• RNOR status and business income from Italian company

Hello All, 

I have a business in Italy since 2016 turnover less than 5Cr and I am planning to come back to India in Dec 2024.

Business: It is a one person proprietor business and I am doing online selling on ebay/amazon, i have two warehouses in Italy with one employee. This one employee will handle daytoday operations in italy. but as an owner effective management/company operations will be from india then. I will not have any setup/employee/office in India, only my laptop and mobile and will be working from home. 

For the next three year, I will have RNOR status because I have been staying in Italy since 2010.
I will run this Italian company from India in 2024-2025 and 2025-2026. I am planning to deregister this Italian company on dec-2026. After that I will register a new company in India and run a company from India itself.

My question is:
1: do i need to show this Italy company income in ITR return ? since all taxes have been paid according to Italian tax rules in Italy during my RNOR status in India ? 
2: Do I need to pay tax in India again since this company is controlled from India and the Place of Effective Management (POEM) is also in India ?
3: For POEM for foreign companies, there is a limit of 50 CR turnover, if foreign company controlled from India has a turnover less than 50Cr then it is always non-resident in India.
4: Do this POEM/ABOI apply for small companies like Proprietorship, OPC. My firm is not a PVT LTD company. It is sole proprietorship. It has total revenue less than 5cr. 
5: Can I benefit from RNOR status for the next three year, i mean i don't need to show my outside of india business income in indian ITR and dont need to pay taxes in india. 
6: Can the concept of ABOI Active Business Outside India apply in my case since I don't have any assets/employees/offices in India ?
7: If I visit Italy one every six months from India for my business purpose, will it help too ?
Asked 16 days ago in Income Tax

Hi,

  1. Income Reporting in ITR: As an RNOR (Resident but Not Ordinarily Resident) in India, you need to report your global income, but you may be able to claim relief under the Double Taxation Avoidance Agreement (DTAA) between India and Italy.

  2. Tax in India: Since you are an RNOR, you are generally not taxed on foreign income unless it is received in India. However, if the Place of Effective Management (POEM) is considered to be in India, the income might be subject to Indian taxes.

  3. POEM and Turnover Limit: The turnover limit of ₹50 crores is applicable to foreign companies for determining their residency status under POEM. Since your turnover is less than this, your company be considered non-resident in India.

  4. Applicability of POEM/ABOI: POEM rules are generally applicable to companies, but not to sole proprietorships. However, if your business operations are effectively managed from India, Indian tax authorities might still consider your business income as taxable in India.

  5. RNOR Status Benefits: As an RNOR, you can benefit from not being taxed on foreign income that is not received in India. However, if your business is controlled and managed from India, this may affect the taxability.

  6. ABOI Applicability: The concept of Active Business Outside India (ABOI) can apply if you meet certain conditions, such as having substantial assets, employees, and business operations outside India. Given you have an employee and warehouses in Italy, you may qualify, but this needs careful evaluation.

  7. Visiting Italy: Regular visits to Italy for business purposes can support the argument that effective management is not solely in India, but this needs to be consistent and well-documented.

Best regards,

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Thank you.

Shubham Goyal

 

Shubham Goyal
CA, Delhi
251 Answers
4 Consultations

5.0 on 5.0

- As you have mentioned that business structure is sole proprietorship therefore residential status of an Individual would be determined and considered for calculation of total income and tax liability. Assuming residential status calculated by you is correct i.e. RNOR. In case of RNOR status, Indian income and foreign business income controlled wholly or partly from India is taxable in India. The concept of POEM is applicable to determine residential status of a Company.

 

1. Yes

2. Yes. You can claim benefit of tax paid in Italy subject to the proportionate tax payable in India on such foreign business income. The concept of POEM is applicable to the company. 

3. Not applicable

4. Not applicable

5. Refer point no.1&2

6. Not applicable to RNOR residential status

7. NRI are liable to pay tax on Indian income only

 

For detailed discussion you may opt for phone consultation

Vivek Kumar Arora
CA, Delhi
4871 Answers
1058 Consultations

5.0 on 5.0

    1.  RNOR need not report global assets. But once you become ROR, it is mandatory to disclose the business interest in Italy along with the bank accounts and any other asset. 

       

    2. The income from business if it is carried on from India and controlled from India, Shall be taxable in India
    3. The POEM concept applies to a foreign company. In your case it is sole proprietary concern. So POEM shall not be applicable. In that case it would be assessed as your own income.
    4. RNOR is for 2 years in which you cannot benefit if you Control the business from India.

 

For detailed consultation please choose telephonic consultation

 

 

 

Regards,

Prerna Peshori
CA, Pune
197 Answers
11 Consultations

5.0 on 5.0

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