International tax advice

Permanent establishment

In a transborder situation, when a Luxembourg resident company develops activities in another country, sometimes its incomes are taxable in that country if performed via a permanent establishment.

Usually, all incomes realized by a Luxembourg resident company are taxable on a worldwide income basis.

Should profits can be attributed to a Resident Establishment, they would be taxable in this country where this establishment is installed.

Type of establishments

In Double Tax Treaties, the “Permanent Establishment” is defined as a fixed installation where a company has all or a part of its activity.
Generally, it means :

Indeed, if a company carries on its activities on a regular basis in an establishment in which it employs human and materials means, this company will be taxable there, and on all the profits made by this establishment.

The term "Permanent Establishment" does not include :

The fact that a person is acting in a Contracting State on behalf of an enterprise of the other Contracting State shall constitute a permanent establishment in the first-mentioned State, if the person has, and habitually exercises in that State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise.

An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business.

The fact that a legal entity which is a resident of a Contracting State controls or is controlled by a legal entity which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute for either legal entity a permanent establishment of the other.

An insurance enterprise of one of the Contracting States shall be deemed to set up a permanent establishment in the other Contracting State, if it receives premiums in the other State through an agent or insures risks in the said territory through such an agent.

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