DTA = double taxation agreement. Correctly: agreement on the prevention of double taxation. Double taxation agreements regulate which country is entitled to the right of taxation under which circumstances. The definition of the permanent establishment as place of taxation is essential for entrepreneurs. Since DTAs are OECD standardised, the definitions in all double taxation agreements are the same.

• Download OECD model agreement

• Double Taxation Agreements UK

Extract to the subject of permanent establishment:

(1)   For the purpose of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried out.

(2)   The term “permanent establishment” includes especially:

a)      a place of managment;

b)      a branch;

c)      an office;

d)      a factory;

e)      a workshop, and

f)        a mine, an oil or gas well, a quarry or any other place of extraction of natural resources

g)      a building site or construction or installation project that lasts more than twelve months.

(3)   THE TERM “PERMANENT ESTABLISHMENT” DOES NOT INCLUDE:

a)      the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

b)      the mainenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

c)      the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

d)      the mainentance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise;

e)      the maintenance of a fixed place of business solely for the purpose of advertising for the enterprise, issuing information, doing scientific research or carrying out similar activities of a preparatory or auxiliary character.

In-Depth Explanation of the Double Taxation Treaty

 The fiscal place of business is defined by the law as follows:

Excerpt of Article 5 of a DTA:

ARTICLE 5

PERMANENT ESTABLISHMENT

(1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

(2) The term "permanent establishment" includes especially :

(a) a place of management ;

(b) a branch ;

(c) an office ;

(d) a factory ;

(e) a workshop ; and

(f) a mine, quarry or any other place of extraction of natural resources.

(g) A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months.

(3) the term "permanent establishment" shall be deemed not to includE:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise ;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery ;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery ;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise ;

(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character ;

(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

(4) Notwithstanding the provisions of paragraphs (1) and (2) of this Article, where a person - other than an agent of an independent status to whom paragraph (6) of this Article applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph (4) of this Article which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

This means, that its production site, a site for the exploitation of mineral resources or construction works, which last for more than 12 months always constitutes the establishment of a place of business.

Provided these prerequisites are not fulfilled, then the fiscal place of business is linked to the "place of business supervision":

-Either you - or an agent - relocate his/her ordinary residence into the state of the company's seat and act as general manager of the company

OR

- you appoint a general manager who is a permanent resident in the state of the company's seat

OR

- our cooperation tax or law office provides for a Nominee Director

OR

- you establish credibly, that you are present in the state of the company's seat within the course of the required business supervision in order to perform such supervision on a regular basis. However this is not feasible in the case of necessary day-to-day decisions. 

Ordinary Residence

Ordinary residence means, that you are present at least during 51% of the year in the state of the foreign company's seat and that you have a dwelling or real estate in your own name. Within the context of the business supervision a residence in a hotel is conceivable. This is however not to be confused with the taxable residence of a natural person. In the event the natural person desires, in this case the director of the foreign company, to have its world income taxed in the state of the company’s seat, as a rule the following prerequisites must be fulfilled (depending on the national tax provisions):

 - present 51% of the year in the seat state, permanent presence is not required

- dwelling or real estate in one’s own name, sub-lease is possible, if sub-lease agreement

-business and or personal main area of interest