Permanent Establishment

A legal concept applied by a country in order to establish tax commercial activities realised in its territory by a company or person incorporated or resident outside the jurisdiction. The concept of permanent establishment is one of the most important issues in international double tax treaty law. Almost all modern tax treaties use PE as the main instrument to establish taxing jurisdiction over a foreigner's unincorporated business activities.

A firm is deemed to have a permanent establishment in country even if it employs an agent, other than an independent agent, to regularly act for it and conclude contracts there. The foreign enterprise's profits are taxable in the country where the activity takes place if the enterprise is deemed to constitute a PE.