Permanent Establishment

What Is Permanent Establishment?

Permanent Establishment (PE) is a tax concept defined in bilateral tax treaties (based on the OECD Model Convention) and India’s Income Tax Act, Section 92F. When a foreign company’s activities in India constitute a PE, that company becomes liable to pay corporate income tax in India on profits attributable to the PE — currently at 40% for foreign companies plus applicable surcharge and cess.

How PE Is Triggered in India

Under most Double Taxation Avoidance Agreements (DTAAs) India has signed, a PE can be created through:

PE Type	Trigger	Example
Fixed place PE	Office, branch, factory	Leasing a co-working desk for employees
Service PE	Employees present >183 days in any 12-month period	Remote workers operating from India year-round
Agency PE	Dependent agent habitually concluding contracts	An employee signing deals on behalf of the foreign company
Construction PE	Project lasting >183 days	Software development project with on-site team

PE Risk When Hiring in India Without an Entity

Foreign companies hiring workers in India without establishing a local entity face significant PE risk:

1. Direct employment — If the foreign company directly employs Indian residents, their home office or workspace can be deemed a fixed place PE.
2. Decision-making authority — Workers negotiating or concluding contracts on behalf of the foreign company create agency PE exposure.
3. Duration of presence — Under most India DTAAs (including US-India, UK-India), service PE is triggered at 90–183 days depending on the treaty.
4. Tax liability — If PE is established, the foreign company faces 40% corporate tax on India-attributable profits, plus mandatory transfer pricing documentation and annual filings.

PE Consequences

Consequence	Impact
Corporate income tax	40% + 4% cess on attributable profits
Transfer pricing compliance	Arm’s-length documentation required
Tax filing obligations	Annual return filing with Indian tax authorities
Withholding requirements	TDS obligations on payments
Retrospective assessment	Tax authorities can assess prior years

How Omnivoo Handles Permanent Establishment

Omnivoo’s EOR model is specifically structured to eliminate PE risk for foreign companies:

• Omnivoo’s Indian entity is the employer — Workers are employed by Omnivoo India, not your foreign company. No fixed place, service, or agency PE is created.
• No contractual authority — Employees hired through Omnivoo do not sign contracts or bind your company in India, eliminating agency PE risk.
• Clean treaty position — Since the employment relationship and all India-based activities flow through Omnivoo’s local entity, your company maintains no taxable presence in India.
• Compliance documentation — Omnivoo provides the contractual structure and documentation that supports your position of having no PE in India, should tax authorities raise queries.
• No entity required — You avoid the cost, time, and ongoing compliance burden of incorporating in India while maintaining zero PE exposure.

This allows companies to build teams in India from day one without triggering a 40% corporate tax obligation or multi-year compliance requirements.