I have worked on a client site abroad for months. Am I taxable there?
You may be, and your firm may be too, which is the part people miss. For you, a treaty's short-stay relief usually turns on days present and on who employs you and bears your cost. For the firm, several treaties contain a services test: furnishing services in the country over a period can itself create a permanent establishment, with no office and nobody resident there. India's treaty network applies that test at a comparatively low threshold. So a long posting can leave your personal position manageable while giving the firm a filing obligation, a profit attribution and, often, a local payroll.
Does a long engagement abroad create a permanent establishment for my firm?
It can, through the services article rather than the fixed-place one. The test looks at services furnished in that country over a period, and the days of everyone the firm sends usually aggregate where the project is the same, so rotating staff does not automatically reset the clock. What follows is a local corporate filing, an attribution of the profit earned through that presence, and a decision about how the people on the ground are paid and taxed. Read the threshold in the particular treaty before the posting is extended, because the difference between just under and just over is a set of obligations.
My firm bills the client locally but pays me from head office. Who taxes what?
Those are two separate questions and they are often answered by different countries. The billing determines where the firm's fee is sourced and whether the client must withhold on it. Your pay is tested on where you perform the duties and on who is treated as your employer and bears your cost, and a head-office payroll does not by itself keep your salary out of the host country's reach. Where the firm has created a presence in that country, the host authority will usually expect the portion of your remuneration relating to work done there to be reported locally.
The client withheld tax on our fee. Can we get it back?
Often, but by the right route. Where the treaty gives the host country no taxing right over the fee, or a reduced one, the answer is a claim in that country, with the residence certificate and contract documents it will ask for. Where the host country does have a taxing right, the tax is not recoverable there; it is credited against home-country tax on the same income, which needs the withholding certificates the client holds. Recovery usually fails for an administrative reason: nobody collected the certificates at the time, and reconstructing them years later is harder than asking during the engagement.
Why does the India treaty catch consultants sooner than other treaties?
Because it contains a services test that several other treaties do not, and applies it at a comparatively low threshold. The effect is that a firm furnishing services in the country over a period can have a permanent establishment there with no office, no lease and no local company. The presence is the work itself. Consultants meet this first, because a client-site posting is exactly the fact pattern the article describes. Read the specific article in the specific treaty rather than relying on a general impression, because the wording differs between treaties and the threshold is where the answer sits.
Do days working from my hotel count towards the firm's presence?
Assume they do. The services test is concerned with services furnished in the country, not with the address they were furnished from, so a day spent writing up findings in a hotel room for that client's project is hard to distinguish from a day spent in the client's building. Count conservatively. Record, for each person and each project, which days were spent in the country and what work they covered, and treat a day as counting unless there is a documented reason it does not. A day schedule kept during the engagement settles arguments otherwise decided by whoever has the better recollection.
What counts as foreign income, and what is a foreign tax?
Foreign income is income sourced outside the country you are filing in — where the work was done, where the property sits, where the payer is resident, depending on the type. A foreign tax, for credit purposes, is a levy imposed by another country that functions as an income tax and that you were legally required to pay. Consumption taxes, property taxes and most social contributions are not, however real the cost. Sourcing is decided by rule, not by which bank received it. See the foreign tax credit.
Branch or subsidiary — which should we use to expand?
A branch keeps one taxpayer: results consolidate at home, losses are usable sooner, and the exposure is that the branch is a permanent establishment whose profit the host country taxes, sometimes with a branch tax on repatriation. A subsidiary is a separate taxpayer with limited liability and local rates, at the cost of withholding on dividends home and transfer pricing on everything between them. The deciding facts are usually expected losses, liability and exit plans. See branch against subsidiary.
