What is Permanent Establishment Risk?

Amid a new age of global hiring and remote work, companies can dip into talent pools from anywhere in the world— including India, a global leader in tech, finance and engineering.

However, while global expansion is exciting, it comes with exposure to compliance risks – one of the largest(and most overlooked) risks for all companies is Permanent Establishment (PE) Risk.

Usually, companies opt for an Employer of Record (EOR) to handle remote operations such as hiring, onboarding, payroll, etc to avoid the risk of Permanent Risk (PE).

What is Permanent Establishment?

In simple words, the business income is subject to taxation in India if the foreign entity is carrying on a business through a Permanent Establishment in India.

If you’re a company hiring or operating in India in a way that establishes a real and intimate connection between the business of non-residents with the activities performed in India to generate revenue for non-residents and the activities appears to be local and ongoing, the Indian tax authority (CBDT) may deem you to have created a PE—and that makes your company taxable under Indian law.

Types of Permanent Establishment

1. Fixed Place PE
2. Dependent Agent PE
3. Service PE
4. Agency PE
5. Digital or Virtual PE

Why PE Risk Is a Big Deal for Foreign Companies Hiring in India

If your company is considered to have a Permanent Establishment in India, you could be subject to:

• Corporate Income Tax on Indian-source revenue
• Back taxes and penalties (including interest)
• Audits by Indian tax authorities
• Legal issues and damage to your company's international reputation

Helps You Avoid PE Risk

An Employer of Record (EOR) is a third party that legally employs workers on your behalf in foreign countries.

You manage the day-to-day work, but the EOR handles:

• Contracts (locally compliant)
• Payroll and tax withholdings
• Statutory benefits
• Local compliance and labor laws