Permanent Establishment

A permanent establishment (PE) is a fixed business facility serving the corporate purpose. It is legally a dependent branch of a company which operates under the same name. The establishment of a PE leads to tax implications. In particular, local tax authorities obtain the right to tax the profits of this branch. Therefore, companies should try to avoid establishing a permanent establishment abroad. The existence of a permanent establishment is determined on the basis of certain criteria set by local authorities, which vary from country to country.


  • Corporate tax at 20% to 35%
  • Administrative obligations exceeding € 50.000
  • Penalties and interest
  • Brand damage


An employee working abroad may constitute a so-called Permanent Establishment (PE) in the destination country. Constituting a PE triggers a local corporate tax liability. This liability has a monetary and an administrative aspect. The monetary aspect is that the profit attributable to the PE is taxable in the destination country. Whether the practical financial consequences are limited or rather significant, depends entirely on the circumstances of the case. Regardless of the extent of the financial consequences, constituting a PE comes with a considerable administrative burden. The PE needs to be registered with the local authorities, the local profit has to be attributed and a corporate income tax return needs to be submitted.

Because of these consequences, employers want to prevent their employees who temporarily work from abroad from constituting PE´s.

Given that a PE implies a certain permanency - it is the name after all - managing the PE risks of temporary work from abroad should be possible. The WorkFlex compliance logic helps employers with this, not only by flagging potentially risky employee requests but also by providing mitigating measures such as employee instructions. This risk dimension is included under the no-risk concept.

Remote Work Compliance Handbook

written by lawyers Pieter Manden, Martina Menghi, and Dorothee Schweigard

Download here