PE risk is a corporate tax issue created by where people work and what they do. When employees operate in a country, their activities can create a permanent establishment for the company there. The thresholds are defined in domestic law and tax treaties. Once crossed, the company must file corporate tax returns and pay tax on profits attributed to that country.
What Creates a Permanent Establishment
The classic triggers are a fixed place of business and a dependent agent. A fixed place can include an office, and in some rulings, a long-term home office. A dependent agent is someone who habitually negotiates or concludes contracts in the company's name. Construction and service projects can also create a PE once they exceed treaty time limits.
Roles That Carry the Most Risk
Sales roles deserve the most attention. A remote developer doing internal work rarely creates a PE. A sales representative closing deals or a country manager making significant local decisions often does. Risk grows with seniority and authority to bind the company.
Managing PE Risk
Using an Employer of Record addresses employment compliance, but it does not remove PE risk on its own. What the employee actually does still matters. Review revenue-generating roles with tax advisers before hiring, and review again when duties change.