What is Permanent Establishment Risk?

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.

An Employer of Record (EOR) service partner is usually opted byt the foreign firms when hiring remote employees from India. This helps then as EOR ensures:

• Contracts (locally compliant)
• Payroll and tax withholdings
• Statutory benefits
• Local compliance and labor laws

This setup lowers the risk of PE because you’re not hiring directly or establishing a fixed business presence.

What is Permanent Establishment?

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.

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.