The last blog discussed the determination of residential status of a corporate entity in India. A corporate entity is considered an Indian tax resident if either:
The concept of POEM states that an entity has POEM in India where its key management and commercial decisions that are necessary for the conduct of its business as a whole are, in substance made in India. The key principles outlining this concept are:
The POEM analysis is therefore factual and depends on the facts and circumstances of each case. The corporation therefore should have clarity in its active business operations carried out inside or outside India for application of POEM. This annual determination of a corporate entity having a POEM in India, however, does not apply to corporations having turnover less than INR500 million (approx. USD 7 million) in a tax year.
Our whitepaper titled Interaction of Indian and U.S. Tax Laws brings out the differential tax rates for resident and foreign corporations in India. An Indian domestic corporation is an Indian tax resident entity and taxed depending on its turnover from base rates of 25% or 30%. But a foreign corporate entity with POEM in India is taxed at base rate of 40%.