Expanding into new markets is an exciting step for any business. Whether you’re hiring international talent, testing a new region, or scaling fast, there’s a lot to gain. But there’s also a hidden risk that catches many companies off guard: Permanent Establishment (PE).
If you’re operating in a country without a registered entity, even unintentionally, you could be exposed to unexpected tax liabilities, compliance issues and legal complications. The good news? These risks are avoidable, with the right support in place from day one.
What Is Permanent Establishment?
Permanent Establishment is a tax concept that applies when a company has a significant presence in a foreign country, whether through employees, sales activity, or fixed assets, without having officially registered a local entity.
If local authorities determine that you’ve created a permanent establishment, your business may be liable to:
- Corporate income tax in that country
- Backdated tax obligations, interest and penalties
- Local employer contributions and payroll registrations
- Increased scrutiny from tax authorities
PE risk can arise even without a physical office. Something as simple as hiring a remote employee, running a long-term project, or engaging a local contractor could trigger tax residency in the eyes of a foreign government.
The Real-World Risks of Getting It Wrong
The problem isn’t just a financial one. An unexpected PE assessment can disrupt your expansion plans, damage your reputation, or even force your hand into rushing to retroactively register and comply.
Companies that fail to manage their international presence carefully run the risk of facing:
- Fines and enforcement action
- Delays to hiring or project delivery
- Reputational damage in local markets
- Time-consuming legal and tax disputes
Expanding without the right structure can, in many ways, open a regulatory can of worms if you aren’t careful.
Why You Need Expert Entity Support
Setting up and managing legal entities across different countries is complex, even for the most experienced HR professionals. You’ll need to:
- Choose the right entity type for your goals
- Register for corporation tax, payroll and social security
- Stay on top of local reporting and governance obligations
- Run a compliant payroll that meets country-specific requirements
- Navigate local HR expectations, from employment contracts to benefits
Doing all this in-house, especially across multiple countries, can drain your internal resources and create unnecessary risk. Why not leave that to the professionals?
How Leap29 Makes It Simple
Leap29 combines a global perspective with local expertise to guide you through the entire entity setup process. We offer tailored solutions for all situations, so whether you need help establishing a new entity or managing an existing one, our services and expertise will guide you through the process.
From tax and payroll to employment law and HR, Leap29’s compliance-first approach ensures your operations are fully aligned with local requirements. Working with a dedicated adviser, we’ll recommend the right structure for your company, spot risks early and handle every detail, so you can focus on growing your business.
With over 25 years’ experience helping companies expand into new markets, we know how to set you up for success without the stress.
Don’t Let PE Risk Derail Your Global Plans
If you’re hiring internationally or expanding into new markets, don’t leave compliance to chance. Get the structure right from day one with Leap29’s Entity Services.
Call us today on +44 (0) 20 8129 6860 or email expansion@leap29.com.
Leap29 makes global expansion straightforward and permanent establishment risk one less thing to worry about.
