Place of effective management and control

In the dynamic realm of international business, UAE-based multinational enterprises (MNEs) with foreign subsidiaries face corporate taxation risks based on the concept of "Place of Effective Management and Control." Depending on the structure and nature of the MNEs, foreign subsidiaries may experience varying levels of decision-making autonomy, especially within family-run entities.

The UAE Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses states that foreign subsidiaries are subject to UAE corporate taxation if effectively managed and controlled within the UAE. The Explanatory Guide emphasizes that the place of effective management is where key management and commercial decisions on strategic and policy matters are regularly and predominantly made.

We propose a three-step approach to determine the place of effective management:

1. Identify key management and commercial decisions within the company.
2. Determine responsible individuals/entities making these decisions.
3. Establish the location where these decisions are regularly and predominantly taken.

Defining key management decisions can be complex, context-specific, and blurred by undue family influence. Substance over form is crucial in recognizing true decision-making power, even if formally vested in boards or committees. Identifying actual decision-makers is essential, especially for nominee directors.

Deloitte's expertise in tax residency, domestic laws, and treaty rules can aid in risk reviews and support for UAE outbound businesses' place of effective management.

In this document, we highlight critical factors determining the place of effective management for UAE outbound businesses, shedding light on potential risks for foreign subsidiaries in UAE corporate taxation.