Government Declares 40 % Tax on Foreign Companies with Indian Place of Effective Management
The Indian government on June 22 issued important guidance relating to computation of tax liability, applicable tax rates, and related compliance once a foreign company’s ‘place of effective management’ (PoEM), and thus the company’s tax residence, is determined to be in India.
The India PoEM concept was introduced in the domestic laws with effect from April 1, 2016; it provides that a foreign company shall be regarded as resident in India for tax purposes if the control and management of its affairs are effectively situated in India during a year.
The new PoEM guidance addresses how to prepare financial statements in case the accounting year of the foreign jurisdiction does not end on 31 March; computational aspects relating to a depreciation claim; adjustments of carried forward losses and unabsorbed depreciation; eligibility to avail of the foreign tax credit; and other matters.
An important clarification indeed provides that the tax rate applicable to such foreign companies would be 40% (plus surcharge and cess).
Thus, under India’s POEM regime, even though the foreign company would be subject to tax on its global income (like a domestic company), it still must pay tax at a higher rate of 40%, which is applicable to companies other than domestic companies.
The notification is retrospectively applicable and it remains to be seen as to how the same can be applied to the tax filings already made for the year ending March 31, 2017.
Zetland offers comprehensive company management, including corporate and personal Directors located internationally, assist with tax obligations and compliance.
Should you have any questions please feel free to contact Alina Moroz at alinam@zetland.biz or +852 3552 9050.
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