Below we have summarized examples of how some countries understand PEs and what are the rules on the corporate residence. The descriptions are based on publicly available information which means that you should always contact a local tax expert to clarify what tax consequences arise from your particular situation.
To arrive at the correct conclusion, it might sometimes be necessary to look at domestic law, a bilateral treaty and in some instances, a multilateral tax treaty. Note that treaties do not apply automatically and some steps may be required to benefit from a tax treaty.
Ukraine generally follows the OECD Model Tax Convention definition but has stricter agent PE tests in place. The law provides a list of more common PEs such as place of management, affiliate, office, server, etc.
In addition to the „classical PE“ and “agent PE”, the concept of a „service PE“ is recognised in Ukraine. This means that if services e.g. consultancy services are provided by employees or other personnel of a non-resident company (your Estonian company for example), then a PE is created if projects last for more than 6 months in any 12-month period.
However, a tax treaty should override these domestic rules if a treaty is more beneficial for the taxpayer.
With respect to tax residency, companies are tax resident in Ukraine if they are established under Ukrainian laws – this rule is similar to Estonia and means that managing a company in Ukraine should not lead to that company being tax resident in Ukraine.
Please see the website of the competent authorities in Ukraine for more information.
According to German rules, a PE is any fixed business facility serving the corporate purpose. A permanent representative is someone who 'habitually' deals on behalf of the principal (the principal being the Estonian company for example) acting on the principal's instructions. German tax treaties are usually in line with the OECD Model Tax Convention’s PE definition.
A corporation is a resident in Germany for tax purposes if either its place of incorporation or its main place of management is in Germany. If you effectively manage your Estonian company in Germany, then this might lead to the dual residency of your Estonian company, meaning that the Estonia-Germany tax treaty or competent authorities should be consulted.
Please see the website of the competent authorities in Germany for more information.
Non-resident companies are liable to pay tax if they carry out trade through a PE in the UK. The definition of a PE is similar to the OECD MC and it is created if the non-resident company:
- has a fixed place of business in the United Kingdom through which the business of the company is wholly or partly carried on; or
- an agent acting on behalf of the company has and habitually exercises authority to do business on behalf of the company in the United Kingdom.
Companies incorporated abroad can be considered UK residents if the place of central management and control is situated in the UK. If the highest form of control and direction over a company is carried out in the UK then this might lead to the dual residency of your Estonian company, meaning that the Estonia-UK tax treaty or competent authorities should be consulted.
Please see the website of the competent authorities in the UK for more information.
Spanish domestic law defines a PE to be created if a company has on-going or habitual work facilities in Spain or a place to do any kind of work where one performs all or part of one’s activity. An agent PE is created if a company acts in Spain through an agent with powers to enter into an agreement in the name and on behalf of the non-resident and if such powers are exercised on a regular basis.
In addition to being established in Spain, a company is a Spanish tax resident when its business activities are managed and controlled from Spain, i.e. its head office is located in Spain. This might lead to the dual residency of your Estonian company, meaning that the Estonia-Spain tax treaty or competent authorities should be consulted.
Please see the website of the competent authorities in Spain for more information.
In France, the PE concept has been developed by relevant case law. A PE is understood to materialise through:
- Business activity conducted through an establishment (i.e. a fixed business installation operating with some degree of autonomy [e.g. a branch, sales office]);
- Business conducted in France by a dependent agent; or
- Existence of a complete commercial cycle in France.
For full certainty, the French tax authorities can be asked to submit a ruling on the existence of a PE.
Generally, companies established under French law are considered French tax residents, so the issue of dual residence should not arise even if the Estonian company is effectively managed in France.
Please see the website of the competent authorities in France for more information.
Turkey’s rules are different from the standard of the OECD Model Tax Convention and the threshold for PE creation is lower. It should, therefore, be evaluated on a case-by-case basis whether your activities create a PE in Turkey or not.
Another issue might arise with residence – if the business headquarters are in Turkey, then it is considered resident in Turkey. Estonia follows the place of incorporation principle which means that your company might have dual residence – both in Estonia and Turkey. The tax treaty and competent authorities should be consulted in such a case.
Please see the website of the competent authorities in Turkey for more information.
This article is part of a Business Guide
This article is a part of larger set of guidelines that e-Residency project team has requested for you and that has been compiled in cooperation with AS PwC. The full version of the Business Guide will be available for download shortly.
Articles in the Knowledge Base and the Business Guide are intended solely to provide general guidance on matters of interest for the personal use of the reader, who accepts full responsibility for its use. This information should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers.