Place of Effective Management (POEM)

Place of effective management (POEM) is the place where the key management and commercial decisions for a company's business as a whole are, in substance, made. A UAE or UK company can have Indian owners and Indian staff. But if its real strategic decisions are taken in India, India can treat it as Indian resident and tax its worldwide income.

Key points

• Under the Income-tax Act, 2025, a company is resident in India if it is an Indian company or its place of effective management in the tax year is in India.

• India's POEM guidelines (CBDT Circular 6 of 2017) look at who really makes strategic decisions and where, not where the company is registered or where minutes say the board met.

• A UAE-incorporated company is always UAE resident for corporate tax, and a foreign company effectively managed and controlled in the UAE becomes UAE resident too.

• The UK uses central management and control, the highest level of control, for companies not incorporated in the UK.

• Dual residence is resolved by the tax treaty: POEM under the India–UAE treaty, and mutual agreement between tax authorities under the India–UK treaty as modified by the MLI.

This question usually arises after an Indian group sets up a UAE subsidiary of an Indian company or a UK subsidiary of an Indian company. The entity is real; the question is whether it is run from where it is registered.

What does place of effective management mean?

POEM is a test of substance over form. It asks where the decisions that steer the company as a whole are really taken: strategy, major contracts, senior appointments, financing, dividends and large investments.

It is not about day-to-day operations. A Jebel Ali warehouse manager setting shifts does not fix the POEM; a Mumbai founder deciding the Dubai company's markets, general manager and borrowing does.

India, the UAE and most tax treaties use this idea; the UK's case law equivalent is central management and control. Each asks who really runs the company, and from where.

How does India decide whether a foreign company's POEM is in India?

India treats a company as resident in a tax year if it is an Indian company or if its place of effective management in that year is in India. This rule was introduced by the Finance Act, 2015 for the Income-tax Act, 1961, and carries into section 6 of the Income-tax Act, 2025, which has applied since 1 April 2026.

POEM is defined as the place where "key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made".

The detailed test sits in CBDT Circular No. 6 of 2017, issued on 24 January 2017. It splits foreign companies into two groups.

Companies with an active business outside India. A company qualifies if passive income is not more than 50% of total income, and less than 50% of its assets, employees and payroll are in India. Passive income includes royalty, dividend, interest and rent, and trading income where both purchase and sale are with group companies. The test uses the average of the year and the two previous years.

For these companies, POEM is presumed to be outside India if the majority of board meetings are held outside India. The presumption falls away if the board is "standing aside" and the Indian holding company or other persons resident in India are in fact exercising its powers. Following group-wide policies on payroll, accounting, HR, IT or routine banking is not, by itself, standing aside.

All other companies. For companies that fail the active business test, the circular uses a two-stage enquiry: first identify who actually makes the key decisions, then find where they make them. Factors include where the board regularly meets and decides, whether the board has handed real authority to an executive committee or a shareholder, where the head office and senior management sit, and how video calls and circular resolutions are used.

Facts that are not conclusive on their own include 100% Indian ownership, a permanent establishment in India, some directors living in India, or support functions in India. POEM is decided year by year; if it was both in and outside India, it is presumed to be in India if mainly there.

Two safeguards matter. The CBDT announced that the guidelines do not apply to companies with turnover or gross receipts of ₹50 crore or less in a financial year. And a POEM finding needs prior approval from a collegium of three senior tax officers.

What happens if a UAE or UK company is found to have its POEM in India?

The company becomes resident in India for that year, and India can tax its worldwide income, not just its Indian-source income. It remains a foreign company for rate purposes, and special computation rules apply.

The knock-on effects are often worse than the tax: Indian filings and withholding the company was never set up for, while its home country still treats it as resident.

Dual residence is then settled by the tax treaty. Under Article 4(4) of the India–UAE treaty, a company resident in both states is treated as resident where its place of effective management is situated, and the CBDT's synthesised text with the OECD Multilateral Instrument (MLI) leaves that tie-breaker in place. Our guide to the India–UAE DTAA covers the treaty in full.

Under the India–UK DTAA, both countries adopted the MLI rule for dual-resident entities. Residence is decided by mutual agreement between the two tax authorities, having regard to POEM, place of incorporation and other factors, and treaty relief may be unavailable until they agree. That can take years.

How does UAE corporate tax treat place of effective management?

Under Article 11(3) of Federal Decree-Law No. 47 of 2022, a company incorporated in the UAE, including a free zone company, is a Resident Person whatever happens to its management. A foreign company that is "effectively managed and controlled" in the UAE is also a Resident Person and pays UAE corporate tax on its worldwide income.

The Federal Tax Authority's Tax Residency guide (October 2024) reads this test very much like India's POEM. Key decisions include setting policy and strategy, approving major transactions, appointing senior executives and deciding how profits are used. Formal approval of decisions made by others, mere implementation and day-to-day management do not count.

The guide also says that where directors join board meetings virtually, what matters is where the directors with overriding decision-making power join from. Occasional or one-off decisions made in the UAE, or presence forced by travel restrictions or emergencies, generally do not create a UAE place of effective management.

Two practical consequences follow for Indian groups:

• UAE company run from India. It stays UAE resident under UAE law, but India may also treat it as resident. It may also struggle to get a treaty tax residency certificate, because the India–UAE treaty requires a company to be "managed and controlled wholly in UAE".

• Indian company run from Dubai. If a founder relocates and runs the Indian company from Dubai, it stays Indian resident by incorporation but could also become a UAE Resident Person. Our guide to moving to Dubai from India covers this risk.

What is central management and control in the UK?

A company incorporated in the UK is UK resident under section 14 of the Corporation Tax Act 2009, wherever it is managed. For companies incorporated elsewhere, residence follows the case law test of central management and control (CMC).

CMC comes from De Beers Consolidated Mines Ltd v Howe (1906): a company resides "where the central management and control actually abides". HMRC's International Manual at INTM120060 also cites Bullock v Unit Construction Co Ltd (1959), where African subsidiaries were held UK resident because their UK parent in substance ran them. CMC is about the highest level of control, usually the board, not day-to-day management.

Under section 18 of CTA 2009, a company that is treated as resident in another country under a tax treaty is treated as non-UK resident. So for a UK subsidiary of an Indian parent, the main risk is not UK law but India: if the UK company's strategy is decided in Bengaluru, India may assert POEM and the treaty process above applies.

POEM vs central management and control: what is the difference?

The tests are close cousins. POEM looks at where key decisions are made "in substance". CMC looks at where the highest level of control is exercised. In most real cases they point to the same room and the same people.

Can a UAE company be managed from India?

A UAE company can be owned from India and supported from India. It cannot safely be run from India if it is to be treated as resident only in the UAE. The line is between oversight by a shareholder and day-to-day strategic control.

Take a ₹120 Cr Pune engineering exporter that sets up a Dubai trading company to sell into the Gulf. The Dubai company has 12 staff, a warehouse and its own customers, so it passes India's active business test on paper. But the managing director, CEO and sales head all live in Pune and take every pricing, hiring and credit decision there; the Dubai board meets once a year to sign accounts.

Circular 6 has a near-identical example. A foreign sourcing company with 47 of its 50 employees abroad still failed the active business test, because its India-resident managing director, CEO and sales head took ₹3 crore of its ₹5 crore payroll.

The fix is not paperwork: a Dubai general manager with real authority, a board that meets and decides there, and an Indian parent acting as shareholder, not shadow board. The same logic drives permanent establishment risk between India and the UAE, and the problems of invoicing from a Dubai company when your team is in India.

How should the board work to keep management where it belongs?

The board is the strongest evidence of where a company is managed, if it genuinely decides. Board practice should be designed for the decisions, not for the minutes.

• Composition. Appoint directors who live where the company is meant to be managed and who understand the business. A local director who only signs is a weakness, not a defence.

• Meetings. Hold most meetings, and all meetings on major decisions, physically in the country of residence, with decision-makers present there.

• Real deliberation. Circulate papers in advance. Minutes should show alternatives considered, questions asked and reasons, not just "resolved".

• Delegation. Write down what the local managing director can decide alone and what is reserved to the board. Keep the Indian parent's role to shareholder matters and group policy.

• Group policies. Common group policies on accounting, HR or IT are fine. Specific instructions from the parent on a subsidiary's deals are not.

This is also why nominee directors and shadow control cause so much trouble: tax authorities look past the register to who actually gives instructions.

Does founder travel change where a company is managed?

Yes, often more than any formal structure. The CBDT guidance and the FTA guide both say that with video calls, the physical location of a meeting may not matter; where the decision-makers usually are can be decisive.

A founder who spends 250 days a year in India and joins the Dubai board by video from Mumbai is evidence that management is in India. A founder who relocates to Dubai and runs the Indian company from there creates the reverse problem. Our article on how founder behaviour quietly shifts tax residency explains the pattern.

What are the red flags for POEM risk?

These are the patterns that usually turn a review into a dispute:

• The overseas board meets rarely, briefly, or by video from India.

• Board minutes are drafted in India before the meeting and never changed.

• The managing director or CEO of the overseas company lives in India.

• Bank mandates, contract approvals or pricing decisions sit with people in India.

• Emails and WhatsApp groups show decisions made in India and "sent for signing".

• More than half of the overseas company's payroll is for people in India.

• The overseas entity has no office, staff or decision-making capacity of its own, which also fails economic substance expectations.

The Greenwolf view

POEM is rarely a technical accident. It is usually the result of a structure designed for tax first, while the business kept running the way it always had. Commercial design comes first; tax follows functions, risks and substance.

For any India–UAE or India–UK group, four questions settle most of the risk. What does the overseas company actually do that the Indian company cannot? Who will run it, and will they live there? Which decisions belong to the local board, and which to the shareholder? And how will the founder's own residence and travel line up with that answer?

If the honest answer is that everything will still be decided in India, change the structure now: a branch, a different role for the overseas entity, or a properly planned founder move. That beats a POEM finding years later.