Permanent establishment

A permanent establishment is the bridge between doing business in a country and being taxed there as a foreign enterprise. Under the OECD Model, the starting point is a fixed place of business through which the enterprise carries on business. A branch, workshop, office, or place of management is easier to recognise than a distributed remote team, but the question is always factual.

There is a second common route: people. If a person in the country habitually concludes contracts for the foreign business, or habitually plays the principal role leading to contracts that are routinely approved without material change, the company may have a dependent-agent PE. Independent agents acting in the ordinary course of their own business are treated differently. Preparatory or auxiliary activities may also receive a limited exception.

PE is not a label that applies to every overseas employee. A temporary stay, a home office used mainly for the worker's convenience, and a person without meaningful authority can produce a different result. But simplistic “remote work never creates a PE” advice is unsafe. Local domestic law can be wider than the treaty position, and a treaty only helps where both countries and the taxpayer qualify for it.

If a PE exists, the country normally taxes profits attributable to it, not necessarily the whole company's profit. That still means registration, local accounts, transfer-pricing analysis, payroll review, and often penalties if discovered late. Before a founder relocates or hires cross-border, write down where management happens, who contracts with customers, what space is available to the business, and whether a treaty applies.