What is Permanent Establishment Risk?

Permanent Establishment (PE) risk refers to the possibility that a company hiring or operating in a foreign country, like India, could be considered to have a taxable business presence there. This can result in unexpected corporate tax obligations, legal liabilities, and compliance burdens. Understanding and avoiding PE risk is critical for global employers hiring remote talent across borders.

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) helps foreign firms to stay compliant and prevent Permanent Establishment Risks while hiring remotely in India. 

If your company is considered to have a Permanent Establishment in India, you could be subject to:

• Corporate Income Tax on Indian-source revenue
• Back taxes and penalties (including interest)
• Audits by Indian tax authorities
• Legal issues and damage to your company's international reputation

In many cases, simply hiring a full-time remote employee in India can trigger the risk - especially if they're involved in sales, client interactions, or technical delivery.

An Employer of Record (EOR) is a third party that legally employs workers on your behalf in foreign countries.

You manage the day-to-day work — but the EOR handles:

• 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.