Permanent establishment is a tax-law concept that determines when a company becomes liable to tax part of its profit in another state. It arises, for example, through a fixed place of business, an office, a workshop or a construction site, if the activity exceeds a period set by the double taxation treaty, which tends to be specified in months. It can also be created by a person who regularly concludes contracts on the company's behalf in that state. Once a permanent establishment arises, registration, bookkeeping for that part of the activity, and the filing of a tax return abroad are added. Companies often only become aware of the risk retrospectively during an audit, by which time penalties have also accrued. For longer contracts abroad, it therefore pays to assess this question before signing the contract.
See also: Branch versus subsidiary, VAT registration abroad, Posting of workers.
