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 Australia are handled through a centralised federal tax authority with a strong body of published public rulings and (sanitised) private ruling guidance.
Audits, assessments and international tax guidance are administered by the Australian Taxation Office (ATO) (link).
In practice, the ATO’s published rulings and interpretative material are used as the primary benchmark for assessing whether foreign enterprises trigger a fixed place permanent establishment or a dependent agent permanent establishment in Australia.
Australia’s central public authority on permanent establishment is ATO Taxation Ruling TR 2002/5, which sets out the ATO’s approach to fixed place permanent establishments, dependent agent permanent establishments, and the importance of permanence and functional substance (link).
This ruling is particularly relevant for people-based and project-based presence because it explains how Australia evaluates whether a place is “at or through which” business is carried on, and how the permanence requirement is applied in practice.
A practical illustration of Australia’s PE analysis is visible in ATO-published private ruling decisions (edited for confidentiality). One example considers whether a foreign company had a permanent establishment in Australia as a result of a CEO being located in Australia, and shows how outcomes can turn on what the executive actually does in Australia and whether the enterprise has a place of business through which it carries on business (link).
Another example sets out the ATO’s dependent agent analysis under a tax treaty, including the requirement that an agent has and habitually exercises authority to conclude contracts, and how that standard is applied to the facts (link).
The practical takeaway from these rulings is that Australia’s analysis is strongly functional: formal signing location matters less than who drives contract outcomes, who controls key decisions, and whether Australia has become a stable operating base for core functions.
Australia published specific guidance on how COVID-related displacement can affect residency and permanent establishment outcomes for foreign-incorporated companies (link).
In addition, the ATO issued an addendum to TR 2002/5 (TR 2002/5A3) to include an example where a period of six months or more would not constitute temporal permanence due to extraordinary circumstances, illustrating how the ATO distinguishes exceptional, temporary presence from a business-designed operating model (link).
Scrutiny typically increases where personnel are permanently based in Australia, where home offices function as stable operating bases for core business activity, where sales or customer management is carried out locally, where projects show continuity, or where dependent agent patterns are present in day-to-day operations.
ATO assessments are documentation-driven and focus on operational facts: who does what in Australia, whether the Australia presence is commercially decisive, and whether the arrangement shows permanence rather than temporary presence.
If a permanent establishment is established, Australia may tax profits attributable to Australian activities and require local filings and profit attribution documentation. Where positions are identified after the fact, retroactive assessments are possible and attribution often becomes the central issue.
In Australia, incorporation often becomes the cleaner option once people-based activity is intended to be permanent, when commercially decisive functions are exercised locally, or when ongoing PE and profit attribution compliance becomes operationally inefficient. At that stage, incorporation typically provides clearer boundaries and more predictable 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.