Businesses increasingly operate across borders without setting up a formal subsidiary or branch. Employees travel to support customers, projects run for months in a neighbouring country and local agents negotiate on the group’s behalf. Each of these can raise the question of whether the business has created a permanent establishment — a taxable presence — in that other jurisdiction.
Why it matters
If a permanent establishment exists, profits attributable to it may be taxable in that country, with registration, filing and documentation obligations to match. Discovering this during an audit is far more costly than planning for it.
Common triggers to review
- A fixed place of business — an office, site or premises used regularly.
- Staff working in the other country for extended periods, or seconded to a local entity.
- Agents or employees who habitually conclude contracts on the business’s behalf.
- Construction, installation or service projects that run beyond the relevant time thresholds.
Where tax treaties come in
Domestic law sets out when a permanent establishment exists, and a tax treaty between the two countries may modify that — for example through specific time thresholds or exclusions for preparatory activities. The answer depends on both the domestic rules and the specific treaty.
Practical steps
- Map where your people and projects actually are, and for how long.
- Review contracts, agency arrangements and secondment agreements.
- Agree internal approval steps before staff take on extended assignments abroad.
- Document the analysis so you can explain your position if asked.
We assess permanent establishment risk as part of our cross-border tax advisory work.
This article is general information and is not tax advice. Talk to us about your specific circumstances.