Income tax on income earned by company abroad

Hi ,

your case depends on two things First Residential status and incident of tax.

To check your residential status you can visit to this link given below-

http://incometaxmanagement.com/Pages/Tax-Ready-Reckoner/Residential-Status/Residential-Status-Of-An-Individual.html

Incidence of Tax depends on the points mentioned below

As per Section 5 of the Income Tax Act 1961, incidence of tax on a taxpayer depends on his residential status and also on the place and time of accrual or receipt of income.

In order to understand the relationship between residential status and tax liability, one must understand the meaning of “Indian income” and “Foreign income”. An Indian income is one which satisfies any of the following conditions:

1) If income is received (or deemed to be received) in India during the previous year and at the same time it accrues (or arises or is deemed to accrue or arise) in India during the previous year, or

2) if income is received (or deemed to be received) in India during the previous year but it accrues (or arises) outside India during the previous year, or

3) if income is received outside India during the previous year but it accrues (or arises or is deemed to accrue or arise) in India during the previous year.

Similarly, Foreign income is one which satisfies both the following conditions:

1) Income is not received (or not deemed to be received) in India; and

2) income does not accrue or arise (or does not deemed to accrue or arise) in India.

Indian income is always taxable in India irrespective of the residential status of the taxpayer.

Foreign income of an individual and HUF from a business controlled or profession setup in India will be taxable in the hands of resident and ordinarily resident and resident but not ordinarily resident but not in the hands of a non-resident. However, Foreign income from a business controlled or profession setup outside India will be taxable only in the hands of resident and ordinarily resident and not in the hands of a resident but not ordinarily resident or a non-resident person.

Foreign income of any other taxpayer (Company, Firm, AOP, BOI etc.) will be taxable if the taxpayer is resident in India and will not be taxable in case the taxpayer is non-resident in India.

As per the information provided by you- you are resident and ordinary resident , The global income earned or accrue by you will be taxable in India, and you are liable to pay taxes in india

you can also visit this site-

https://onlineitreturn.com/blog/2012/08/residential-status-and-incidence-of-income-tax-of-and-individual/

Hi

While the profits of the foreign company is not taxable in India, you have to keep in mind the regulations notified by the CBDT on "place of effective management". A company incorporated in Dubai is treated as a foreign company and will not be liable to tax in India. However, if the key management / commercial decisions are made in India, then the profits of the Dubai company will be liable to tax in India. The CBDT has notified certain specific criteria based on which the place of effective management can be constituted to be in India.

Regards

Keerthiga

Dear Sir,

No, neither you nor your company will be liable to pay tax in India if your income is not earned in India.

However, sometimes when you have business connection in India (like you have dependent agent of Dubai company in India who sales goods in India), in that case certain portion of tax may arise in India.

Hence, in order to conclude this we need to understand your business model thoroughly.

Please feel free to call/ revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

Hi,

No, The Income earned by the company situated outside India who does not have the place of business in India, in which you owned the share will not be taxable in your hands.

Only the of following types of Incomes are taxable in your hands:

1) on dividend received from such investment made in Dubai

2) Income, as Capital Gains, by way of transfer of such shareholding in Foreign Company

It does not matter whether you are bringing such income back in India.

As you know that you are required to disclose foreign investment and or income and bank accounts details while filing the IT return.

So, if you have earned dividend though not brought in India it is still taxable in India.

Sir as far as our view we state that till the time the amount is not brought to India it is not taxable. Once the profit is brought back to India it is taxable.

We are having clients in Dubai and India and thus can guide you.

The company registered in Dubai is a Non-Resident and only the income accrued or arising in India, if any, will be taxable.

Though the company is 100% owned by you, you will not be taxable in respect of the profits of the company. Only when you receive dividends, you will be taxable. However, when you draw the money in the form of advances, you may be taxed, if such advances can be construed as withdrawal of profits of the company. Further, if you draw any remuneration or interest or payments towards any other services, they will be taxable.

Dear sir,

Since it is company in dubai and you are not earning income from it no need to pay any tax in india. Since this income is earned by company and it is different entity for tax purpose. you only hold shares, Only if you take dividend or salary or any other income from that company than only it is taxable in india.

Prima facie, you will not be required to pay any taxes in India since Foreign Company need not pay tax in India for it's Income earned outside India.

However, your case may be taxed in India based on the Place of Effective Managment (POEM) Rules. Will have to check the same once before deciding on the Tax applicability.

Hello Sir,

In such a case POEM will kick in, which is Place of Effective Management. If your POEM is in India then it shall be taxed in India or else it will not be taxed here unless you bring the money in India.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

India has recently introduced the rules for determining place of effective management. Basically, since you're controlling the Dubai company while residing in India, it deems that the Dubai company's effective place of management is India. It will be accordingly taxed.

Place of effective management means a place from where important decisions of company are taken. So it will be place where directors or managing director of company is situated or where board meetings take place.

effective management means the person controlling, signing on behalf of the company. If the person in India is having signature authority and decision making powers then it is said that the effective management is in India

Dear Sir,

CBDT issues circular clarifying that provisions of Sec 6(3)(ii) relating to place of effective management (POEM) won't apply to companies having turnover or gross receipts less than Rs 50 crores during financial year;

So if your companies turnover is less than 50 crore, you don't need to much worry about the POEM issue

Please feel free to call/ revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

The place of effective management depends upon the business structure also. As you are an Indian resident, with 100% ownership of the company, the natural presumption is that the place of effective management is India. However, if you are a non-executive director with full time CEO based outside India and your role is confined to attend the board meetings held outside India, then the place of effective management can be said to be outside India.

Hello Sir,

If all the shares are owned by you then most of the vital decisions will also be taken by you, unless otherwise can be proved. So in ordinary course the POEM shall be considered as India.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

The place of effective management will be based on where you take key management decisions.