What is Permanent Establishment Risk?

While global expansion is exciting, it comes with exposure to compliance risks. One of the most overlooked risks for all companies is Permanent Establishment (PE) Risk.

Permanent Establishment (PE) comes under international tax law that determines whether a foreign company is liable to pay corporate tax in a country where it has significant operations. A company may be taxed under PE even without physical presence, depending on how it operates. 

Usually, foreign firms opt for an Employer of Record (EOR) to ensure compliance and avoid PE Risk.

Types of Permanent Establishment

1. Fixed Place PE
2. Dependent agent PE
3. Service PE
4. Agency PE
5. Digital or Virtual PE

Why PE Risk Assessment is Critical for Foreign Companies Hiring in India

If your company is considered to have a Permanent Establishment in India, you could be subject to:

• Corporate Income Tax on Indian-source revenue
• Back taxes and penalties (including interest)
• Audits by Indian tax authorities
• Legal issues and damage to your company's international reputation

It is to be noted that even a single employee can trigger the risk of PE, especially if they work long-term, interact with Indian clients, or contract on your company's behalf, which also includes deal negotiation with clients.