Permanent Establishment is a taxable presence in another country that gives the source state the right to tax part of a foreign enterprise's business profits.
A Permanent Establishment (PE) is the threshold concept that decides whether a foreign enterprise has enough presence in a country for that country to tax its business profits. Article 5 of the OECD Model defines PE as a fixed place of business through which the business of an enterprise is wholly or partly carried on. Common forms are a branch, office, factory, workshop, mine, or project site.
Once a PE exists, the host country can tax the profits attributable to it under the Authorised OECD Approach (AOA), which treats the PE as a hypothetical separate enterprise. Compliance involves PE-specific bookkeeping, transfer-pricing analysis, and corporate tax filings in the host country.
You will face PE risk when sales staff travel and close deals abroad, when remote employees work permanently from another country, when a project crosses construction or installation thresholds, when warehouses or fulfilment centres are used, and during M&A diligence where unidentified PEs surface as historic tax liabilities.
See what a company actually costs in year one, and how the jurisdictions compare on tax, capital and timeline.
