Where Is Your Company Really Managed?

Imagine an entrepreneur sets up a company overseas. The paperwork is perfect, a local bank account is open, and the company has a physical office abroad. On paper, it looks like a foreign company.

But the founder runs the business from their home country. Key decisions are made over video calls from their domestic office. Major contracts are approved locally, and budgets are signed off without ever leaving the country.

This creates a crucial problem. While the company's "body" is abroad, its "brain" is operating from the founder's home country. Tax authorities ask one powerful question: "Where is the company's mind actually located?"

The answer isn't always the legal registration. It's found in the concept of the Place of Effective Management (POEM).

What is POEM?

The Place of Effective Management (POEM) is a rule that looks beyond paperwork to find the real centre of a company's decision-making. It asks: "Where are the important, strategic decisions that run the business actually made?"

If these decisions are made in a different country from where the company is registered, that country can claim the company as its tax resident. This means a company you thought was "offshore" could suddenly be subject to tax on its worldwide income in your home country.

How is POEM Determined?

The process is methodical. Authorities first check if the company has an active business outside the home country. If it has real operations, employees, and assets abroad, they usually will not interfere.

But if most operations are domestic, the real investigation begins. They will look for:

• Where budgets and business plans are approved.
• Where key investment or contract decisions are taken.
• Where top management actually meets and debates.

It doesn't matter where the board formally meets if all the real decisions are made elsewhere. Emails, call logs, and approval chains create a digital trail that reveals the true location of control.

Remember, POEM is checked every year. A company's tax residency can change from one year to the next.

A Global Principle

POEM is a common concept in international tax rules. It is often used as a "tie-breaker" when two countries claim the same company as a tax resident. Modern tax treaties require authorities to examine the facts and agree on where the real management is located.

This means companies must keep detailed evidence of how and where decisions are made. It's all about proving real, substantial activity in a location, not just a legal formality.

A Common Trap for Founders

This is a major risk for small companies and solo entrepreneurs. If you are the sole owner and decision-maker, the POEM will almost always be wherever you are physically located. If you live in one country and make all the key calls from there, the tax authorities can claim your foreign company as a domestic tax resident.

How to Stay Compliant

Staying safe is about having genuine substance. Follow three steps:

1. Design: Structure your company properly. Appoint local managers and give a local board real power to make decisions.
2. Do: Execute your plan truthfully. Hold real, substantive meetings in the intended country.
3. Document: Keep records that prove your actions. Minutes should detail discussions, not just outcomes.

 

Final Summary

Tax authorities focus on where a business's true "mind" is, not just its legal home. For founders with international companies, POEM is critical.

Perform a yearly self-assessment. Ask: "Where were my most important business decisions actually made this year?" If the answer doesn't match your company's intended tax home, it's time to rethink your structure.