Permanent Establishment

What is Permanent Establishment?

Permanent Establishment (PE) is a legal and tax concept that determines whether a foreign company is considered to have a taxable presence in another country.

If your company hires workers, signs contracts, or generates income in a country without a legal entity, you could unknowingly trigger a PE — making your company liable for corporate taxes, audits, and compliance obligations in that jurisdiction.

How Permanent Establishment Works

Each country has its own PE rules (often based on OECD standards), but common triggers include:

• Hiring full-time employees locally

• Giving contractors long-term assignments with managerial control

• Having sales agents or reps who close deals on your behalf

• Using local offices, warehouses, or coworking spaces as “fixed presence”

• Exceeding a time or revenue threshold in one country

For example:

• In Germany, PE can be triggered if a contractor works long-term for you without clear independence.

• In India, signing client contracts locally via a sales rep can create a PE.

SigmaRemote helps companies identify PE risks early and recommend EOR or CoR models to prevent exposure.

Why Permanent Establishment Matters

If you create a PE without realizing it, the consequences can be serious:

• ❌ Corporate income tax in the host country

• ❌ Fines for late or missing tax filings

• ❌ Ineligibility for tax treaties or local business advantages

• ❌ Investigation of your entire team structure and past activity

For startups and remote-first teams hiring globally, PE is the #1 hidden risk when expanding without legal or tax infrastructure.

Example Use Case

A U.S. SaaS company hires three engineers in Mexico on long-term contracts and gives them company email addresses, fixed working hours, and local client-facing tasks.
Mexico's tax authority audits the team and determines the company has created a Permanent Establishment, requiring back taxes and legal filings.
By switching to SigmaRemote’s EOR model, the risk is resolved and payroll remains compliant.

Related Glossary Terms

• Cross-Border Compliance

• Employer of Record (EOR)

• Contractor Classification

• CoR vs EOR

• Global Payroll

Explore More

📘 [How SigmaRemote prevents PE risk for remote teams →]
📘 [Permanent establishment vs local entity: what’s the difference? →]
📘 [Scaling into LATAM without triggering taxes →]