Can staff abroad create a taxable presence overseas

Q: Do services, projects and secondments follow different rules?

Services. Some treaties contain an optional services provision deeming a permanent establishment where, for example, an individual is present to perform services for third parties for more than 183 days in any 12 month period. It only applies if the specific treaty includes it (INTM264600). Construction and installation projects. Under the OECD Model these create a permanent establishment only if they last more than 12 months (INTM264300); individual treaties can set a different period. Secondments. Staff seconded to an associated company to carry on that company's business do not normally create a fixed place of business for the employer. It is different where they provide a service to the other company on the employer's behalf, often shown by a marked up recharge (INTM264440).

Q: How does this play out in practice?

Illustration only. A UK software company lets its head of European sales move to Spain for family reasons. She works from a spare room, meets prospects across the region and has authority to agree discounts and sign customer orders up to a set value. The arrangement is open ended. Fixed place risk: an open ended arrangement to work from one home meets the permanence test, and her sales role is core to the business rather than auxiliary. Whether the home is at the company's disposal depends on the facts, such as whether the company requires her to work from there or provides no other workplace. Agent risk: signing orders, or agreeing terms that the UK simply rubber stamps, is the behaviour both versions of Article 5(5) target. Moving contract approval and signature genuinely back to the UK, documenting that the home is her choice, and limiting her role to marketing and relationship work would reduce, not remove, the risk. If the company accepts there is a permanent establishment, it decides between credit relief and the branch exemption.

An employee working abroad can give a UK company a permanent establishment in that country if the company has a fixed place of business there with enough permanence, such as an office or a home that is effectively at the company’s disposal, or if the employee habitually concludes contracts, or plays the principal role in winning contracts, for the company. The other country applies its own law, but where there is a treaty with the UK, Article 5 of that treaty sets the outer limits. If a permanent establishment exists, the profits attributable to it can be taxed there, and the UK gives credit for that tax or exempts the profits on election.

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Whose rules decide whether there is a permanent establishment?

The country where the employee works decides under its own law whether your company is taxable there. A double tax treaty cannot create a charge, but it can restrict one: under the business profits article, the other country may only tax a UK company’s business profits if they are attributable to a permanent establishment as defined in Article 5. HMRC notes at INTM264200 that the UK has treaties with over 100 countries and that most follow the OECD Model. Where there is no treaty, only local law applies and the threshold may be lower.

HMRC’s International Manual describes the Article 5 tests from the inbound side, for overseas companies trading in the UK, but the treaty wording is reciprocal. It is a reliable guide to how the same words are read, while remembering that the foreign tax authority has the final word on its own law. The inbound position is covered in our guide to permanent establishment for overseas companies; the employee’s own tax, payroll and social security are covered in working remotely from abroad.

When does a place abroad count as a fixed place of business?

HMRC’s guidance breaks the fixed place test into three parts.

A place of business at the company’s disposal (INTM264420). Premises are not essential; some space at the company’s disposal is enough. It makes no difference whether the use is exclusive or shared, or whether the space is owned or rented. A space in a client’s or affiliate’s premises can count if it is put at the company’s disposal.
Fixed, meaning a distinct place with a degree of permanence (INTM264430). HMRC records that permanent establishments have generally not been found where a place was maintained for less than six months, except for recurrent activities, where repeated periods are looked at together, possibly over several years. Temporary interruptions do not end a permanent establishment, and a place intended to be short term can become one retrospectively if it is kept longer.
Business carried on through the place (INTM264440). Employees, the proprietor or contractors acting on the company’s instructions must work there.

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Can an employee’s home abroad create one?

It can, depending on the facts. HMRC’s examples of globally mobile workers at INTM264435 are written for staff coming to the UK, but they show how the permanence test applies to remote working in either direction:

An employee who extends a holiday to work for 40 days, and repeats it six months later, does not meet the permanence test, although an expected annual pattern for that person or their team could change that.
An employee whose contract lets her work a fixed three months every year in the other country does meet the permanence test, because the cumulative time over the coming years is significant and is not random.
Six staff each spending six weeks in turn at an affiliate’s office over nine months meet the test, because the changing identity of the visitors does not break the company’s continuous presence.
An employee covering a role for a related foreign company remotely from her own home and office is not automatically exempt; the facts must be examined.

So a one off stay is low risk, but an arranged, recurring or long term pattern of working from a particular home, coworking space or client site is where the risk sits.

When can a salesperson create one without any office?

The second route is a dependent agent permanent establishment. Under the older treaty wording, the test is whether a person habitually exercises an authority to conclude contracts in the name of the company. INTM264510 explains that negotiating all the terms in a way that binds the company counts even if someone else signs elsewhere, but merely attending negotiations does not.

The 2017 OECD wording is wider. A permanent establishment exists where a person habitually concludes contracts, or habitually plays the principal role leading to contracts that are routinely concluded without material modification by the company, for the company’s goods, property or services. The UK adopted this wording in its own law for chargeable periods beginning on or after 1 January 2026. Which version applies abroad depends on the treaty with that country, as amended. A genuinely independent agent acting in the ordinary course of its own business does not create a permanent establishment (INTM264530), but an employee will rarely meet that description.

Which activities are excluded?

Article 5(4) excludes a place used only for storage, display or delivery of goods, purchasing, collecting information or other activities of a preparatory or auxiliary character. INTM264460 states the decisive question: whether the activity of the place forms an essential and significant part of the business as a whole. A place whose purpose is the same as the company’s general purpose, or which manages part of the business, or which serves other group companies, is not preparatory or auxiliary.

The 2017 anti fragmentation rule in Article 5(4.1) stops a business, or a group of closely related enterprises, splitting a cohesive operation into small pieces that each look auxiliary. Enterprises are closely related where one controls the other or both are under common control, including where more than 50% of the beneficial interest is held (INTM264300).

Do services, projects and secondments follow different rules?

Services. Some treaties contain an optional services provision deeming a permanent establishment where, for example, an individual is present to perform services for third parties for more than 183 days in any 12 month period. It only applies if the specific treaty includes it (INTM264600).
Construction and installation projects. Under the OECD Model these create a permanent establishment only if they last more than 12 months (INTM264300); individual treaties can set a different period.
Secondments. Staff seconded to an associated company to carry on that company’s business do not normally create a fixed place of business for the employer. It is different where they provide a service to the other company on the employer’s behalf, often shown by a marked up recharge (INTM264440).

What happens in the UK if a permanent establishment exists?

A UK resident company is chargeable to corporation tax on all its profits wherever arising (section 5 of the Corporation Tax Act 2009), so profits attributable to the overseas permanent establishment are taxed in both countries unless relief is given. There are two options:

Credit relief. The foreign tax on those profits is credited against UK corporation tax on the same profits under the Taxation (International and Other Provisions) Act 2010; see double tax relief for companies.
The foreign branch exemption. An election under section 18A of the Corporation Tax Act 2009 removes the profits and losses of all the company’s foreign permanent establishments from UK corporation tax. Under section 18F the election is irrevocable once it takes effect and applies to all later accounting periods, so losses abroad also stop being relieved in the UK; see the foreign branch exemption.

Separately, the company will usually need to register and file in the other country and keep records supporting the profit attributed to the permanent establishment.

How does this play out in practice?

Illustration only. A UK software company lets its head of European sales move to Spain for family reasons. She works from a spare room, meets prospects across the region and has authority to agree discounts and sign customer orders up to a set value. The arrangement is open ended.

Fixed place risk: an open ended arrangement to work from one home meets the permanence test, and her sales role is core to the business rather than auxiliary. Whether the home is at the company’s disposal depends on the facts, such as whether the company requires her to work from there or provides no other workplace.
Agent risk: signing orders, or agreeing terms that the UK simply rubber stamps, is the behaviour both versions of Article 5(5) target.

Moving contract approval and signature genuinely back to the UK, documenting that the home is her choice, and limiting her role to marketing and relationship work would reduce, not remove, the risk. If the company accepts there is a permanent establishment, it decides between credit relief and the branch exemption.

What are the common mistakes?

Treating permission to work abroad as an HR decision only. The corporate tax exposure is the company’s, not the employee’s.
Counting days for each employee separately when HMRC looks at the company’s continuous presence, including rotating staff.
Checking only the OECD Model. Each treaty’s Article 5 wording, construction period and any services provision differs.
Giving an overseas salesperson informal authority to close deals while the paperwork says otherwise.
Making the branch exemption election without modelling future overseas losses.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.