Permanent Establishment Risk: When Your Presence Creates Tax Obligations

What a permanent establishment is

Permanent establishment (PE) is a treaty concept. It answers one question: when may a country tax the business profits of an enterprise that is resident somewhere else? Article 7(1) of the US–India convention states the default and the exception in one sentence: “The profits of an enterprise of a Contracting state shall be taxable only in that state unless the enterprise carries on business in the other Contracting state through a permanent establishment situated therein.” Business profits stay home unless there is a PE; if there is one, the other country taxes “only so much of them as is attributable to” it.

The definition itself is short. Article 5(1) of the same treaty, which follows the OECD pattern most treaties share: “the term ‘permanent establishment’ means a fixed place of business through which the business of an enterprise is wholly or partly carried on.” Everything else in Article 5 is a list of what counts, what is deemed to count, and what is deemed not to.

Two things about that sentence matter for a solo founder. It is about the enterprise, not the person: a US LLC owned by someone in Bangalore is the enterprise, and the question is where the LLC has a fixed place of business. And it is about a place, not a passport or a day count. The residency rules that decide where the founder pays tax as an individual are a different test, covered in the tax residency guide.

The three doors into a PE

Treaties open a permanent establishment through three routes. Most founders only know the first.

1. A fixed place of business. Article 5(2) of the US–India treaty lists what “includes especially”: a place of management, a branch, an office, a factory, a workshop, a warehouse “in relation to a person providing storage facilities for others”, a store or premises used as a sales outlet, and construction or installation projects over 120 days. An office does not need a lease or a sign. HMRC’s manual on the UK domestic version of the rule (Corporation Tax Act 2010 section 1141) puts the fixed-place limb as “a fixed place of business here through which the business of the company is wholly or partly carried on”, and adds the point that reaches home offices: premises “at its disposal” count “if the parent then carries on its business there”. A spare room from which the LLC’s only person does the LLC’s only work is, on the face of that language, a place at the LLC’s disposal through which its business is carried on.

2. A dependent agent. Article 5(4): a person acting in a country on behalf of the enterprise creates a PE there if that person “has and habitually exercises” authority to conclude contracts on its behalf, or “habitually maintains” a stock of goods from which they regularly deliver, or “habitually secures orders” wholly or almost wholly for the enterprise. For a one-person LLC the agent and the owner are the same person: the founder who signs the LLC’s contracts from their kitchen table is exercising contract authority in the country where the table is. Article 5(5) carves out independent agents (brokers, commission agents) acting in the ordinary course of their business, which is the paragraph a marketplace or a payment processor sits under.

3. Services performed in the country. Some treaties add a service PE. The US–India treaty, Article 5(2)(l), deems a PE where an enterprise furnishes services in a country “through employees or other personnel” for “a period or periods aggregating more than 90 days within any twelve-month period”, or, with no day threshold at all, where “the services are performed within that state for a related enterprise”. Not every treaty has this clause and the day counts differ where it exists. A consultant on a 100-day engagement in India for a US client is in it; a founder invoicing their own LLC from India is, on a literal reading of the related-enterprise limb, in it from day one. Whether an authority applies the clause to a single owner rendering services to the entity they own is not something any published guidance settles, and it is one of the places this guide marks as open.

What does not create one

Article 5(3) lists activities that are deemed not to be a PE even through a fixed place: facilities used “solely for the purpose of storage, display, or occasional delivery of goods”; a stock of goods held solely for storage, display, delivery or processing by another enterprise; a fixed place used solely for purchasing or collecting information; and a fixed place used solely for “advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character”.

The word doing the work is solely. A warehouse that only stores is excluded; a warehouse from which a dependent agent “regularly delivers goods” with “some additional activities” contributing to sales is caught by Article 5(4)(b). Inventory in a fulfilment centre sits between those two paragraphs, and whether a marketplace counts as an independent agent under 5(5) or a dependent one under 5(4) is the live question for FBA sellers. The treaty text supports both readings; the facts of each seller’s arrangement decide.

The 183-day misconception

The number most founders carry around, 183 days, belongs to a different test. It appears in treaty residency tie-breakers and in employment-income articles, and it appears in some service-PE clauses (India uses 90). It is not a general PE threshold. A fixed place of business is a PE on the day it becomes fixed, and a dependent agent creates one on the day the authority is “habitually” exercised, which is a pattern question rather than a count.

Where day counts do apply, they are not calculated the same way. Different countries use calendar year versus rolling twelve months, count or ignore partial days, and let tie-breaker rules override raw counts. Portugal, for example, can treat someone as tax resident under 183 days if they maintain “habitual residence” there. The tie-breaker guide covers the residency side.

Why it cuts both ways for a solo founder

A consultant spending 45 days in the UK, 60 days in Germany and 30 days in Singapore may not trigger a PE in any single country, but the aggregate pattern creates multi-jurisdiction exposure that compounds over time. That is the client-country direction, and it is the one most PE writing is about.

The direction that reaches more of this site’s readers runs the other way: the home country’s claim on the founder’s own US LLC. The LLC’s only fixed place of business is wherever its only person works. Its only contract-signer signs from there. If that country and the US have a treaty, Article 7 lets the home country tax the LLC’s profits attributable to that place; several countries go further and treat a company managed from their territory as resident there outright. The country guides carry the specifics:

• The United Kingdom applies central management and control, so an LLC run from a UK home can be a UK-resident company with a corporation-tax return, on top of HMRC’s opaque treatment of the LLC for the owner. See HMRC and US LLCs.
• Canada applies the same central-management test and treats the LLC as a corporation, with foreign-affiliate reporting whether or not it is resident. See CRA and US LLCs.
• India has a place-of-effective-management rule for foreign companies, switched off below a turnover threshold by CBDT circular, and no disregarded-entity concept, so the owner is taxed on accrual regardless. See India tax residency and US LLC income.
• Nigeria’s 2025 tax act, effective 2026, defines a Nigerian company to include one whose central place of management or control is in Nigeria. See US banking and FIRS compliance.

In each case the fact that triggers the rule is the same one: the person who runs the enterprise runs it from home. What differs is whether the country reaches for a PE, for corporate residence, or straight for the owner.

No treaty, no PE shield

Article 7 only protects profits where a treaty exists. Where there is none, each country’s domestic law decides what it taxes, and the PE vocabulary may not appear at all; the US, for instance, asks whether a non-resident is engaged in a US trade or business and whether income is effectively connected, which the non-resident LLC taxation guide walks through. Against the IRS list of income tax treaties in force (reviewed 3 January 2026):

A founder in a no-treaty country is not worse off on the US side, where the LLC’s treatment does not depend on a treaty; they are without the Article 7 ceiling at home, and without a treaty rate on any US-source withholding.

Three founders, three doors

The consultant on site. A Karachi-based developer contracts through her Wyoming LLC and spends fourteen weeks of the year at a client’s Bangalore office. The US–India treaty’s 90-day service clause is the door: the LLC furnishes services in India through its personnel for more than 90 days in twelve months. Profits attributable to that work are within India’s Article 7 reach, whatever the LLC’s own residence.

The SaaS builder at home. A Lisbon resident runs a Delaware LLC from a home office, signs every customer agreement herself, and never travels for work. The client-country direction is empty. The home direction is not: the LLC’s only fixed place of business, and its only contract authority, are in Portugal. Whether Portugal reaches for a PE, for corporate residence, or for the owner directly is a question of Portuguese law, and the answer is not on the US side of the structure at all.

The marketplace seller. An Istanbul-based seller’s LLC keeps inventory in US fulfilment centres. The treaty text offers both the Article 5(3) storage exclusion and the Article 5(4)(b) delivery-plus-additional-activities limb, with the marketplace’s status under 5(5) in between. On the US side the operative question is not PE at all but whether the LLC is engaged in a US trade or business; the Amazon FBA article covers the fact patterns. This is the one of the three where the sources genuinely do not settle it.

What an authority reads

PE is decided on facts, and the facts are documents the founder already produces. Where contracts are signed and by whom. Where the invoices say the work was performed, and where travel records say the person was. Whether the LLC has an address anywhere other than a registered agent. Whether anyone in a country holds authority to bind the LLC, and how often they use it. Whether stock sits in a country and who moves it. The invoice trail article follows one of those documents through two tax systems, and the documentation gap article covers what the file looks like from the other side of the desk.

The pattern that creates exposure is rarely one dramatic fact. It is a spare room, a signature habit and a calendar that, read together by someone whose job is to read them together, describe a fixed place of business.

The structural gap

Most CPAs who serve small business clients have no framework for analysing PE risk. That is a gap in specialisation, not in competence. PE analysis is treaty-by-treaty and fact-by-fact, and it sits outside the scope of domestic tax preparation on both ends of the founder’s structure: the US preparer sees a disregarded entity with foreign-source income, the home preparer sees a foreign company, and neither is asked where the desk is.

Sources

• United States–India Income Tax Convention, Articles 5 and 7 (IRS treaty text; quoted above)
• HMRC International Manual INTM264300, permanent establishment definition, Corporation Tax Act 2010 section 1141
• IRS: United States income tax treaties A to Z (reviewed 3 January 2026)

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