Residential Status of companies

Lecture 3
Residential Status of a Company:

• Determined on the basis of :

• Incorporation
• Control and management of its affairs
• On the basis of residential status, a company is
classified into two categories:
• Resident companies
• Non-resident companies
Resident Companies

• For example :
i. A company is incorporated in India but has head office in USA,
ii.A company is incorporated in USA but has head office in New Delhi
• In first case it is incorporated in India and situation of its head office is
immaterial, as such it is resident company. In second case though it is
incorporated outside India but its control and management is wholly
situated in India hence it is resident company.
 POEM (Place of Effective Management) as per
circular no 6/2017

• Test for determination of residence of a company incorporated in a

foreign jurisdiction.
• Concept of substance over form- have more than one place of
management but only one place of effective management
• Meetings of Board of Directors- maximum meetings outside India then it
shall be presumed that company engaged in active business outside India
• Active business outside India if:
• Passive income not more than 50% of its total income.
• Less than 50% of its total assets are situated in India.
• Less than 50% of total number of employees are situated in India or are resident in India and
• The payroll expenses incurred on such employees is less than 50% of its total payroll
expenditure
Other Cases POEM

• Location where Board Meets

• Delegation of authority
• Location of company’s head office
• Use of modern technology impact the POEM
• Conduct of the company’s business from a management or
commercial perspective are not relevant for the determination of
POEM
• Day to day routine operational decision is also not relevant- POEM
Other examples not relevant for
determination of POEM

• Foreign company owed by Indian Company

• Permanent establishment of foreign entity in India
• Some of the directors of foreign company reside in India
• Local management being situated in India
• Existence in India of support functions
• X ltd – Indian Company
• It has 10 shareholders who are foreign citizens and NRI
• The business is fully controlled from outside India
• Residential status of the company for A.y. 20-21
• Ans: resident company as it is incorporated in India
• Y ltd. is a company incorporated in Mauritius (turnover more than
50 Crore).
• 10 shareholders- are resident in India and Indian citizens.
• Active business outside India, control is wholly from outside India
• Residential status of Y ltd.
• Non resident company-foreign company
• Z Ltd. Japan- foreign company
• 15 Shareholders (10 Indian)
• No active business in Japan
• Gross annual turnover of the company for the previous year 2020-
21 is Rs 48 Crore mainly from operations conducted from korea,
Srilanka and India.
• Co is managed by team of professionals from India
• Residential status of Z Ltd.
 Residential Status
6
(3)

Foreign company
( gross turnover/ Foreign Company =
Receipts >50 gross Receipts/
Indian Company
Crore) Turnover <or equal
6(3)(i)
to 50 crore) NON
Resident In India- resident in India
POEM