FlagSagePermanent establishment
Glossary term
A permanent establishment is a fixed place of business, or in some cases a dependent agent, through which a business from one country operates in another, and under a tax treaty it lets that other country tax the profits attributable to it.
HMRC guidance describes a permanent establishment as a fixed place of business through which the business of an enterprise is wholly or partly carried on. Branches, offices and factories are included. Some treaties also cover building or construction sites that last longer than a set period, and certain preparatory or auxiliary activities are excluded.
An agent who has, and habitually uses, authority to conclude contracts for a business can also create a permanent establishment. Independent agents acting in the ordinary course of their own business do not. A subsidiary is not a permanent establishment of its parent just because it is a subsidiary.
IRS Publication 901 notes that under several US treaties, business profits of a resident of the treaty country are exempt from US income tax unless there is a permanent establishment in the United States, and then the profit attributable to it is taxed. Exact meanings vary by treaty.
Not to be confused with
- Place of effective management. The place of effective management concerns where a company is resident, while a permanent establishment concerns taxable presence in another country.
- Controlled foreign company. A controlled foreign company is a separate company abroad, while a permanent establishment is part of the same business operating abroad.
Sources
- INTM153060 - Description of double taxation agreements: Permanent establishmentOfficial guidance
- Publication 901 (09/2024), U.S. Tax TreatiesOfficial guidance
Related
- Countries covered
- General
- Sources
- 2 sources
- Tax year
- Current rules as checked
- Review
- Not professionally reviewed
Sources checked November 8, 2026