You can owe tax in a country you never incorporated in

9 min readSeptember 2026Treaty standard

A Portuguese company pays Portuguese corporate tax. Unless it has a permanent establishment somewhere else, in which case the profit attributable to that presence is taxed there instead — at that country’s rate, on that country’s forms, discovered by you roughly two years late. No rate comparison on this website survives contact with this, which is why it deserves its own page.

Tick everything your company genuinely has in a country where it is not incorporated. Watch what happens when safe things start combining.

What you have in the other countryTreaty standard, post-BEPS

Nothing selected

No presence

Tick what is actually true. Guessing generously here is cheaper than guessing generously later.

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What actually happens when you have one

Not a fine, and not usually a scandal. A sequence of obligations that would have been trivial to meet at the start and are expensive to meet backwards.

You register thereThe branch has to be declared to the local tax authority, normally with effect from when it began rather than from when you noticed.

Profit is split between two countriesHow much belongs to the branch is a transfer pricing question answered by attributing functions, assets and risks. Both authorities have an interest in the answer and they are not the same interest.

Local returns, in local formFiled for each open year, with local accounting rules and local deadlines that have already passed.

Portugal gives relief, not a refund of your timeThe treaty prevents the same profit being taxed twice, through credit or exemption. It does not prevent you paying two sets of advisers to agree on the split.

Payroll may followWhere the presence rests on people, wage withholding and social security in that country often follow the same finding, retroactively.

What BEPS changed, and why old advice is wrong

If your structure was designed before about 2018, or by someone working from a template that was, two assumptions in it are now false.

Signing elsewhere no longer helps. The commissionnaire arrangement — a local person negotiates everything, head office signs — was the standard way to sell into a country without a presence in it. Action 7 extended the agency test to anyone who habitually plays the principal role leading to the conclusion of contracts that the enterprise then routinely concludes without material modification. The signature moved; the tax did not.

“Independent agent” is not a label you choose. The exclusion is lost where the agent acts exclusively or almost exclusively on behalf of closely related enterprises. A distributor set up to sell only your product is not independent, whatever the agreement calls it.

And the preparatory-or-auxiliary exemptions now come with an anti-fragmentation rule: activities split between related entities or locations in the same country are assessed together. Three separately harmless things in one country are no longer three separately harmless things.

The bigger risk sitting next to this one

A permanent establishment taxes part of your profit somewhere else. Corporate residence taxes all of it. If the people who actually direct the company — who decide, not who executes — do so habitually from another country, that country can treat the company as resident there under its place of effective management.

For a Portuguese company owned and run by someone living abroad this is not a remote scenario, it is the default one. Board meetings held where the directors happen to be, decisions taken over messages, and a Portuguese address that receives post are the ingredients of exactly this finding. We deal with what has to be true instead in the piece on substance.

Four practical rules

Decide where contracts are concluded, then behave that way. Not where they are signed. If a local person runs the negotiation and head office rubber-stamps, the local person is concluding them.

Count the days on construction and installation. Thresholds run across related contracts and split invoices do not restart the clock. Projects drift past six months without anyone tracking it.

Write down what the warehouse and the marketing role actually do. The exemptions are fact-based and the facts are yours to evidence, but only while they are current.

Treat the first foreign hire as a tax decision. It is usually made by whoever is hiring, on a template contract, without anyone asking this question. That single hire is the most common origin of everything above.

Scope of this page. Permanent establishment is defined by each treaty, and the definitions differ — thresholds for construction sites, the treatment of service provision, and whether a country has adopted the post-BEPS wording through the multilateral instrument all vary. The tool above reflects the current OECD model standard, which most of Portugal’s treaties now approximate, and it is a way of seeing which facts matter rather than a determination about your company. Where the stakes justify it, the answer comes from reading the specific treaty against your specific facts.

Before the first foreign hire

We look at this while the facts can still be arranged

Which countries your current setup already exposes you to, what a planned hire or warehouse would change, and how to structure the sales function so that it is defensible rather than merely undetected. Cheap to ask now, and the alternative is a retroactive registration.

Have the exposure checked

You can owe tax in a country you never incorporated in

What actually happens when you have one

What BEPS changed, and why old advice is wrong

Four practical rules

We look at this while the facts can still be arranged

What has to be true where the company says it is

The cost of entering markets, including this one

Business profits, and who may tax them