In an increasingly connected world, sending employees across borders is now business as usual. But with this mobility comes an often overlooked, and potentially costly, challenge: Permanent Establishment (PE) risk.

For global mobility professionals tasked with ensuring compliant cross-border workforce moves, understanding PE risk and knowing when to seek professional advice, is crucial.

So, we’re here to help you break it down.

What is a Permanent Establishment?

Permanent Establishment is a key principle in international taxation and found in most double taxation treaties (DTTs). In simple terms, it defines when a company’s presence in a foreign country becomes significant enough for that country to tax part of the company’s profits.

Some examples of what can create a PE:

• There is a fixed place of business abroad (e.g., an office, branch, or project site).
• A dependent agent in that country has authority to conclude contracts on behalf of the company.
• Construction projects that run longer than a certain threshold (often 6 to 12 months).

Think of PE as crossing an invisible line. A company sends people abroad to do business - whether that’s for a project, client support, or even a secondment - and suddenly, the host country might decide, you’re not just visiting anymore; you’re doing business here.

Even remote work arrangements could raise PE concerns if an employee’s home abroad effectively becomes a base of business operations.

In an ideal world what constitutes a PE would be straightforward, however every country can interpret PE rules slightly different, and whilst DTTs help, they are not all identical.

Why does it matter?

Once a PE is deemed to exist, not only does the host country have the right to tax the profits attributable to that establishment, which includes the potential for double taxation, but it can also trigger payroll compliance, reporting/administrative obligations, and potentially reputational headaches, fines, and penalties for non-compliance.

How to manage Permanent Establishment risk

Global mobility professionals are a company’s first line of defence against establishing an inadvertent PE and can play a key role in mitigating the risk:

• Track employee travel and day count carefully: Business trips and remote working arrangements matter just as much as long-term assignments.
• Collaborate with tax and finance teams early: Mobility shouldn’t sit in a silo - flag potential risks before they escalate.
• Understand the purpose of trips: It is often what the employee is doing on their trip that can have the biggest impact.
• Educate managers: They need to understand that sending someone abroad “just for a few months” might trigger bigger obligations than expected.
• Document everything: Clear and traceable records help show intent and activity if tax authorities come knocking.

Why Permanent Establishment risk should be on every mobility leader’s radar

Permanent Establishment is one of those topics that doesn’t sound glamorous, but it has a huge impact on businesses. In today’s mobile world, PE risk is no longer just a tax department issue - it’s a mobility issue too.

For global mobility professionals, understanding the basics and being able to flag potential risks, and knowing when to seek professional advice in the host location, is invaluable. It is about protecting the company from unexpected costs, keeping employees compliant, and showing the strategic value mobility brings to the table.