Are You Operating Your Business Globally?

Did you know how quickly you can become taxable overseas?

How quickly you can become subject to taxation on a foreign basis isn’t always entirely clear unless you already have an understanding about how to define Permanent Establishment (PE) as the determining factor in determining your tax obligations.
For many companies, entering into an agreement with consultants or employees working remotely can establish PE in multiple jurisdictions and therefore open them up to potential taxation in multiple countries as well. Tax authorities in every jurisdiction throughout the world have defined what constitutes PE and how they will assess (and tax) foreign companies as soon as they deem the company is "doing business" in their jurisdiction.
Global Importance of Permanent Establishment

Foreign corporations should be taxed on business income based on commonly accepted OECD (Organisation for Economic Co-operation and Development) if they have a "permanent establishment" in the respective country.

A permanent establishment can arise through any of the following: Fixed or permanent business location in a foreign country.

Long-term projects or installations completed for business purposes.

Contracts negotiated and signed by employed agents or agencies.

Some definitions may even encompass home and office or remote working locations.

Why is permanent establishment overlooked by many businesses?

Many businesses overlook Permanent Establishment (PE) risk due to the fact that the incorporation documents usually contain no information regarding PE risks. PE risk develops over time without developing outwardly through normal business operations. Simple mistakes such as "operating on-site for a mere six months" or "using an arm's length transaction to negotiate and not actually create a contract" can unknowingly subject the business to a variety of

Penalties,

Loss of treaty protection,

Tax liabilities, and

Increased scrutiny for compliance.

PE is now clearly a real-world compliance problem and not just a theoretical compliance concern given the increasing ability of international tax authorities to enforce compliance.

How will we assist you with such compliance?

Through our services, we support you in maintaining compliance with UAE laws and regulations. Our compliance approach mirrors that of the international community; however, it differs based on local jurisdiction. We support our clients by identifying hidden risks and ensuring that they are maintaining compliance based on their activities, as well as minimizing any additional exposure to tax. This is done by establishing expectations of our clients' future activities prior to actual exposure, and as a result, establishing a level of confidence in the ability of our clients to remain compliant while minimizing their potential tax liability.

Concluding Statement

Conclusion Permanent Establishment (PE) is not just a terminology related to taxation; it represents the new global economy, providing both exposure and expansion opportunities. The ability to understand PE early gives you more options and power. By ignoring PE, taxing authorities will increase their ability to exercise their power over you. In addition, there is no better way to achieve compliance in a global tax landscape than to prepare yourself properly in advance.

In other words, tax authorities across the globe are looking at whether or not a business has established a physical presence in their jurisdiction.