EOR – TAX VIC https://blog.taxvic.com Income Tax Consultants for Individuals & Businesses Mon, 19 Jan 2026 11:12:17 +0000 en-US hourly 1 https://wordpress.org/?v=6.3.3 https://i0.wp.com/blog.taxvic.com/wp-content/uploads/2025/01/cropped-white-logo-tax-vic-updated.png?fit=32%2C32&ssl=1 EOR – TAX VIC https://blog.taxvic.com 32 32 218344231 How Foreign Companies Can Avoid Permanent Establishment (PE) Risk in India https://blog.taxvic.com/how-foreign-companies-can-avoid-permanent-establishment-pe-risk-in-india/ https://blog.taxvic.com/how-foreign-companies-can-avoid-permanent-establishment-pe-risk-in-india/#respond Mon, 19 Jan 2026 11:12:02 +0000 https://blog.taxvic.com/?p=1572 Hiring Indian talent? Selling to Indian customers? Using agents or representatives in India? Then Permanent Establishment (PE) risk in India is something you cannot afford to ignore. Many foreign companies unknowingly create a taxable presence in India, leading to corporate tax exposure, penalties, litigation, and compliance nightmares. In this blog, we explain what PE in India really means, common mistakes foreign companies […]

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Hiring Indian talent? Selling to Indian customers? Using agents or representatives in India?
Then Permanent Establishment (PE) risk in India is something you cannot afford to ignore.

Many foreign companies unknowingly create a taxable presence in India, leading to corporate tax exposure, penalties, litigation, and compliance nightmares.

In this blog, we explain what PE in India really means, common mistakes foreign companies make, and how you can operate in India safely without triggering PE.
 

What Is Permanent Establishment (PE) in India?

A Permanent Establishment (PE) is a fixed place of business or business presence through which a foreign company’s activities are carried out in India.

Once PE is triggered:

  • India gets the right to tax your business profits

  • You must file Indian income tax returns

  • You may face GST, payroll, and withholding obligations

  • Non-compliance can lead to back taxes + penalties + interest

PE rules are governed by:

  • Indian Income-tax Act, 1961

  • Double Tax Avoidance Agreements (DTAA)

  • OECD Model Tax Convention

Types of Permanent Establishment Foreign Companies Create in India

1. Fixed Place PE

When your company has:

  • An office

  • Co-working space

  • Dedicated workspace

  • Even a “virtual office” with business control

Risk increases if business decisions are made from India

2. Dependent Agent PE (Most Common & Dangerous)

This happens when:

  • An Indian person negotiates or concludes contracts

  • Works exclusively or almost exclusively for you

  • Acts under your control or authority

Many founders think “they are just consultants” — tax officers think otherwise.

3. Service PE

Triggered when:

  • Foreign employees render services in India

  • Presence exceeds 90 / 183 days (varies by treaty)

  • Services are core to revenue generation

This is common in:

  • IT services

  • Consulting

  • SaaS implementation

  • Engineering & project-based work

4. Remote Employee PE (2026 Reality)

Hiring Indian employees directly on your foreign payroll can:

  • Create economic substance in India

  • Trigger PE if employees perform core business functions

This is now under increased scrutiny by Indian tax authorities.

Common Mistakes Foreign Companies Make 

  • Hiring Indian staff as “independent contractors” without proper structuring

  • Allowing Indian team to close deals or sign contracts

  • Using Indian address on website or invoices

  • Paying commissions to Indian agents without PE review

  • Assuming DTAA = automatic protection (it doesn’t)

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How to Avoid Permanent Establishment in India (Legally)

Option 1: Proper Contractor & Scope Structuring

  • Clear service-only role

  • No authority to bind company

  • Arm’s length pricing

  • Independent client base

Works only for very limited activities

Option 2: Employer of Record (EOR) — With Caution

  • EOR reduces payroll & labour law risk

  • Does NOT automatically eliminate PE risk

  • Functional control still matters

Best when combined with legal PE review

Option 3: Incorporate an Indian Subsidiary (Most Future-Proof)

Ideal if you:

  • Want to scale India operations

  • Hire teams long-term

  • Sell to Indian customers

  • Avoid PE litigation risk completely

Benefits:

  • Clear tax position

  • Treaty protection

  • Brand trust

  • Investor-ready structure

When You SHOULD Incorporate in India

You should seriously consider Indian incorporation if:

  • India is a revenue market

  • You plan long-term hiring

  • Contracts are negotiated from India

  • Customers or investors demand compliance

  • PE risk already exists

Ignoring this can lead to retrospective tax demands years later.

Why PE Planning Is Not a “DIY” Task

Indian tax authorities are:

  • Aggressive

  • Documentation-focused

  • Treaty-interpretation driven

Once PE is alleged:

  • Burden of proof is on you

  • Litigation can last 5–10 years

  • Penalties can exceed 200% of tax

PE planning must be done BEFORE you hire or operate.

How We Help Foreign Companies Enter India Safely

At TaxVic, we specialise in India entry, PE risk mitigation, and compliance for foreign businesses.

Our Services Include:

  •  PE Risk Assessment & Opinion
  • DTAA Interpretation
  • Contractor vs Employee Structuring
  • Employer of Record (EOR) Advisory
  • Indian Subsidiary Incorporation
  • End-to-End Tax & Compliance Support
  • Ongoing PE Defence Documentation

We work with:

  • SaaS companies

  • Tech startups

  • Consultants & agencies

  • Global service providers

  • Overseas founders entering India

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