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As an employer operating in multiple countries, you’ve probably got a lot on your plate, from managing your team to running the day-to-day operations, there’s always something demanding your attention. But there’s one thing you don’t want to overlook, permanent establishment risk. 

What is a permanent establishment risk?

Permanent establishment risk is like a red flag for companies operating in a foreign country. It’s when a business is seen as having a fixed place of operation in another country, even if there is no physical office there. This can cause tax and legal headaches that you want to avoid. 

What do you need to do to avoid permanent establishment risk?

As the employer it’s your responsibility to check what steps you can take to avoid getting in trouble for a permanent establishment. These are some of the things you can do to mitigate the risk:  

Understanding the rules of the country 

Each country has its own rules and thresholds for what could be considered a permanent establishment. Make sure you’re familiar with the regulations in any country where your employees might be working remotely or where you have significant business activities. 

Checking your teams remote work locations 

With the rise of remote work, it’s easier than ever for employees to work from different locations. While this can be convenient, it can also trigger permanent establishment risk if you’re not careful. Keep track of where your employees are working from and consider setting guidelines for remote work to minimize any potential issues. 

Figuring out your international business activities  

If you do business in other countries, be mindful of the activities your company is conducting there. Engaging in certain types of activities, like signing contracts or attending trade shows, could increase your risk of permanent establishment. Limit these activities where possible or consider alternative approaches, like using local partners or distributors. 

Reviewing your contracts  

 When entering into contracts with clients or partners in other countries, pay close attention to the language about where the work will be performed. Even if your employees are working remotely, if the contract specifies that the work will be done in another country, it could increase permanent establishment risk. 

Documenting everything – and we mean everything!  

Keep detailed records of where your employees are working, the nature of any business activities conducted in other countries, and any contracts or agreements that could affect your permanent establishment risk. Having this documentation on hand can help protect your company in case of an audit or dispute. 

Staying informed about permanent establishment regulations

It is your business’s responsibility to keep yourself updated on changes to permanent establishment rules and regulations in any countries where you do business.  

Seeking professional advice on permanent establishment risk

Permanent establishment rules can be complicated and vary from country to country. If you’re unsure about your risk exposure, consider seeking advice from a tax or legal professional with experience in international business. We offer international payroll services which can help you ensure that you are following all the local regulations.  

Get in touch with us today to see how we can help!