In simple terms, POEM stands for Place of Effective Management.
Under the UAE Corporate Tax rules, POEM helps determine where a company is really managed from, especially if it’s not a company officially registered in the UAE but in another country such as the UK or Germany.
The following things you should keep in mind if you run a company that does not hold UAE business license:
- A company might be legally set up in another country (like the UK, India, etc.), but if it’s actually being managed and controlled from the UAE, then the UAE may treat it as a UAE resident for corporate tax purposes.
- It means that the foreign company needs to register for UAE Corporate tax ‘based on POEM’.
- This also means the company may have to pay UAE Corporate Tax on its worldwide income, not just on what it earns in the UAE.
- In reality, there won’t be any tax to pay, as UAE Corporate tax is set very low and Corporate tax paid for that company in a country where that foreign company is registered, will be used as a foreign credit to offset any UAE tax liability.
How do they decide where the POEM is?
The UAE looks at things like:
- Where important business decisions are being made.
- Where directors or key managers live and work.
- Where board meetings happen and decisions are approved.
Why does it matter?
Some people might set up companies in other countries to pay less tax, but if they’re actually running those companies from the UAE, the UAE wants to make sure they pay the correct corporate tax here.
If your company’s POEM is in the UAE:
- You need to register for UAE Corporate tax within 3 months following the end of the financial period as per Article 3.3 of FTA Decision № 3
- Following 9 months after the end of the tax period, submit Corporate tax return, and make sure to use tax paid in the country of registration as a foreign tax credit to offset any tax payable in the UAE.
If you think that POEM might be applicable to you, make sure to send us a message!