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Explanation of What Creates a Permanent Establishment (PE)

Any activity carried out by a business in a country that results in revenue being generated or value created is likely to be deemed by local tax authorities as a permanent establishment, or “PE.” Local tax authorities will in turn assess corporate tax on deemed revenue arising in-country. In most countries, in order to recognize a PE — or a taxable presence — the revenue-generating entity needs to be formally registered under some corporate identity, typically a branch, representative office or subsidiary.

Hiring Independent Contractors Abroad

Employment laws in foreign countries are often complex and are typically designed to protect the worker, not the employer, so extreme care should be taken when hiring independent contractors (aka “service contractors” or “self-employed contractors”). An independent contractor may later be deemed an employee by the host-country authorities during or after engagement, leading to substantial employer penalties and reputational damage which far exceed the cost of employment.

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