PERMANENT ESTABLISHMENTS
Last updated: June 2026
THE SHORT ANSWER
You risk creating a permanent establishment (let's just call it a PE from now on) and a tax liability on your profits in your customer's country once your presence there goes beyond "occasional". There are three usual triggers:
- a fixed place of business
- people on the ground in the country
- someone who regularly closes deals for you
Of all the cross-border tax issues, this is definitely the one to take seriously. A PE is essentially a taxable presence in another country.
Normally, you're subject to tax in your home country - ie. If you have a UK company, you're going to pay corporate income tax in the UK. Having a PE means you need to pay tax on your profits in the customer country too - leading to registration, filing, paying corporate tax there, and potentially other local and indirect tax issues there too.
PERMANENT ESTABLISHMENTS IN MORE DETAIL
The most likely triggers to create a PE include those below.
01
Fixed place of business
An office, branch, workshop or site that's at your disposal and used to carry on your work. A permanent desk in your customer's office can also count. Having a "place of management" is one to watch out for, as this also creates a PE.
02
Providing services in the country for too long ("Service PE")
Many countries have tax legislation that says that if you've got people performing services in the customer country above a certain time threshold, that can create a PE, even without an office.
03
An agent that closes deals for you ("Agency PE")
If you've got a person in the customer country that habitually concludes contracts in your name, that can create a PE (even if you never set foot in the customer country!). Normally this would be in the case of dependent agents, not independent agents, that represent other customers and perform the work as part of their normal business.
04
A construction or installation site ("Construction PE")
If you've got a construction or installation project, or connected supervisory activities, this can create a PE. It normally depends on the length of time a construction, assembly or installation project exists. This is often extended by a tax treaty.
Things like short visits, scoping trips, purely preparatory or background work, storing goods (sometimes), using a genuinely independent agent that acts for you in their normal line of business. Brief, occasional presence is generally safe - it's fixed or prolonged presence that tips you into a PE.
Creating a PE brings with it a lot of administrative tasks, management effort and registrations, as well as paying tax on your profits in the foreign country.
It's a complex area, so you'll inevitably need local assistance to make sure you've met all your obligations. Given this takes extra time, together with internal and external resources, it's important to know upfront whether you're likely to create a PE - so that you can plan accordingly. You may decide the economics make sense, and price the cost of the PE into your contract, you may decide to open a branch, or you may decide to give the project a miss. Whatever you do, make sure it's an informed decision.
FREQUENTLY ASKED QUESTIONS ABOUT PERMANENT ESTABLISHMENTS
What is a permanent establishment, in the simplest language possible?
It's when you have enough of a presence in a country that they're able to tax your profits there.
How many days abroad before we're creating a PE?
There's no universal number here. It may be 183 days, it could be 91 days, or it could be from day one if you're in the offshore industry. That's why it's so important to check the specific position.
Can one customer abroad or one contract create a PE?
It can, depending on the nature of the activities that you're performing. This is very dependent on what you're doing, and for how long.
What happens if I created a PE but we didn't know?
You can expect that you'll need to get local tax assistance, appoint a representative, have local registration requirements, accounting requirements for the PE, and that you'll need to pay tax on the attributed profits. You can also expect to pay penalties and interest, and that it'll be time intensive to rectify.
When should I get specific advice?
As soon as your activities involve a specific location and local presence, or it's an extended period, you should check the specific PE threshold - ideally before you sign any contracts.