What is a Permanent Establishment?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 17 August 2019
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Also known as a fixed place of business, a permanent establishment (PE) is a location that serves as the ongoing site of a business operation. This type of designation is often important to properly assessing business taxes and reporting those taxes to local and national tax agencies. The criteria for qualifying as a permanent establishment will vary from one jurisdiction to another, although there are a few core qualifications that ten to apply in just about every setting.

One of the basic qualifications is that the permanent establishment is engaged in some sort of business activity that is related to the purpose of the company. This is rather broad criteria that requires that even if the location in question is not the actual site of the operation, it must serve a purpose that is in support of that activity. For example, if the site in question is a warehouse owned by a company and used to store raw materials that are used in the business operation, it is likely to meet the criteria for a permanent establishment in many jurisdictions.


If the location in question is the actual site that the company uses to engage customers in transactions, the site is considered a permanent establishment. This means that the location of a retail store in a building that is owned by the company would be designated as a PE. In like manner, a business that provides some sort of services to consumers and manages the billing and receipt of payments at the site would also meet the broad definition of a permanent establishment.

A wide range of business settings will normally fall under the category of a permanent establishment. In addition to warehouses or facilities that manage the delivery and process payments related to different services, settings such as a manufacturing plant, a branch of a financial institution, or even a site in which natural resources are extracted for use in the core business would be considered a fixed place of business. As long as the activity at the site wholly or in part involves the operation of the business enterprise, it is likely to qualify as a permanent establishment.

Since permanent establishment rules vary from one jurisdiction to the next, it is important to make sure the site complies with governmental regulations before attempting to claim this status on a tax return. Doing so makes it possible to utilize the correct tax schedule in calculating the amount of the tax debt that is owed, as well as laying claim to any deductions for PE locations that may be offered currently. In situations that involved multi-national locations associated with the same business, international laws regarding fixed places of business will often provide the basis for calculating international taxes as well as guidelines for complying with any additional tax laws related to the area in which the establishment is located.


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