Do I Have a Permanent Establishment?

"Does my CEO being in another country create a risk?" is one of the most common questions we get, usually asked in a hopeful tone that invites a no.

But it can, yeah. A permanent establishment (PE) is a taxable presence your company creates in a country without incorporating there. If people are doing real, ongoing work for your business, some of your profit may be taxable. Entity or no entity. Most advisors will help you argue one doesn't exist. Sometimes the 200IQ move is to admit it does and use it.

What a permanent establishment actually is

The formal definition, from the OECD Model Tax Convention on which most tax treaties are based, is "a fixed place of business through which the business of an enterprise is wholly or partly carried on". Once one exists, that country can tax the profit attributable to it, and your company has to file somewhere it has no entity. It catches companies out every time.

Though if you're not profitable, what’s the problem? Yes, it sounds like a reason to ignore this, but it’s also the window where a PE can work in your favour (more on that below).

Types of permanent establishment

Treaties vary, but the types of permanent establishment are:

• Fixed place of business - an office, branch, or even a co-working desk your team uses with some permanence. The newest wrinkle is the home office: since the OECD's November 2025 update, an employee working from home a m
• ajority of their time can, in some cases, count as one.
• Dependent agent - someone in-country who habitually closes deals for you, or plays the principal role in getting them closed.
• Construction site - building or installation projects, typically once they run past 12 months.

For a startup, it's almost always the first two: a founder running the company from a country the business isn't incorporated in, or a first sales hire abroad signing customers before anyone's thought about structure.

There’s one exception(Article 5(4)): background work that just supports the business, such as storage, research, or prep, doesn't create a PE. So a desk someone uses now and then, or a hire doing groundwork rather than closing deals, doesn't automatically count.

The move most advisors won't suggest

The standard advice is defensive: fly back for board meetings, keep signing authority in the right country, document everything, minimise the footprint. Sensible enough, but you're spending energy proving something isn't there when it kind of is.

There's a different way to think about it. If your founder is going to be in that country for the long haul, and the entity is still loss-making, you can register the PE now and start banking those losses. In many countries, they carry forward, so when the business turns profitable, they're sitting there waiting to offset the tax bill. A compliance headache becomes something genuinely useful.

It's a judgment call though; it depends on the countries involved, the treaty's terms, and where your business is headed. But it's a conversation worth having, rather than discovering the question when an audit or diligence team asks why the CEO's LinkedIn says Berlin and the group structure says France.