What is a permanent establishment?
The rules that apply to the taxing of overseas income earned by UK Resident companies are set out in the Organisation for Economic Co-operation and Development Model (OECD).
The normal provision in tax treaties is that an overseas country will usually tax income arising in its country from the commercial operation of a UK resident company if:
1) A trade is carried on within its boundaries
2) The profits are derived from a permanent establishment set up for that purpose
The term “permanent establishment” within an overseas country includes a place of management, a branch, an office, a factory, a workshop or any mine.
A UK resident company that possesses a permanent establishment trading within an overseas country will normally be charged to tax on its overseas profits arising by UK HMRC and the overseas authority under their own tax code.