Does a building site create a permanent establishment?
A building site or an installation project can be a permanent establishment in its own right, without the enterprise having an office, a lease or any registered presence in the country. The site itself is the fixed place. What decides it is duration: each treaty sets a period beyond which a site becomes a permanent establishment, and that period differs from treaty to treaty, so the one that matters is the treaty between the two states in your case. Because the test turns on duration rather than intention, a job expected to be short can cross the line through variations and delays, and the enterprise will not necessarily notice on the date it happens.
How is the duration of a construction site measured?
The clock generally starts when the contractor begins work at the site, including preparatory work carried out there, and it runs until the work is finished or permanently abandoned. Interruptions do not usually stop it. A seasonal shutdown, a wait for materials, weather, or a dispute with the customer are ordinarily counted within the period rather than deducted from it, because the site continues to exist as the contractor's place of business. That makes the daily site record — diaries, mobilisation and demobilisation notices, plant on hire — the evidence that decides the question, not the dates written into the contract.
Does subcontractor time count towards our site permanent establishment?
Usually yes, for the main contractor. Time that subcontractors spend on the site is generally treated as time the general contractor is present there, because the site is the general contractor's project and the work is being done on its behalf. A subcontractor is also tested separately on its own time at that site, so one job can produce a permanent establishment for the main contractor and none for a subcontractor who was there briefly, or the reverse where a specialist trade stays for the whole programme. The practical consequence is that a main contractor cannot assess its own exposure from its own crews' timesheets alone.
Can we split a contract to stay under the threshold?
Splitting one job into several contracts, or spreading it between an entity and an affiliate, is a well-known pattern and is treated as one. The test looks at whether the activities form a single coherent project commercially and geographically, rather than at how many signatures there are. A site serving one development, on one location, for one customer, will usually be examined as a single project even where the paperwork divides it. Where periods of closely connected activity by related enterprises are added together, the answer can be a permanent establishment for a group that believed each contract stood alone. The position is worth settling in writing before mobilisation.
What happens if we only realise afterwards that we had a PE?
Once the duration threshold is crossed, the permanent establishment is generally treated as having existed from the start of the site, not from the day the threshold was passed. The obligation is therefore retrospective: returns for the whole period the site ran, accounts for the profit attributable to it, and any payroll consequences for the people who worked there. Late filing carries its own exposure, which is why the first piece of work is usually establishing the dates from the site records and then filing for the full period, rather than from the date the problem was noticed.
Do our employees on the site have to pay tax there?
This is the consequence contractors most often miss. Short-stay employment relief under a treaty ordinarily depends on the employer not having a permanent establishment in the country that bears the remuneration. Once the site becomes a permanent establishment, that condition can fail, and employees who were treated as exempt may be taxable in the source state for their time on the site, with a withholding obligation on the employer attached to it. Since the site's duration triggers both consequences at once, the payroll position and the corporate position have to be worked out from the same set of site dates.
When does a construction project create a permanent establishment?
Most treaties give building sites and installation projects their own rule, turning on how long the work continues rather than on whether an office exists. Time is generally counted per site, and related contracts split between group companies are commonly aggregated to stop the threshold being avoided by paperwork. The period differs between treaties, so it is read from the one that applies. See permanent establishment risk.
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.
