How long can our engineers work in India before a permanent establishment?
Long enough to matter, and less than most people expect. Several treaties, India's among them, create a presence where an enterprise furnishes services in the country through employees or other personnel for more than a stated period within a twelve-month window, and that period is set low compared with the construction tests people are more familiar with. The threshold itself sits in the treaty article that applies to your country, so read it rather than relying on a general recollection. What matters practically is that the count is of presence furnishing services, aggregated across personnel and across visits, so short trips accumulate.
Can we have a service PE in India without an office?
Yes, and that is the point of the test. The classic threshold needs premises, equipment or a facility at the enterprise's disposal. The service test needs none of it, since personnel furnishing services in the country for the stated period is enough, whether they sit at the client's site, in a hotel or in a serviced room hired by the week. Companies that check whether they have taken space, find nothing and conclude there is no exposure are answering a different question. The records that decide a service test are travel documents, timesheets and client site logs, not the lease schedule.
Do subcontractors' days count towards our service PE?
Often, and this is one of the more common oversights. The wording generally covers services furnished through employees or other personnel, which reaches people engaged to do the work rather than only those on the payroll. If a subcontractor performs part of your scope on your client's site, the presence may be counted against you as well as against it. The practical step is to require site attendance records from every subcontractor as a condition of the contract, so the aggregate presence can be tracked while the project is running rather than reconstructed once a notice arrives.
Is tax deducted from our invoices the same as a PE?
No, and conflating the two is expensive. India collects at source before anything is computed, so a deduction is taken from the gross invoice regardless of whether a presence exists and regardless of any treaty relief that may be available. That deduction is a collection mechanism, not an assessment. Having a presence is a separate conclusion, which changes how the profit is taxed and what has to be filed. The two interact in practice: where tax has been deducted at source and no return is filed, the amount withheld is simply retained, and any excess over the liability is never recovered.
How is profit taxed once a service PE exists in India?
On a net basis by reference to what is attributable to the presence, rather than on the gross fee the deduction was taken from. That requires the presence to be treated as a distinct enterprise: the functions personnel performed in the country, the assets used, the risks controlled there, and the costs properly allocable to that work. The return then reconciles the computed liability against the tax already deducted at source. Where the attributable profit is a modest margin on a large contract value, the amount already withheld commonly exceeds the liability, and the filing is how the difference is claimed.
Do repeated short visits add up to a service PE?
They can, because the test is applied over a period rather than per trip. Days on which personnel are present furnishing services are generally aggregated within the relevant twelve-month window, so a pattern of short visits by different people on the same engagement can reach the threshold that no single visit approaches. Two habits keep this under control. Count presence centrally rather than leaving it with the project manager, and count it across everyone working on the engagement, including personnel engaged from outside the group. Check the applicable treaty for how the window and the period are defined.
What is a permanent establishment, and how easily do we create one?
A taxable presence in another country under the treaty — typically a fixed place of business such as an office, branch, factory or workshop, or a dependent agent habitually concluding contracts on your behalf. Some treaties add a services test measured in days. Purely preparatory or auxiliary activity is excluded, but that carve-out is narrower than it sounds: one senior employee working from home in the other country, with authority, has been enough. See business profits and permanent establishment.
What is a double tax treaty and what does it actually do?
It is an agreement between two countries that divides up the right to tax. Article by article it decides which country taxes employment income, dividends, interest, royalties, pensions, property and business profits — and where both may tax, it caps what the source country can withhold and tells the other to give credit. It also breaks residence ties and opens a government-to-government channel for disputes. What it never does is apply itself: a treaty position is claimed. See our treaty work.
