"Safeguard your business from PE Risks with the help of the EOR. Here is everything you need to know about Permanent Establishment Risk"

1. https://remunance.com/blog/how-to-avoid-permanent-establishment-risk-in-india/
How to avoid permanent establishment risk in India?
"Safeguard your business from PE Risks with the help of the EOR. Here is
everything you need to know about Permanent Establishment Risk"
Introduction
As businesses decide on global expansion using remote
workforce from another country, they face a host of
challenges, and among the foremost issues or concerns is
the risk of Permanent Establishment (PE). A permanent
Establishment takes place when a company becomes subject
to taxation in a jurisdiction of a different country due
to a substantial presence or activity within that
territory.
This may impact the companies engaged in cross-border
operations. However, the Employer of Record (EOR) model
emerges as a strategic solution to mitigate the risks
associated with Permanent Establishment, particularly
when viewed through the lens of the Indian business
landscape.
Understanding Permanent Establishment
Before delving into the protective role of the Employer
of Record, it’s crucial to comprehend the concept of
Permanent Establishment and the potential implications
for businesses.
What is a Permanent Establishment (PE) in India?
A Permanent Establishment (PE) in India signifies a
fixed place of business through which a foreign company
conducts its operations within the country. As companies
traverse borders, the establishment of PE triggers many
legal, financial, and operational considerations.

2. Circumstances where the term “Permanent
Establishment” gets considered:
● A place of management
● A branch
● An office
● A factory
● A workshop
● A mine, an oil or gas well, a quarry, or any other
place of extraction of natural resources
What are the main categories for PE
consideration in India?
● Fixed Permanent Establishment
● Agency Permanent Establishment
● Service Permanent Establishment
Fixed Permanent Establishment:
Within the realm of business, a Fixed Permanent
Establishment denotes the establishment of a dedicated
physical presence, akin to a steadfast office or
facility. This instigates a tangible business footprint,
thereby rendering a foreign entity subject to the
intricacies of local tax regulations and compliance.
Agency Permanent Establishment:
Under the umbrella of B2B transactions, the concept of
Agency Permanent Establishment manifests as the
strategic utilization of representatives in foreign

3. territories. In this scenario, the operational
activities of the appointed agent intertwine with those
of the foreign entity, potentially instigating
consequential tax obligations within the jurisdiction of
the agent’s operations.
Service Permanent Establishment:
Within the sophisticated landscape of business
interactions, a Service Permanent Establishment
transpires when a non-resident entity extends its
services into a specific jurisdiction. This, in turn,
establishes a discernible taxable presence, obligating
the entity to adhere to the nuanced tax statutes
governing service-oriented business transactions within
that particular business terrain.
What Are The Consequences of Permanent
Establishment in India?
Understanding the consequences of Permanent
Establishment in India is pivotal for foreign companies
eyeing expansion. The establishment of PE renders
foreign companies subject to Indian tax regulations,
including corporate income tax, payroll taxes, and
adherence to local labor laws. The financial
implications are substantial, but the repercussions
extend beyond mere monetary considerations.

4. Financial Implications:
Foreign companies with PE must comply with Indian tax
laws, leading to additional financial burdens. Corporate
income tax becomes applicable on profits attributable to
the Indian PE, impacting the overall profitability of
the foreign entity. Moreover, payroll taxes and social
security contributions further contribute to the
financial strain.
Legal Ramifications:
The legal ramifications of PE are multifaceted and
demand meticulous attention. Non-compliance with Indian
labor laws and regulations can lead to penalties,
audits, and legal proceedings. The complexities of
India’s legal landscape pose a significant challenge for

5. foreign companies attempting to navigate the intricate
web of regulations across different states.
Operational Challenges:
Establishing PE in India introduces financial and legal
complexities and operational challenges. The need to
manage local operations, human resources, and regulatory
compliance can divert focus from core business
activities. This can impede operational efficiency and
hinder the seamless integration of the foreign entity
into the Indian market.
When is the Act of Permanent Establishment
Considered?
Determining when the act of Permanent Establishment is
considered in India involves evaluating the presence and
activities of a foreign company within the country.
Factors such as a fixed place of business, duration of
activities, and the nature of operations contribute to
the assessment. Understanding these criteria is
essential for companies engaged in cross-border
operations to navigate the complexities of Indian tax
laws.
Since the start of 2023, Indian tax authorities have
been proactively implementing measures to monitor

6. international business establishments operating in the
country.
In May 2023, the tax authorities, citing a draft order,
attributed an income of approximately INR 552.5 million
(US$6.73 million) to Netflix’s permanent establishment
in India for the assessment year 2021-22.
Tax Nexus
The term “Tax Nexus” denotes an instance in which an
organization conducts business in a state or nation
other than its principal place of operation. The
business is subject to sales, income, or other tax
rules, depending on the title or function of the remote
worker.
What Is The Correlation Between Permanent
Establishment and Tax Nexus?

7. Tax nexus and Permanent Establishment are related since
having a permanent establishment in a certain
jurisdiction frequently results in a foreign entity
having a tax nexus there as well. A foreign business is
considered to have an adequate relationship, or nexus,
with a nation if it maintains a permanent establishment
there. This enables the government to tax the income
that is attributable to the establishment. The idea of
permanent establishment ensures that multinational
corporations pay taxes in the countries where they have
a significant commercial presence, preventing them
from moving profits elsewhere. In conclusion, a
permanent establishment is a particular component of tax
nexus that deals with a fixed and permanent presence in
the context of international taxes, whereas tax nexus is
a more general term that refers to the connection
between a taxpayer and a taxing jurisdiction. The host

8. nation has the right to tax the income related to the
permanent establishment in the event of its existence,
creating a tax nexus.
EOR services are here to handle your taxes, which is a
smart move. EOR services assist you in staying secure by
providing you with expert knowledge of taxes,
legislation, and duties.
How EOR Can Save You from PE Risk?
The Employer of Record (EOR) model emerges as a
strategic solution and significantly saves foreign
companies from Permanent Establishment risk in India.
Legal Structure and Compliance:
One primary way the EOR protects foreign companies is by
assuming responsibility for legal compliance. Instead of
the foreign company directly engaging with the Indian
workforce, the EOR becomes the legal employer.
This prevents the establishment of a physical presence
that could trigger Permanent Establishment, as the EOR
is responsible for local compliance.
Tax Implications:
Navigating the intricate tax landscape in India is a
significant challenge for foreign companies. The EOR,
being the employer, takes on the responsibility of
complying with Indian TDS provisions. This includes
withholding and remitting payroll taxes, filing TDS
returns, and ensuring adherence to applicable
regulations. By doing so, the EOR confirms to the
foreign companies about being compliant in India and

9. thereby provides a streamlined and compliant approach to
global expansion.
Flexibility in Workforce Management:
The EOR model offers flexibility in managing a global
workforce for foreign companies operating in India.
Engaging in international projects, hiring talent in
different Indian states, and adapting to market demands
become seamless. The EOR manages the administrative
complexities of hiring, onboarding, and payroll
processing, allowing foreign companies to focus on core
business activities without the need to establish a
physical presence in each jurisdiction.
Mitigating Legal Risks:
The legal landscape surrounding international employment
in India is intricate. Partnering with an EOR allows
foreign companies to leverage the expertise of
professionals well-versed in local labor laws. This
reduces the risk of unintentional non-compliance and
legal entanglements, providing a secure pathway for
foreign companies to access Indian talent within the
bounds of Indian regulations.
Scalability and Cost-Effectiveness:
The EOR model offers scalability for foreign companies
looking to expand their Indian workforce. It allows
companies to swiftly and efficiently adjust their global
workforce based on market conditions. Additionally, the
EOR consolidates various administrative tasks, leading
to cost savings. Instead of investing resources in
establishing legal entities and navigating complex
regulatory frameworks, foreign companies can leverage

10. the EOR‘s infrastructure, expertise, and established
processes.
Conclusion
In the dynamic landscape of Indian business expansion,
the Employer of Record stands as a strategic ally for
foreign companies seeking to mitigate the risks
associated with Permanent Establishment. By assuming
legal and tax responsibilities and providing flexibility
in workforce management, the EOR model allows foreign
companies to navigate the complexities of cross-border
operations in India with confidence.
As foreign businesses continue to explore opportunities
in the Indian market, a robust global employment
strategy, with the Employer of Record at its core,
becomes essential.
Remunance’s Employer of Record (EOR) services is
designed to navigate your entry into India without
establishing a business entity. At Remunance, we
understand a remote team acts as the backbone of
managing your global business. We also comprehend the
importance of building and retaining skilled resources.
By becoming your ally, we provide complete HR
administration and office infrastructure support.
The EOR not only facilitates seamless expansion but also
establishes a foundation for sustained growth and
success in the diverse and evolving Indian business
environment. Organizations can comfortably develop their
activities in the world’s fastest-growing economies and
concentrate on their main goals while Remunance
addresses Permanent Establishment risks.

11. Disclaimer
This blog is made for information purposes. Everybody is
requested to get advice from an expert before making a
decision based on the information given in the blog.
Remunance disclaims any liability/loss or damage caused
by using the information, directly/indirectly, given in
this blog.