PERMANENT ESTABLISHMENT

Accelerate your business with these expert tips on "Permanent Establishment". Analyse and discover this TIP!

It is about a fixed place of business located in the country. Through which a foreign company or a natural company without residence carries out all or part of its activity. It shall also be understood as a permanent establishment in the country. Where a person, other than an independent agent, acts on behalf of a foreign enterprise and possesses or exercises powers enabling him to conclude acts or contracts which are binding on the enterprise.

It is essential to determine a company's tax liability and the tax regime to which it will be subject.

Requirements for permanent establishment

1.  Existence of a place of business. It must be a physical location that is used for the development of business activity (premises, office, warehouse, etc...).
2. It must be a fixed place of business. The degree of fixity is determined by the length of time the business has been in the permanent establishment, with a minimum of 180 days for it to be considered as such.
3. This is where the company's business must be conducted. In other words, it must be used for the actual conduct of the business.

A permanent establishment is a figure used in the tax field to determine the presence of a company in a country other than that of its tax domicile. This is a branch or centre of operations abroad which, although it has no legal personality of its own, is considered to carry on a business activity in the country in which it is located.

The presence of a permanent establishment can have significant tax implications, as the country in which it is located may impose taxes on the income generated by that establishment. For this reason, it is important for companies operating across borders to understand the requirements and consequences of establishing a permanent establishment in a foreign country.

The characteristics of a permanent establishment include:

• The existence of a fixed place of business, such as an office, a shop or a factory, where the company carries out its activity.
• The company must carry out a business activity there on a regular or periodic basis.
• The company must have the personnel or material means to carry out the activity in the foreign country.

Determining the existence of a permanent establishment is a complex process that can vary depending on the tax laws of each country. For this reason, it is important for companies operating in several countries to work with tax and legal advisors to ensure compliance with tax obligations and avoid potential penalties.

Permanent establishment to set up a new company

A permanent establishment is a concept used in tax law and refers to a continuous physical presence of a company in a country other than that of its tax residence.

If a company wishes to establish a business in a foreign country, it should consider whether its activity can be considered a permanent establishment in that country. If it is found to be, the company will have to comply with the relevant tax obligations in that country.

The creation of a new company in a foreign country may give rise to the existence of a permanent establishment if the company carries out business activities in that country with a certain continuity. For example, if the company has an office or business premises in the country, or if the company's employees work in the country for an extended period of time.

It is important to consider the tax implications of having a permanent establishment in a foreign country, as it can have a significant impact on the company's tax burden. It is therefore recommended to seek legal and tax advice before setting up a business in a foreign country.

Advantages and disadvantages of having a permanent establishment

The advantages and disadvantages of having a permanent establishment for a new company are:

ADVANTAGES:

1. Physical presence: Having a permanent location provides a stronger and more professional image of the company, which can be important in attracting potential customers and partners.
2. Greater control: by having your own space, you have more control over the organisation, the working environment and the use of resources.
3. Stability: Having a permanent establishment provides a sense of stability and security for both owners and employees.
4. Increased storage capacity: Having your own space allows you to have more storage space, which can be important for companies that handle large volumes of inventory.

DISADVANTAGES:

1. High costs: permanent establishment can be costly both in terms of rent or purchase and in terms of maintenance costs, utilities and other associated expenses.
2. Geographical limitations: having a permanent establishment may limit the company's ability to operate in other geographic areas.
3. Less flexibility: Having your own space means you have less flexibility to adapt to changes in the market, in customer demand and in your company's needs.
4. Increased accountability: owners of a permanent establishment are responsible for maintaining the space, complying with applicable regulations and standards, and ensuring that the business is operating in a safe and legal manner.

It is important to consider these advantages and disadvantages when deciding whether or not to have a permanent establishment for a new business, and if so, to select the location and type of space appropriate to the needs of the business.

When is a permanent establishment considered to exist?

A permanent establishment of a company in a country is considered to exist if either of these two conditions is met:

1. Whether there is a head office, branch, office, factory, workshop, warehouse, sales outlet or other similar location in that country.
2. Whether a person acting on behalf of the company has, and habitually exercises, in that country, powers to conclude contracts on behalf of the company.

Practical examples of permanent establishments

Some practical examples of permanent establishments are:

1. A branch of a foreign company in another country: if a company opens an office or premises in another country to carry out its economic activity, it is considered to have a permanent establishment.
2. A representative office: if a company has a representative office in another country to carry out activities such as sales promotion, market research or conducting business negotiations, it will also be considered to have a permanent establishment.
3. A workshop or factory: if a company builds a factory or workshop in another country to produce goods or provide services, it is considered to have a permanent establishment.
4. A warehouse or depot: if a company has a warehouse or depot in another country to store and distribute its products, it is considered to have a permanent establishment.

It is important to note that each country has its own rules and criteria for determining when a company is considered to have a permanent establishment in its territory.