What is Permanent establishment?

Permanent establishment

A permanent establishment is a stable presence of a company in a country other than its own that triggers an obligation to pay tax there on the profits attributable to that presence. It can arise without an office: it is enough for an employee to habitually conclude contracts from another country on the company's behalf.

It is the risk that worries legal departments most when someone asks to work from abroad. An engineer is usually harmless; a salesperson negotiating and signing from another country can create a permanent establishment and drag the company into taxation there. That is why many work-from-anywhere policies cap days, countries and functions.

Also called: PE, taxable presence

Related terms

Employer of RecordAn Employer of Record is a company that legally employs a worker in their own country on behalf of another, foreign company. It takes on payroll, social contributions and local labour compliance, while day-to-day work is directed by the client company. It allows hiring in a country without opening a subsidiary there.
Double taxation treatyA double taxation treaty is an agreement between two countries that allocates the right to tax the same income so it is not taxed twice. It determines which country taxes first, which must grant relief or exemption, and provides tie-breaker rules when both consider you tax resident.