Permanent establishments and internationally mobile employees

As agile working becomes an embedded feature of modern working life businesses are increasingly allowing employees to live and work from different countries. While this flexibility supports recruitment and retention it can also expose businesses to an under-appreciated risk – the inadvertent creation of a taxable presence in another country (known as a permanent establishment (PE). The threshold for creating a PE can be low particularly where employees spend meaningful time working outside a business' 'home' country.

What is a permanent establishment?

A company will have PE in the UK if it has either:

1. a fixed place of business through which its activities are carried out; or
2. a dependent agent carrying out its business in the UK.

Most countries have similar tests and concepts and as such the risk is relevant both to UK employers sending employees abroad and those seconding employees to the UK.

How do internationally mobile employees create permanent establishments?

A fixed place PE might arise where an employee regularly works from UK premises such as an office or co-working space that has sufficient permanence and where the space is effectively at the employer’s disposal. In practice this test does not require the business' 'name on the door', even a home office could be at an employer's disposal if sufficient business activity is carried out there.

This permanence also does not necessitate long periods in the UK. Whilst an employee contractually allowed to work several months per year in the UK would be more likely to create a PE, an employee spending several days in the UK more than once a year and using the same office space could cumulatively still create a fixed place PE. 

Where there is no fixed place of business, an employee's presence and activities in a jurisdiction can still be sufficient to constitute a PE. A dependent agent PE arises when a person habitually has the authority to carry out the company's business and effectively bind the company into agreements.

Under the Finance Bill 2006 for periods beginning on or after 1 January 2026 (assuming the bill is enacted) this will be extended so an establishment will exist if a person habitually plays the key role in bringing about contracts that the company finalises without meaningful changes. Helpfully it is generally expected that this must be carried out with a degree of repetition and there remains an exemption for activities that are preparatory or auxiliary.

Consequences of a permanent establishment

PE's are subject to corporation tax on the profits attributable to that establishment which can ultimately result in double taxation subject to the terms of any double tax treaty. The existence of a PE can also trigger wider tax and compliance obligations. In the UK these can include the need to operate PAYE withholding if employees are considered to be working for a PE and an obligation to pay employer National Insurance contributions if the company has an office or base in the UK, even if limited business activity is carried on there.

Practical steps

PE risks are no longer a niche concern for large multinationals. With increased mobility, hybrid working and closer HMRC scrutiny, even small and mid-sized businesses can unintentionally create a taxable presence in a different country.

Businesses should take specialist tax advice both in their own jurisdiction and in the jurisdiction their employee intends to work when planning secondments, long-term remote working or recruitment of internationally mobile staff, as early planning can mitigate unexpected tax liabilities.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, January 2026