Understanding the Full Scope of Permanent Establishment Regulations

[krispy]

Hi,

I'm seeking more information on the topic of Permanent Establishment (PE) and its implications.

If I am a tax resident of Country A and open an offshore company in Country B, I understand that by law, I must report the ownership of the company in Country B to the authorities in Country A. Additionally, I am required to obtain a tax number in Country A for my company in Country B due to my residency status.

I assume that PE considerations are not limited to corporate tax alone. Are there other obligations or requirements I should be aware of?

Appreciate all help on the topic!

 

[gh0p]

I am sure others will give more specific answers if you provide specific countries that you are interested in.

krispy said:
If I am a tax resident of Country A and open an offshore company in Country B, I understand that by law, I must report the ownership of the company in Country B to the authorities in Country A.
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Yes.

krispy said:
Additionally, I am required to obtain a tax number in Country A for my company in Country B due to my residency status.
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Depends on the country and your overall company structure.

krispy said:
I assume that PE considerations are not limited to corporate tax alone. Are there other obligations or requirements I should be aware of?
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Again very specific to which countries you are speaking of. If the country you are tax resident is very strict there may be rules such as showing some substance behind your offshore company like reason why it is located there (lowering taxes might not be enough), physical offices, potential staff there, potential resident company director and so on. If you manage your company from country A it might get automatically assigned as resident of company A regardless it is in country B for example.

Without specifics it is very hard to give advice because every situation is unique. Some places are good for withdrawing royalties while those same countries might be s**t for dividends and vice versa. Same goes for things like withholding tax which is another thing to look at. I will also say the obvious while you may gain some guidance from here always contact tax professionals & lawyers before doing anything.

Last edited: Jun 4, 2024

 

[krispy]

Appreciate the reply gh0p!

gh0p said:
Depends on the country and your overall company structure.
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The country I'm a tax resident is in EU, and I'd be a sole owner and a director.

gh0p said:
If you manage your company from country A it might get automatically assigned as resident of company A regardless it is in country B for example.
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Exactly, I'm aware of this and would like to know how far reaching the PE rule is in case company in country B get assigned residency of country A where I'm a tax resident. Does it apply only to taxes or other things as well?

For example, my local law (country member of EU) dictates:
- that a director must be employed and what kind of salary he must pay himself (even if company is making 0 profit)
- very strict rules on which things I can expense and how
- that I must timestamp: when I come to work, when I go for lunch, when I go for a break, when I stop working, when I get a business phone call after-hours etc.
- must I follow book keeping rules of country A

If by fulfilling the PE rule my only obligation is to report profits of the company to my home country and paying corporate taxes to them I still think it's a better deal then having to follow local laws and legislation that keep changing drastically and frequently. So it would still be a win in my books.

gh0p said:
I will also say the obvious while you may gain some guidance from here always contact tax professionals & lawyers before doing anything.
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100%, thank you. I'm just preparing myself and want to be aware of things a bit more so I know what things exactly to discuss further and double-check further with a professional. 🙂

 

[gh0p]

krispy said:
Appreciate the reply gh0p!


The country I'm a tax resident is in EU, and I'd be a sole owner and a director.


Exactly, I'm aware of this and would like to know how far reaching the PE rule is in case company in country B get assigned residency of country A where I'm a tax resident. Does it apply only to taxes or other things as well?

For example, my local law (country member of EU) dictates:
- that a director must be employed and what kind of salary he must pay himself (even if company is making 0 profit)
- very strict rules on which things I can expense and how
- that I must timestamp: when I come to work, when I go for lunch, when I go for a break, when I stop working, when I get a business phone call after-hours etc.
- must I follow book keeping rules of country A

If by fulfilling the PE rule my only obligation is to report profits of the company to my home country and paying corporate taxes to them I still think it's a better deal then having to follow local laws and legislation that keep changing drastically and frequently. So it would still be a win in my books.


100%, thank you. I'm just preparing myself and want to be aware of things a bit more so I know what things exactly to discuss further and double-check further with a professional. 🙂
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Depends which EU country it is. Some are more aggressive than others when it comes to that.

If you are operating/managing your company from country A there is high chance it might get assigned tax residence in that country. I would say country Bs rules are just as important. You need accountants and tax lawyers that have experience in both countries. Anything else said is way too vague and generic unless you specify the details.

 

[krispy]

Country A is Slovenia, country B can be whichever country where one can get access to banking. Not sure if these details are enough to draw a rough picture.

Here is some info about Slovenia:
- https://thebanks.eu/countries/Slovenia/taxation
- Slovenia - Corporate - Corporate residence
- Slovenia - Corporate - Group taxation

The laws making owning off-shore companies difficult seem to be in place, they just not enforced. Yet.

 

[JustAnotherNomad]

The company would also have to follow labor laws, so it seems unlikely you would be able to avoid any of this by setting up somewhere else. You will only have more paperwork, as you will have to comply with the laws not of one, but two countries.
Maybe the directory salary requirement thing could be avoided this way, but I'm not sure.
You should ask a Slovenian lawyer to be sure, but I really doubt it would make sense. You would be better off physically moving to another country.

 

[krispy]

JustAnotherNomad said:
The company would also have to follow labor laws
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Thank you, this is the information I was looking for. I wasn't sure if PE applies only to taxes or other things as well.

JustAnotherNomad said:
You should ask a Slovenian lawyer to be sure, but I really doubt it would make sense.
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I thought so, but was in disbelief and wanted to clarify this a bit more before talking to a professional regarding what would make sense.

 

[JustAnotherNomad]

krispy said:
Thank you, this is the information I was looking for. I wasn't sure if PE applies only to taxes or other things as well.
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PE is a tax concept, but you have similar rules for labor laws etc.
The definitions can vary slightly. It can make sense in some cases, such as with crypto or gaming, where it might be easier to get a license from another EU country.
You would have to speak to a lawyer about the details. But I doubt it would be worth the additional overhead.