A permanent establishment is a permanent location of a business in a jurisdiction other than where the company’s headquarters is located. This means that the company operates in another country through a permanent structure, such as an office, factory or workshop. An employee who is active for the company can also lead to a permanent establishment in another country. The permanent establishment is considered an extension of the parent company and is subject to the tax laws and regulations of the host country.
It is a misconception to think that by hiring employees through a payrolling company in the host country the risk of a permanent establishment can be avoided.It is much more the nature of the activities of the employee that determines whether an activity can lead to a permanent establishment.
Employment through a payrolling company can also create such a permanent establishment if they contribute to the company’s activities in the host country. The fact that they are employed through a payrolling company is not relevant.
Employees of a payrolling company who work exclusively for a company are not independent of that company and hiring through a payrolling company therefore does not exclude the existence of a permanent establishment.
