US to India · Tax risk planning
Permanent Establishment Risk for US Companies in India
A practical overview of how people, premises, contracts and business activity can affect permanent-establishment analysis for US businesses operating in India.
A US company can create Indian tax questions before it incorporates an Indian subsidiary. The result depends on what the company does in India, who performs the work, where contracts are negotiated or concluded, and whether the facts meet the applicable domestic-law and treaty tests.
Permanent establishment, or PE, is a legal and tax analysis of the real operating model. It cannot be determined by the company’s preferred label or by looking only at whether it has registered an Indian entity.
Quick answer
Review the US company’s India-facing activities, people, premises, contract process and revenue model against the applicable Indian tax law and the current India–US treaty provisions. A local subsidiary does not automatically remove every PE question for the US parent, and the absence of an office does not automatically settle the issue. Get a fact-specific review before the operating model is finalised.
1. What does permanent establishment mean?
In cross-border tax, a permanent establishment is a threshold used under relevant domestic law and tax treaties to determine when a foreign enterprise may have a taxable business presence in another country. The exact definition and consequences depend on the applicable legal provisions and facts.
The analysis should use the treaty text and domestic rules in force for the relevant period. Treaty provisions and interpretations can change, so older summaries should be checked before they are relied on.
2. Review the activities performed in India
Build a clear picture of what the US company and its people actually do in India. Relevant facts may include employee and contractor roles, customer meetings, sales support, technical work, project delivery, premises access, contract negotiation and authority to bind the US company.
Keep records of who performs each activity, for which entity, from where, and under which agreement. Short visits or remote working arrangements should be assessed in context rather than treated as automatically safe or automatically taxable.
3. Check contracts and decision-making
Review who negotiates commercial terms, approves discounts, signs contracts, delivers services and bears commercial risk. The written contract should match the way the business operates in practice.
Also review the relationship between the US parent and any Indian subsidiary. A subsidiary is a separate legal entity, but the group’s actual conduct and arrangements still matter for tax analysis.
4. Consider the role of people and premises
An office, project location or other place used for business may be relevant to a fixed-place analysis, depending on the facts and legal tests. The activities of employees, contractors or other representatives may also need review under the applicable provisions.
Do not use a single day-count or a simple “no office” rule as a substitute for a complete analysis. Different tests may apply to different facts and treaty provisions.
5. Keep the analysis current as the business grows
Review PE risk when the company hires staff, changes sales responsibilities, sends people to India, begins delivering projects locally, gives personnel authority over contracts or changes the way the subsidiary supports the parent.
The review should be coordinated with transfer pricing, payroll, withholding tax, GST and corporate structuring. These are connected but separate questions; resolving one does not automatically resolve the others.
6. How AU Corporate can support
AU Corporate can help document the India operating model, identify questions for Indian tax review and coordinate the work with incorporation, payroll, accounting and transfer-pricing planning. A final PE conclusion requires a review of the actual facts and the current legal position.
Common questions
Frequently asked questions
Does a US company create a PE just by having Indian customers?＋
Not automatically. Customer location is only one fact; the activities, people, premises, contracts, domestic law and applicable treaty provisions need to be reviewed.
Does incorporating an Indian subsidiary remove PE risk for the US parent?＋
Not automatically. The subsidiary is a separate entity, but the US parent’s own activities and arrangements still need to be assessed.
Can remote employees in India create tax risk?＋
They may raise questions depending on their role, authority, activities and the applicable legal tests. The facts should be reviewed before the arrangement is put in place.
How often should a PE review be done?＋
Review it before entering India and again when the operating model, staffing, premises, contract process or business activity changes.
Primary sources
Official sources to verify current requirements
Regulatory requirements can change and depend on the facts. Check the current version and applicability before taking action.
Next step
Planning an India operation from the United States?
Share your proposed activities and timeline with our team. We can help identify the questions to resolve before you commit to a structure or filing plan.
Discuss your plansFor an overview of our services for US businesses, visit the company registration in India from the USA page.
Related guides
Compare possible legal routes for an India operation.
Plan the documentation for cross-border group transactions.