Permanent establishment

A permanent establishment (PE) is a taxable presence that a company has in a country other than its own. The OECD Model Tax Convention, which many tax treaties follow, defines it as a fixed place of business through which the company’s business is wholly or partly carried on, such as an office, a branch or a workshop. A person who habitually concludes contracts for the company in that country can also create one.

If an Estonian OÜ has a PE in another country, that country can usually tax the profit that belongs to the PE. For a founder who runs the company from a home office abroad, whether that office counts as a PE is a real question to check with a professional in that country. The Estonian Tax and Customs Board says that an Estonian company managed by an e-resident from outside Estonia will probably have a permanent establishment abroad, and that when its business is carried on only outside Estonia, the income it earns abroad is taxed abroad.

Read What is a permanent establishment, and why does it matter? and run the fit check.