The founder's blind spot
Permanent establishment: what happens to your company when you move
Move abroad and run your company from the new country, and you can drag the company's tax into that country with you. This is the risk day-counting tools ignore, and the one that costs founders the most.
Your company can become tax resident where you are
A company is not automatically taxed only where it was incorporated. Many countries look at where the company is actually run, its place of effective management, the place where the key decisions are really made. If that is your laptop in a new country, that country can claim the company as tax resident there, or claim a slice of its profit.
For a founder, this is the trap. You move for the lifestyle or the personal tax rate, keep running your existing company as before, and unintentionally create a corporate tax exposure in your new home that dwarfs any personal saving.
The two shapes of the risk
The first is corporate residence: your presence shifts the company's place of effective management, so the new country taxes the company on its profits, sometimes alongside the country of incorporation, creating dual residence a treaty must then resolve.
The second is a permanent establishment, or PE: even without shifting full residence, a fixed place of business, or an agent who habitually concludes contracts on the company's behalf, can create a taxable presence in the new country for the profit attributable to it. Cross-border payroll and social-security registration can follow.
How to plan around it
The point is not that moving is impossible; it is that the company is a second thing to design, not an afterthought. Where the company should sit, what substance it needs to stay resident where you intend, and whether to move the holding company at all are the questions that earn a specialist's fee, and save far more than they cost.
The company analyser models the break-even of moving your holding company, and the builder flags PE and management risk for your primary base as you plan.
Common questions
- What is permanent establishment?
- A taxable business presence a company creates in a country, for example through a fixed place of business or an agent who habitually concludes contracts there. It lets that country tax the profit attributable to the presence, even if the company is incorporated elsewhere.
- Can moving abroad change where my company pays tax?
- Yes. If you run the company from your new country, that country may treat it as tax resident there under a place-of-effective-management test, or as having a permanent establishment. Both can create corporate tax where you did not expect it.