frequently Asked Questions (FAQs) on Place Of Effective Management(POEM)

What is POEM?

POEM refers to a place where the key management and commercial decisions necessary for conducting a company’s business activities are made. Since the residential status of any entity is to be determined every year, POEM is also required to be determined yearly. Under Income Tax law, the residential status of a company shall be determined as follows:

  • It is an Indian company; Or
  • Its POEM is in India.

Determine your residential status by using our Residential Status tax calculator!

CLICK HERE

How to determine POEM?

There are primary and secondary tests that help determine the POEM of any entity. Both the tests have been explained in the table below:


 

What is Active Business Outside India (ABOI)?


 

Key terms which help to determine ABOI:

Passive Income1. What is Passive Income?
  • Passive income of a company shall be aggregate of-
    • Income from the transaction where both the purchases and sale of goods is from/to its associated enterprise, and
    • Income by way of royalty interest capital gains dividend or rental income

Note: If an entity is engaged in the business of banking or is a public financial institution, income by way of interest shall not be considered passive income.

How to compute the Value of Assets for tax purposes2. How to compute the Value of Assets for tax purposes?
  • It shall be the average of the value of the assets in the country of incorporation of the company at the beginning and the end of each year.
Number of Employees in an entity3. How to determine the number of Employees in an entity?
  • The number of employees shall be the average of the number of employees of the entity at the beginning and the end of the financial year.
Payroll4. What does the term ‘Payroll’ mean?
  • The term ‘payroll’ has been defined inclusively to include the cost of salaries, wages, bonuses, and all other employee compensation, including the employer’s related pension and social cost.
exemption for the applicability of POEM to any entity5. Is there any exemption for the applicability of POEM to any entity?
  • Provision of POEM does not apply to a company whose turnover is less than or equal to INR 50 Crores.

What are the key points which help to determine POEM of any entity?

 

What are the implications of POEM in India for any Foreign company?

 

Conclusion

POEM is a dual-purpose concept. From the perspective of domestic laws, it may be used to determine the residential status. The principles established by Circular No 6 dated 24th January 2017  for the determination of POEM are not decisive in themselves. 

Thus, the lack of any definite established legal factors for the determination of POEM may lead to several tax disputes. If POEM exists in India for any company, it would be a subject matter of litigation in various other cases and tax laws. 

Moreover, the appointment of Indian directors on the board of foreign companies and participation of directors residing in India in meetings via telephone or video facility would be susceptible to the applicability of POEM in India.

How Can InCorp Help You?

At Incorp, we have a team of professionals and experts who expertise and have the skills to guide and assist through the entire Domestic and International tax planning and structuring for any company that may attract provisions of POEM. We are here to assist you in setting up your company either in India or outside India, managing related compliances, and filing your taxes on time with ease.

Frequently Asked Questions (FAQs) on Place Of Effective Management(POEM)


1. What Is POEM?

POEM refers to a place where the key management and commercial decisions necessary for conducting a company’s business activities are made.

2. Will POEM be applicable to foreign companies?
  • Any foreign company whose place of effective management is in India would be treated as a resident for tax purposes and liable for all income tax compliances in India.
  • However, from a global point of view, POEM for the foreign companies will be the country where such key managerial decision necessary for conducting business activity as a whole are taken. Then the foreign company is liable for tax compliances of the jurisdiction where POEM is established.
3. Is there any interest or penalty for non-payment of taxes whenever POEM of foreign company is deemed to be in India?
Foreign companies or entities whose POEM is deemed to be in India may not have complied with all tax compliance requirements like Income tax, TDS, GST etc under Indian tax law, hence, penalty & interest provisions may be applicable.
4. What does the term ‘Payroll’ mean?

The term ‘payroll’ has been defined inclusively to include the cost of salaries, wages, bonuses, and all other employee compensation, including the employer’s related pension and social cost.

Need help with navigating the rules and regulations in POEM?

Get in touch with us right away!
Share this postFacebooktwitterpinterestlinkedinmail

Related Posts

business succession planning
A Blueprint For Family Business Succession Planning
Voluntary Liquidation Under IBC 2016
Voluntary Liquidation Under IBC 2016
Union Budget 2022 – GST, Customs, Excise Duty Highlights
BUDGET 2022 – GST, Customs, Excise Duty Highlights

Filed Under: Blogs, Taxation

«Everything you need to know about Portfolio Management Services in GIFT City (IFSC)Everything You Need to Know About Portfolio Management Services in GIFT City (IFSC)
Benefits For Stock Brokers Registered in IFSC GIFT CityBenefits For Stock Brokers Registered in IFSC GIFT City»

Our Services

  • Corporate Secretarial
  • Advisory And Assurance
  • International Presence
  • Taxation
  • FEMA
  • Investment Banking
  • Corporate Recovery
  • Family Office Management
  • Operational Support Services
  • Business Legal Compliance
  • Trademark Registration
  • Virtual Office for GST Registration
  • ESG Advisory Services

Contact Us

Sidebar Contact Form

  • This field is for validation purposes and should be left unchanged.
Phone

For Business Enquiry

+91 7738066622

For Career Enquiry

+91 8655857164

Envelope

Contact Us

info@incorpadvisory.in

Location

Visit us

2nd floor, Gita Building,
Sion Circle, Sion (East),
Mumbai - 400022

Copyright © 2023 · INCORP ADVISORY · All Rights Reserved
Sitemap | Privacy Policy

InstagramFacebookLinkedinTwitterYoutubeWhatsapp
WhatsApp

We use cookies to improve and customize your browsing experience. You are deemed to have consented to our cookie policy as you continue browsing our site.

×

We use cookies to improve and customize your browsing experience. You are deemed to have consented to our cookie policy as you continue browsing our site.

×