Place of effective management and control : UAE family groups at risk
In the ever-changing landscape of international business, groups headquartered in the United Arab Emirates (UAE) may have a regional/globalpresence through subsidiaries in the countries they operate. The management of those foreign subsidiaries may vary. Within some multinationalenterprises (MNEs) and depending on the operations involved, the foreign subsidiaries may have local boards of directors and management teamsand relative independence in terms of decision-making within broad group policies set by the headquarter.On the other hand, the headquarter could set limitations of authority, thus limiting the decision-making autonomy of the subsidiaries. Especially inthe context of family run/owned MNEs, a more centralized approach is sometimes observed, where foreign operations are influenced by theheadquarter and/or main shareholder/shareholder family. Such influence is sometimes embedded in corporate governance documentation, but itcan also be de facto, i.e., based on actual conduct of the headquarter/owners.The question arises as to whether these UAE outbound businesses are at risk and, specifically, whether the foreign subsidiaries could be subject toUAE corporate tax.
According to Article. 11 para. 3 of the Federal Decree-Law No. (47) of 2022 on the Taxation of Corporations and Businesses foreign subsidiaries aresubject to worldwide UAE corporate taxation if they are effectively managed and controlled in the UAE.The Explanatory Guide provides further (limited) guidance and states the following:“Whether a juridical person is effectively managed and controlled in the UAE needs to be determined with regard to the specific circumstances of thejuridical entity and its activities, with a key factor being where key management and commercial decisions concerned with broader strategic andpolicy matters necessary for the conduct of the company’s business as a whole are regularly and predominantly made and given. This will ordinarilybe where a company’s board of directors (or any equivalent body for other types of juridical persons) make these decisions. However, depending onthe specific circumstances, other factors such as where the controlling shareholders make decisions, the location of another Person or body to whichthe board has delegated its decision-making functions, or the location where the directors or executive management of the juridical person residemay also need to be considered.”
