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A common consideration for international businesses looking to start activities in the UK is whether a permanent establishment (PE) is being created. Having a PE (or nexus) means that an overseas company has created a taxable presence in the UK, and that locally attributable profits are potentially taxable in the UK. A business can be subject to corporate income tax in a jurisdiction, even where they lack a subsidiary or legal entity.

Activities carried out by US employees outside the US can lead to the creation of overseas permanent establishments for tax purposes in other jurisdictions. This is a fairly common issue where sales managers are given a regional remit (e.g. Europe or EMEA) and enter into sales negotiations with customers whilst abroad. 

Examples of just a few other common activities that may result in a PE creation are;

• Having a fixed place of business in the UK including any physical premises whether that be leased, rented, or owned. 
• Place of management.
• Contracts with UK customers being negotiated and signed within the UK.
• The presence of sales staff in the UK, who have the right to conclude contracts.
• Senior staff residing in the UK making management decisions.
• Agent acting on behalf of a foreign enterprise, classified as a ‘dependent agent’.

There can be an assumption that engaging a PEO (Professional Employer Organisation) means that you will not create a PE. The PEO model does not change the underlying business activities of the company, which are the primary factors that determine whether a PE exists. Therefore, it is important for companies to conduct a thorough analysis of their business activities and assess their PE risk before engaging a PEO.

Whether you are testing the market or intending to establish a longer-term presence in the UK/EU/other territories, the tax risk and implications should be considered.

How can we help identify permanent establishments

Our Foreign Direct Investment specialists have supported hundreds of US businesses with international activities, we can work with you to review your operations and proactively identify where potential risks could arise based upon the OECD guidelines, as well as provide our opinion on ways to reduce the risk of permanent establishment.

Most countries adopt a similar approach for defining a PE, 91探花can also support in other jurisdictions via our international network.