Has your business thought about Permanent Establishments for corporation tax for remote workers?
Chris Denning · April 13th 2023 · read
When deciding to expand activities cross-border, businesses should first consider whether a permanent establishment would be created for corporation tax in the new jurisdiction and what this means for a company’s compliance obligations.
Determining whether a permanent establishment does exist can be tricky. For a UK company, if a permanent establishment was created in an overseas jurisdiction, then the UK company could be subject to local taxes and compliance requirements under that country’s legislation. The same could occur where an overseas business moves its people into the UK.
An impact following the pandemic and hybrid working is the number of employees looking to work remotely. Many businesses are willing to accommodate the global mobility of their workforce but may not have thought about the tax and filing obligations.
One question we are often asked by companies looking to expand into the UK is;
“We are an overseas business employing someone who will be working from home in the UK, does this create a permanent establishment?”
As part of our analysis, we would consider the UK domestic law:
- Is there a place of business, such as premises for example, which is fixed, i.e. a level of permanence at a distinct place, with business being carried on at least partly at that site?
For home workers we could consider whether accommodation was being used as an address for the business (e.g. on business cards), whether the individual conducts in person meetings at the premises, is the individual holding stock samples, etc. These are all examples that could lead to a remote worker creating a permanent establishment.
In lieu of this type of activity, it may be concluded that a remote worker does not create a permanent establishment, especially where there is no connection with the territory other than being the chosen residence of someone who is working for the business. However, we would always recommend seeking advice for your company’s particular circumstances.
- Is there a dependant agent in the UK?
In the UK we are specifically looking at whether an agent has and habitually exercises authority to do business on behalf of a company. This definition can be different in other jurisdictions.
If an overseas business is being centrally managed and controlled in the UK, then the business itself would be UK tax resident and subject to UK corporation tax.
If you are looking to move employees with decision making or contract concluding responsibilities cross-border, please reach out to discuss your options.
- Could activities be considered preparatory or auxiliary?
Where activities could be considered preparatory or auxiliary and not part of a fragmented business operation, then this may not create a UK permanent establishment. It is unlikely this would be relevant for a permanent remote worker.
…and the double tax treaty:
- Should a permanent establishment exist under domestic law, we would also identify whether one exists under the double tax treaty between the overseas country and the UK when analysing the arrangement. This is because the double tax treaty normally takes precedence over domestic law.
In this insight we are focusing on a business moving its people inbound into the UK, however we also advise on UK businesses looking to move outbound into overseas territories. As a member of the Baker Tilly International (BTI) network, which operates across 145 jurisdictions, MHA can support UK businesses with their expansion plans, reviewing the domestic law in the targeted jurisdiction, analysing the arrangement, and supporting with any consequential filings and tax compliance.
It is important to remember if there is no permanent establishment from a corporation tax perspective, the position should be reviewed by employment and VAT specialists to ensure there are no implications across any other taxes.
Get in touch
Tax should never be the driver of business decisions, but we are here to help ensure the tax implications are given full consideration and any compliance obligations understood from the outset. We regularly collaborate with our BTI tax colleagues from across the globe to support any UK outbound expansion with one easy point of contact for your business. For inbound movement, we use a cross-specialism approach in our permanent establishment reviews as standard to give you the full picture from a corporate tax, employment tax, and VAT perspective. Please get in touch to discuss your cross-border expansion plans, and we will be happy to help.