Employer of Record Permanent Establishment Considerations

Employer of Record ("EOR") 

Permanent Establishment Consideration

Employer of Record Permanent Establishment Considerations

1) Introduction


Employer of record arrangements enable companies to outsource employment responsibilities such as payroll, benefits, and compliance to a third-party organization, while maintaining control over their workforce. EORs act as the legal employer of the workers, but day-to-day work is managed by the contracting company.


However, such arrangements could potentially trigger a PE for the end user. Failure to take care over the PE consideration can result in tax exposure, as well as penalties for non-compliance.


       2)   Indicators of PE Risk

The individuals engaged under the EOR arrangement -

  • Works from an office setup by the end user in the local jurisdiction.
  • Undertakes core income generating activities of the end user.
  • Habitually concludes contracts in the name of the end user.
  • Plays a key role in negotiating the contract.
  • Plays a senior role in the business of the end user.
  • Sources and negotiating with the leads.
  • Provides services to the customers on behalf of the end user.
  • Routinely secure orders or negotiate contracts on behalf of the end user.

        3)   Key considerations

  • Regular review of EOR arrangements to assess the tax risk.
  • Keeping track of the headcount of employees under the EOR.
  • Assessing the duties and obligations of the individuals working under the EOR.
  • Proactively assessing the need for setting up a legal entity depending on the business growth.

       4)   How can Crowe help?

  • Conducting a thorough risk assessment to identify the potential PE risks associated with EOR arrangements.
  • Reviewing the contract between the entity and the EOR to ensure compliance with local laws and providing recommendation to minimize the PE risk.
  • Ongoing review and providing recommendations to ensure tax compliance.

Contact Us

Markus Susilo
Markus Susilo
Partner- Payroll and Indirect Tax
Alessandro Valente
Alessandro Valente
Director - International Tax Service & Transfer Pricing