Permanent establishment risk starts with where a business actually operates. A foreign incorporation certificate is only one part of the picture. Before placing staff, premises or commercial activity in another country, investors should assess the tax consequences of that operating model.
By Avv. Daniele Bertaggia. Sources checked on 30 September 2026. This international overview uses OECD guidance and identified UK examples. A country-specific conclusion requires the applicable law, treaty and actual facts.
What is a permanent establishment?
The familiar treaty starting point is a fixed place through which an enterprise conducts all or part of its business. Offices and factories are common examples. Agency arrangements can also matter, and exceptions may apply to preparatory or auxiliary activities. HMRC’s treaty overview explains these concepts while stressing that the analysis is technical. A subsidiary does not become its parent’s permanent establishment merely because the parent owns it. Source: HMRC INTM153060.
For an investor, the practical question is therefore broader than “Where did we register?” Ask where the work happens, which premises the enterprise uses, who develops and concludes business, and how long those arrangements last.
Read the applicable treaty before relying on a general rule
The OECD Model provides a framework for tax treaties; it is not itself a bilateral treaty granting your company an exemption. Check the agreement between the relevant countries, its eligibility conditions, amendments and effective dates. Domestic law must also be considered. Source: OECD Model Tax Convention overview.
A useful written assessment identifies the actual provisions being applied. It should also explain the facts on which its conclusion depends. Generic assurances about “offshore companies” or a foreign registered address do not provide that analysis.
Remote work and permanent establishment: the current OECD guidance
The 2025 OECD update explains that working from a home abroad does not automatically make it an enterprise’s place of business. In the circumstances addressed by the guidance, use for less than 50% of total working time for that enterprise over a relevant twelve-month period would generally not do so. The period is one commencing or ending in the fiscal year concerned. At or above 50%, the facts still matter, including commercial reasons for the location. It is not an automatic taxable-presence threshold.
The guidance treats a person conducting most or all of their own enterprise differently from an ordinary remote employee. It also relies on actual conduct. The percentage must not be presented as a universal exemption from every domestic or treaty rule. Source: OECD 2025 Update, Article 5 Commentary, paragraphs 44.1–44.20.
Sales activity requires a separate review
Do not assume that an absence of leased premises settles the issue. HMRC’s guidance distinguishes a fixed-place analysis from a dependent-agent analysis and explains the relevant model provisions. It also describes the role of independent agents and exceptions. The precise wording applicable to your arrangement must be checked rather than inferred from the label “consultant” or “sales representative”. Source: HMRC INTM264300.
Prepare a realistic account of the sales process: who approaches customers, negotiates the terms, approves departures from standard contracts and signs. Explain whether approval elsewhere changes the bargain in substance. Written authority and daily practice should be reviewed together.
Tax residence is a different question
A permanent establishment review should not replace a company-residence review. As a UK example, HMRC’s guidance on central management and control examines where real control is exercised, including situations where formally appointed directors stand aside. This is a distinct enquiry into residence, not merely a search for an overseas office. Source: HMRC INTM120060.
For planning purposes, commission separate conclusions on company residence, any taxable presence abroad, and the owners’ personal position. Also ask advisers to review payroll, social security, VAT and local registration duties under their own rules. A conclusion on one issue should not be reused as an answer to all the others.
What happens if a permanent establishment exists?
Under the treaty business-profits framework described by HMRC, the other state may tax the profits attributable to the permanent establishment. This does not mean that all worldwide revenue automatically belongs to it. The applicable attribution rules and treaty must be examined. Source: HMRC INTM153080.
The commercial response is to plan compliance and costs before operations expand. Identify who will maintain the records, prepare any required filings and coordinate relief for double taxation where available. Request an estimate based on the actual operating model, rather than comparing headline tax rates alone.
A practical file for international investors
- Operating map: locations, premises, functions and the expected duration of activity.
- People and authority: employment arrangements, mandates and the actual contract-approval process.
- Remote-work record: working locations, time patterns, duties and business reasons.
- Management evidence: how important decisions are genuinely made and implemented.
- Financial model: expected income, costs and the functions performed in each country.
- Review triggers: a new hire, a longer assignment, new premises or a change in sales responsibilities.
These are practical preparation steps, not a universal statutory checklist. Their purpose is to give the relevant advisers a consistent factual basis. Keep the file current when the business changes.
How Studio Legale Bertaggia can assist
Sound international structuring connects legal form with daily operations. Subject to an agreed engagement, the Studio can help map the proposed arrangement, identify the legal questions, review contracts and coordinate the jurisdiction-specific tax advice required. The objective is a documented, workable structure with responsibilities understood before commitments are made.
Avv. Daniele Bertaggia, founder and head of the Studio, leads legal coordination. Gustavo Scriffignano assists with banking and operational matters; Justyna Pisyak coordinates the secretariat. No tax outcome is guaranteed: the assessment depends on the facts and applicable rules.
Read about our international taxation assistance, company formation services and cross-border contract planning. To discuss your project, describe the countries involved, the proposed activity and where management and staff will work.