US–UK Cross-Border Tax: Permanent Establishment Risks for Remote Teams

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A remote-first hire in the wrong location can turn into a tax footprint you did not plan for. The moment someone negotiates deals, signs contracts, or routinely works from a home office abroad, you may create a permanent establishment (PE) and owe corporate income tax, returns, and penalties in that country. This guide explains where PE risk comes from in US–UK setups and how to reduce it without slowing the business.

What this section covers

• Plain-English PE definitions under typical treaty rules
• How home offices, decision-making, and sales authority drive exposure
• Practical mitigation tactics for US–UK remote teams and offshore vendors
• A quick checklist you can use before you hire or relocate staff

Core definitions you will use

Permanent establishment (PE). A taxable presence in a country, usually triggered by a fixed place of business or a dependent agent acting on your behalf.
Fixed place PE. A place with a degree of permanence and disposal to the company (office, branch, workshop, sometimes a home office).
Dependent agent PE (DAPE). A person who habitually concludes contracts or plays the principal role leading to their conclusion for the enterprise.
Preparatory or auxiliary activity. Support work that typically does not create PE if it is genuinely ancillary to core revenue activities.
Construction/installation threshold. Building and installation projects can create PE if they continue beyond a treaty threshold (often 12 months). Always confirm the current treaty text.

Note: The US–UK income tax treaty follows these general concepts. Details matter. Check scope, exceptions, and any protocol changes before relying on them.

Where PE risk actually shows up in remote teams

1) Home office that operates like a branch

Risk mechanics. A home office can be a fixed place PE if it is at your disposal and used on a sustained basis for core revenue functions. Red flags include publishing the address, storing inventory, or requiring the employee to work from that location.
Mitigation.

• State that the home office is voluntary and not provided or required by the company.
• Keep core revenue activities off the home address.
• Use coworking on short, rotating terms if occasional meeting space is essential.

2) Sales and contract authority

Risk mechanics. A salesperson or founder in the other country who negotiates and finalizes deals can trigger a dependent agent PE even without formal signing rights. Making commitments that customers routinely accept is enough.
Mitigation.

• Remove habitual contract authority from local staff.
• Centralize final acceptance and signature in the home country.
• Train teams to avoid “last-mile” pricing commitments on calls.

3) Senior management and decision-making

Risk mechanics. If strategic decisions are made and recorded abroad, tax authorities may argue the company has a place of management there.
Mitigation.

• Keep board meetings, resolutions, and key approvals in the company’s tax home.
• Record decision logs and minutes with attending locations.
• Avoid patterns where the same senior person abroad drives all key approvals.

4) Warehousing, servers, and data rooms

Risk mechanics. Storage or servers can be PE if they are at your disposal and part of core delivery rather than auxiliary support.
Mitigation.

• Use third-party logistics or cloud regions under standard contracts.
• Document that use is auxiliary (distribution support, caching), not value creation.
• Avoid dedicated, single-tenant facilities that resemble your own site.

5) Construction and implementation projects

Risk mechanics. On-site projects may create PE if they cross treaty time thresholds.
Mitigation.

• Track days at each site.
• Split phases cleanly across legal contracts where appropriate and defensible.
• Confirm the relevant threshold in the US–UK treaty before long engagements.

Offshore vendors vs employees: different PE dynamics

Employees and directors create higher PE risk because their actions are imputed to your company.
Third-party vendors reduce risk but do not eliminate it. If a vendor acts exclusively and under your control to conclude contracts, authorities may treat them as a dependent agent.

Mitigation with vendors.

• Use clear independent contractor terms and multiple clients where possible.
• Prohibit the vendor from concluding contracts on your behalf.
• Keep statement of work language focused on delivery, not sales authority.

Practical playbook before you hire or relocate

1. PE pre-check form. For any cross-border role, capture location, activities, contract authority, meeting cadence, and expected travel days.
2. Contract hygiene.
   • No local authority to negotiate final terms or sign.
   • Employment agreements state that any home office is employee-provided.
3. Workflow design.
   • Route pricing, approval, and signature through the home jurisdiction.
   • Record where each approval physically occurs.
4. Evidence trail.
   • Keep minutes, decision logs, and deal approval tickets with locations.
   • Publish only the home-jurisdiction address on the website and invoices unless legally required otherwise.
5. Time tracking for projects.
   • Track days on-site to manage construction/installation thresholds.
6. Review cadence.
   • Quarterly review of remote roles for PE risk.
   • Re-assess when roles expand from support to revenue ownership.

Remote scenarios and how to handle them

• US company hires a UK-based AE to sell into EMEA.
  • Remove signing rights; have the US entity issue proposals and execute contracts.
  • AE collects leads and runs demos; US sales ops finalizes terms and signs.
  • Store deal desk approvals in a US system with US approver locations.
• UK company’s US-based CTO works from home.
  • Keep board and funding approvals in the UK.
  • Document that the CTO’s home office is voluntary and not a company site.
  • Avoid listing the US address publicly as an office.
• Implementation team rotates into the other country for a 9-month rollout.
  • Track site days, keep activities auxiliary where possible, and confirm treaty thresholds.
  • Consider splitting into distinct, separately contracted phases only if commercially real.

Interactions with payroll, social security, and VAT/sales tax

PE analysis is separate from payroll withholding and social security coverage. You may still need local payroll and employer registrations even if you avoid PE. For US–UK moves, review the totalization agreement to prevent double social charges. On indirect taxes (VAT/sales tax), nexus rules differ; plan registrations independently of PE conclusions.

Quick checklist for founders and CFOs

• Role has no habitual contract authority in the other country
• Home office is voluntary, not company-provided or advertised
• Board decisions recorded in the home jurisdiction with locations noted
• Vendors documented as independent, not exclusive agents concluding contracts
• Project day counts tracked against treaty thresholds
• Quarterly PE review of remote roles and evidence updated

Summary

PE risk is about patterns, not titles. If core revenue work and deal closure live in the other country, you invite a tax presence there. Keep contract authority, approvals, and place of management anchored at home, document the workflow, and check project timelines against treaty thresholds. Do that, and remote hiring stays flexible without creating surprise corporate tax bills.

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