Global Tax

As a client of Cavenwell Group, you may have established or be considering establishing a holding company or foundation in a jurisdiction such as the DIFC or ADGM. One important consideration for any corporate structure is its tax residency — in particular, where the entity is treated as resident for corporate tax purposes.

This guidance note provides a general overview of the concept of corporate tax residency, with a focus on the principle of management and control. It is intended to help you understand the key factors that determine where your entity may be considered tax resident.

Corporate tax residency refers to the jurisdiction in which a company or other legal entity is considered to be resident for tax purposes. This is significant because a company's tax residency typically determines:

• Which jurisdiction has the primary right to tax the company's profits

• Whether the company can access any tax treaty benefits

• The extent of the company's reporting and compliance obligations

Tax residency is determined differently across jurisdictions. In many countries, a company is automatically considered tax resident in the jurisdiction where it is incorporated. However, many jurisdictions also apply an additional or alternative test based on where the company is managed and controlled.

The concept of "management and control" (sometimes referred to as "central management and control") is a key principle used in many jurisdictions — including the UK, UAE, and various common law jurisdictions — to determine corporate tax residency.

In simple terms, a company is considered to be managed and controlled in the place where its highest level of decision-making occurs. This is typically where the board of directors meets and makes key strategic and policy decisions.

Central Management and Control

Central management and control refers to the highest level of control of a company's business — it is distinct from the day-to-day management or operational control of the business. Courts and tax authorities have consistently held that central management and control resides where the board of directors exercises its functions.

Board of Directors / Council Members

Because central management and control is focused on where the board meets and makes decisions, the residency of the individual directors (or council members, in the case of a foundation) can be highly relevant. Specifically:

• If a majority of directors are resident in a particular jurisdiction and meet there, this may be sufficient to establish management and control in that jurisdiction

• If directors attend board meetings remotely from another jurisdiction, there is a risk that management and control could be considered to be in that other jurisdiction

• Where directors simply rubber-stamp decisions made elsewhere, this can also affect the analysis

Location of Meetings

The physical location of board meetings is one of the most important factors in determining where a company is managed and controlled. To establish and maintain tax residency in a particular jurisdiction, it is generally important that:

• Board meetings are held in that jurisdiction

• Substantive decisions are made at those meetings (rather than simply approving decisions already made elsewhere)

• Minutes accurately record the deliberations and decisions of the board at those meetings

Residency of Directors

The personal tax residency of directors is a relevant — though not determinative — factor. Where directors are resident in the same jurisdiction as the company's registered office and meet there, this strengthens the case for tax residency in that jurisdiction. Conversely, where directors are predominantly resident elsewhere and attend meetings remotely or in person in another jurisdiction, there is greater risk of tax residency being attributed to that other place.

Location of Assets

The location of a company's assets does not, of itself, determine where the company is tax resident. However, it can be a relevant factor in a broader analysis of where the company conducts its activities and operations.

Personal Tax Residency

The personal tax residency of a company's shareholders or beneficial owners does not, of itself, affect the corporate tax residency of the company. However, some jurisdictions have controlled foreign company (CFC) rules or similar provisions that can attribute a foreign company's income to its shareholders where the shareholders are resident in that jurisdiction. You should seek specific advice on the CFC rules (if any) that may apply to you in your jurisdiction of personal tax residency.

The determination of corporate tax residency can be complex and fact-specific. The above is intended only as a general introduction to the key concepts. You should always seek specific professional tax advice before making any decisions about your corporate structure or the management of your entity.

Cavenwell Group does not provide tax advice. We recommend that you consult with a qualified tax adviser in the relevant jurisdictions to obtain advice tailored to your specific circumstances.

This guidance note is provided for informational purposes only and does not constitute legal or tax advice. It reflects general principles as at the date of preparation and may not reflect subsequent changes in law or practice. You should seek independent professional advice before taking any action in reliance on the information contained in this note.