However, at a certain point this activity may create a tax presence.
A tax presence means that the local tax authorities consider your business as local enough to tax you — even if you have no legal entity, branch, or registration. In tax treaties this is called a permanent estabishment, but the concept is broader.
If your activities create a tax presence, this can trigger obligations such as:
corporate income tax on locally attributable profits
local bookkeeping and reporting requirements
registration with tax authorities
penalties or retroactive tax assessments if risks are missed
The difficulty is that tax presence is not always obvious.
Many companies assume that “no company” automatically means “no tax”, which is not always correct.
Tax presence risks often arise when a company:
has employees or directors working from another country
uses local sales agents or representatives
carries out long-term projects or on-site activities
operates warehouses or fixed facilities
manages local operations from a home office
Whether these activities create a tax presence depends on how authorities apply these tax rules in practice.
Tax presence questions in the UK are primarily handled by HM Revenue & Customs (HMRC), with disputes resolved through the UK tax tribunals and courts.
HMRC’s International Manual is a practical reference point for how permanent establishment and dependent agent issues are analysed in audits, including examples and “fact and degree” thresholds (link).
Disputes typically start in the First-tier Tribunal (Tax Chamber), can proceed to the Upper Tribunal, and may ultimately reach the Court of Appeal or the UK Supreme Court depending on the issue and significance (link).
A recurring UK theme is that a fixed place of business requires a sufficient degree of permanence. HMRC has stated that a non-resident company will not generally have a UK fixed place of business permanent establishment after only a short period, because permanence is required, and assessments are a matter of fact and degree (link).
This “permanence” focus often becomes decisive in practice for project work, rotating presence, and temporary setups.
UK analysis of home working aligns with the fixed place of business test, but it is applied very practically. HMRC’s approach is that home working does not automatically create a permanent establishment; the risk increases when the home location is used on a sustained basis and is integral to the business operations, rather than being occasional or incidental (link).
During the COVID period, the “short period” and “fact and degree” framing was frequently referenced in professional commentary and HMRC-facing practice, especially where home working was driven by public health measures rather than business design (link).
For post-COVID arrangements, long-term remote work in the UK is increasingly assessed on whether the UK home is effectively used as a stable base for core functions such as sales, management or operational control.
Where business is conducted through people in the UK, dependent agent permanent establishment risk becomes central. HMRC’s manual sets out the requirement that the agent must have authority to conclude contracts (and that the habitual condition is a matter of fact and degree)(link).
HMRC also highlights that the UK’s common law context can affect how “authority to conclude contracts” is interpreted in practice, compared with civil law systems (link).
In audits, scrutiny typically increases when UK-based personnel are effectively shaping commercial outcomes, not merely supporting them. This includes negotiation, pricing influence, routine involvement in contract finalisation, or customer relationship management that is functionally decisive.
A recent Supreme Court judgment provides a clear reminder that the concept of a UK permanent establishment is routinely applied in practice to non-UK groups carrying on business in the UK. In Royal Bank of Canada v Commissioners for His Majesty’s Revenue and Customs (judgment dated 12 February 2025), the Supreme Court noted that it was common ground that RBC had a permanent establishment in the UK carrying on banking business, illustrating how normalised the PE framework is in major commercial contexts (link).
For a more operational illustration of how UK corporation tax applies to non-residents only where a trade is carried on in the UK through a permanent establishment, the First-tier Tribunal decision in GEFI v HMRC (final decision published 29 June 2023) sets out the statutory framing and factual analysis often seen in PE disputes (link).
Together, these sources reflect a consistent practical reality: UK PE outcomes tend to turn on detailed fact patterns about what people in the UK do, how continuous that activity is, and whether the UK activity is commercially core rather than preparatory or auxiliary.
Scrutiny typically increases where UK-based staff work on a permanent basis, where the UK presence is continuous rather than intermittent, where home working functions as a stable base for core activities, or where UK representatives are habitually involved in concluding or effectively finalising contracts.
HMRC tends to assess these factors cumulatively and will focus on the functional role of UK activity in generating revenue.
If a UK permanent establishment is found, the foreign company may fall within UK corporation tax on profits attributable to that UK PE, along with bookkeeping, filing and profit attribution requirements. Disputes often centre on attribution, documentation quality, and how UK functions are characterised in practice.
In the United Kingdom, incorporation often becomes the cleaner option once people-based activity in the UK is intended to be permanent, where commercial decision-making or revenue-driving functions are exercised locally, or where the compliance and attribution burden of operating without a formal entity outweighs the flexibility of a remote structure. At that stage, incorporation typically provides greater certainty and simplifies operational and tax compliance.
Across tax systems, the assessment of tax presence typically follows a consistent set of underlying principles:
Substance over legal form
Actual business activities and economic reality carry more weight than contractual labels or formal structures.
People and decision-making
Where key individuals work, negotiate, manage operations or make decisions is often decisive.
Continuity and regularity
Ongoing or recurring activities are treated differently from occasional or incidental involvement.
Economic value creation
Where value is created, managed or controlled is a central factor in tax attribution.
These principles explain why the absence of a legal entity does not automatically eliminate tax exposure.
Tax presence risk is most commonly associated with the following types of activities:
Employees or directors working structurally from another jurisdiction
Sales personnel or agents with decision-making authority
Long-term or recurring on-site projects
Fixed places of business such as offices, warehouses or workshops
Home offices used as a regular base for business operations
The decisive factor is rarely a single activity, but rather the combination, duration and functional role of these activities.
Certain activities are widely regarded as preparatory or auxiliary and typically do not, on their own, create tax presence:
Occasional business travel
Pure marketing or promotional activities
Independent agents acting in the ordinary course of their business
Short-term presence without operational continuity
Supporting functions without decision-making authority
Risk may still arise when these activities evolve or are combined with more substantive functions.