What is Permanent Establishment Risk?
Author : Orbtrak AKM | Published On : 26 Sep 2025
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.
Companies usually opt for an Employer of Record (EOR) to ensure compliance and prevent such risks while hiring remotely from India.
What is Permanent Establishment?
Permanent Establishment (PE) is a principle in international tax law that determines whether a foreign company is liable to pay corporate tax in a country where it has significant operations — even without a registered office or local entity.
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.
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
In many cases, simply hiring a full-time remote employee in India can trigger the risk, especially if they're involved in sales, client interactions or technical delivery.
Real Scenario: How PE Risk Happens
Example: A U.S.-based SaaS startup hires a senior engineer in India to work remotely. Over time, that employee:
- Joins client calls
- Delivers product demos
- Helps negotiate integration scopes
To Indian tax regulators, this setup could resemble a dependent agent PE. Without an entity, your company might now owe corporate tax in India — and you didn’t even realize it.
Source: https://www.orbtrak.com/insights/what-is-permanent-establishment-risk
