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.