Permanent establishment

A permanent establishment is a taxable presence. If a foreign company has one in India, the profits attributable to it are taxable in India and the company must file an Indian return. It is decided by what actually happens on the ground, not by which entity signs the employment contract, so employing people through an Employer of Record does not settle the question on its own. It does change the facts in the company’s favour, and the rest of this page explains how.

Where the rule comes from

Indian domestic law taxes a foreign company on income arising through a “business connection” in India. Where India has a tax treaty with the company’s home country, the treaty’s permanent establishment article decides whether India may tax at all, and the treaty prevails where it is more favourable. For a United States company that is Article 5 of the India–United States treaty; the United Kingdom and most European countries have equivalent articles.

The article describes three broad routes to a permanent establishment. A fixed place of business in India at the company’s disposal. A dependent agent in India who habitually concludes contracts, or secures orders, on the company’s behalf. And a service permanent establishment, where the company furnishes services in India through its personnel for longer than the treaty’s day-count threshold in a twelve-month period.

What an Employer of Record changes, and what it does not

On an Employer of Record arrangement the people are employed by Bridge91, work from their own homes or from space Bridge91 arranges, and are paid by Bridge91 in rupees. The foreign company holds no lease, no Indian bank account and no registration. That removes the most common fixed-place trigger and keeps the company off the Indian statutory record entirely.

It does not change what the people do. A team that builds product, runs support or keeps the books for the company’s customers elsewhere is a cost centre in India. A team that finds Indian customers, negotiates with them and closes deals is doing business in India, whoever employs them, and that is where the dependent-agent route opens. The employer of record is a legal fact; the risk turns on the commercial one.

The patterns that raise the risk

Employees in India with authority to negotiate or conclude contracts for the company, or who in practice do so and have the signature added abroad afterwards. Revenue from Indian customers generated by the India team. Senior decision-makers based in India directing the company’s business from there. Office space leased in the company’s own name, or a client site the team works from continuously. Long periods of the company’s foreign staff working in India alongside the team.

None of these is fatal on its own, and none is inherent to hiring in India. They are choices about how the India team is used, and they are most easily made deliberately before the first hire rather than discovered at an audit.

Keeping the position clean

The India team’s roles are defined as delivery and support for the company’s business elsewhere, with no authority to bind the company, and the job descriptions and appointment letters say so. Sales into India, where it happens, is handled from abroad or through a separately contracted distributor. Decisions are taken and recorded where the company is managed. Foreign staff visiting India are tracked against the treaty day counts. The arrangement is documented once, then reviewed when the team’s remit changes.

When a client outgrows the Employer of Record model and moves onto its own Indian entity through Bridge91 Elevate, the question changes shape rather than disappearing: the Indian company is then taxed on its own profits, and the price it charges its parent for the work must be set at arm’s length under India’s transfer pricing rules. That is a Business Operations matter and is planned as part of the move.