What a company in another country does — and doesn't do — for you

The most repeated idea in this area is that registering a company somewhere else moves the tax there. It’s not that this is exactly wrong — it’s that registration is one small input into a question mostly decided by other things. This is the vocabulary post for the company side; for the wider picture, start with Where you live, where your company is, where your money sits.

Where a company is registered is a fact. Where it is tax resident is a conclusion — usually drawn from where it is actually run ¹². Where the company is managed, where its people are, and where its customers are usually matter more ¹³. This post defines the terms that decide it, with sources, and no conclusions.

Registration is a fact, tax residence is a conclusion

Incorporating a company creates a legal entity in a particular jurisdiction — its legal seat. That is real, and it is simple: the company is on the register, and it exists under that jurisdiction’s company law ².

corporate tax residence — whether that entity is tax resident somewhere — is a separate question, decided by each country’s tax rules, not by its company law. Countries use different connecting tests:

• incorporation-based: residence follows the place of incorporation. Irish Revenue states that a company incorporated in Ireland on or after 1 January 2015 is deemed Irish tax resident unless a tax treaty treats it as resident in another country ².
• management-based: residence follows where the company is actually run and controlled. The Australian Taxation Office’s stated view, in Taxation Ruling TR 2018/5, is that the central management and control test is factual and concerns the control and direction of the company’s operations, with high-level decisions carrying the weight ¹.

Some systems use more than one connecting test. A foreign-incorporated company centrally managed and controlled in Ireland is also resident in Ireland for tax purposes; Revenue’s guidance points to the highest level of control — company policy, investment decisions, major contracts, head office, and directors’ residence — as the relevant considerations ³.

The consequence is that two companies with identical registration can end up tax resident in different countries, depending on where they’re run ²¹. This is the same shape as the personal side covered in Tax residency, explained: the words you need before any of this makes sense: tax residency is a status you acquire by meeting a country’s rules, not one you choose.

Place of effective management

place of effective management is the place where a company’s key management and commercial decisions are actually made. It is the central term in this post.

What tends to bear on it: where the directors are, where board decisions are made, where contracts are agreed, and where the day-to-day running of the business occurs. Irish Revenue’s guidance identifies the highest level of control as decisive, and points to company policy, investment decisions, major contracts, head office, and directors’ residence as relevant considerations ³. The ATO’s central management and control test says the same from the management side: the test is factual, high-level decisions matter, and day-to-day operations ordinarily do not amount to central management and control; mere implementation or rubber-stamping of another person’s decisions is not genuine decision-making ¹.

In a one-person company, the person is usually where the management is. If one person makes the decisions, runs the business, and signs the contracts, the place of effective management is where that person is. Writing about registering a company elsewhere often stops at the registration itself.

The term also appears at treaty level, in the corporate counterpart of the personal ladder. Where a company is resident in both contracting states under their domestic laws, OECD Model Article 4(3) — the corporate version of the tie-breaker rules — does not resolve it automatically by a simple place-of-effective-management formula: the competent authorities are to seek agreement, having regard to the place of effective management, the place of incorporation or constitution, and other relevant factors, and the applicable bilateral treaty must be checked, because treaty wording varies ⁴. See The 183-day rule is not the rule: what actually decides where you’re tax resident for the personal version.

Permanent establishment

A permanent establishment is a taxable presence in a country where a company is not registered. It gives that country taxing rights over part of the company’s business profits, even though the company is resident elsewhere ⁵.

What can create one, under OECD Model Article 5 and its Commentary:

• a fixed place of business through which the business is wholly or partly carried on;
• a construction or service project that lasts beyond a set period;
• a dependent agent who, as part of their activities, concludes contracts for the company;
• and related routes the Commentary addresses, including anti-fragmentation and the exclusion of independent agents ⁶.

What generally does not: preparatory or auxiliary activity — activity of a purely preparatory or auxiliary character, such as maintaining facilities solely for storage or display ⁷. The line between auxiliary and core activity is drawn case by case, the exclusions are not unlimited, and the actual bilateral treaty may differ from the OECD Model.⁶

Remote work has made this a live question rather than a technical footnote. A person working from a country can, in some circumstances, create a taxable business presence there for their employer or their own company. Whether that happens depends on the facts — the nature, duration and commercial significance of what is carried on from that country — rather than on any single rule.⁶

The OECD Council approved an update to the Model Tax Convention on 18 November 2025.⁸ Professional summaries of that update report that the revised Commentary on Article 5 addresses home-office arrangements directly, and describe a working-time threshold below which a home office would generally not be treated as a place of business.⁹¹⁰ The OECD states that the full documentation will be published in 2026; the revised Commentary text was not publicly available when this post was written, so no threshold is stated here.

This is fact-specific and contested. A full treatment is beyond this post.

Substance

substance is the idea that a company should have real activity where it claims to be. In practice it can mean people, premises, decision-making, and actual functions — not a registered address and periodic board paperwork.

“Substance” is not one universal, free-standing residence test. Its legal role depends on the regime being discussed: BEPS Action 5, a domestic economic-substance law, a tax treaty, transfer pricing, or anti-abuse rules ¹¹.

One concrete anchor: the OECD Inclusive Framework on BEPS introduced a substantial activities factor that applies to no- or low-tax jurisdictions. For in-scope non-IP activities, the framework requires identification of the entity’s core income-generating activities, performance of the relevant activities by the entity or in the jurisdiction, adequate qualified full-time employees and operating expenditure, and compliance and enforcement mechanisms. For IP income, the report states that passive ownership of IP created and exploited through decisions and activities outside the jurisdiction is insufficient, and that periodic decisions by non-resident board members alone do not meet the test ¹¹.

A registered company, an address, and periodic board paperwork are not necessarily enough to satisfy the applicable substantial-activities regime. The specific requirements differ enormously by jurisdiction and by regime ¹¹.

CFC rules, plainly

CFC rules — controlled foreign company rules — let a country tax a resident on income earned in a company they control abroad, even if nothing is distributed ¹².

The point of the rules: they exist specifically to make “leave it in the foreign company” not work. If the owner’s home country taxes the income in the foreign company regardless of whether it is distributed, the arrangement does not produce the result its proponents describe.

Two caveats. First, the Directive establishes a minimum EU framework, not an identical CFC outcome in every Member State — the operational rule comes through each Member State’s national implementation ¹². Second, the tests, thresholds and exemptions vary hugely and are genuinely complicated; a full treatment is beyond this post.

What this means for reading advice

The following questions apply to anything you read about company structures, including this site:

• Does it mention where the company is managed, or only where it’s registered?
• Does it mention the personal residency of the owner?
• Does it name the country pair, or speak generically?
• Does it cite anything?
• Does it say when it was written?

A source that answers only the first question — where the company is registered — is answering a fact, not the question of where the company is actually taxed. A source that cites nothing and gives no date is not a source in the sense this site uses the word. That is the method behind the site’s claim: here is what the rules say, here is where it was got, check it yourself.

Where this needs a professional

This is not tax or legal advice. The person behind this site holds no professional credentials, and nothing here assesses or opines on anyone’s situation. The rules are fact-specific, and the decisive texts are the current domestic laws and the applicable treaty for every country involved; professional input is how those texts are applied to a particular situation.