Introduction
The global business environment grants endless opportunities for companies looking to expand their brand into different markets. But foreign market transition can be cumbersome and risky. The threshold for creating a Permanent Establishment (PE) is a test contained in most domestic tax laws and double tax treaties, and it is used to determine whether a business has enough activities in another country to create a taxable presence. These activities are subject to scrutiny by tax authorities, making it critical for a company to understand the consequences of triggering a Permanent Establishment.
Companies that outsource to a Global Professional Employer Organization (PEO) alleviate the tax and legal compliance issues that are triggered when creating a Permanent Establishment. By specializing in international employer-employee relations and possessing a stable legal presence in nearly all international markets, a Global PEO will handle salary remunerations, benefits administration, and tax withholding in compliance with the local country’s legal mandate. By acting as the “Employer of Record”, a Global PEO ensures that every business activity meets the compliance standards and provides legal means by which a company reports taxes and is recognized in the host country. This allows a company to maintain its global presence without the fear of fines or penalties.
Companies using a Global PEO effectively streamline international expansion plans while ensuring tax and legal compliance. Throughout this report, we will analyze and evaluate the effects of triggering PE in a foreign country and consider several ways to mitigate the risk.