How Can HR Leaders Spot Early Signs That a Sales Role Abroad Has Become 'Doing Business'?

You hired a talented sales representative to explore the German market. Six months later, they're negotiating enterprise contracts with local banks, managing key client relationships, and generating significant revenue. What started as market exploration has quietly evolved into something much more substantial and potentially risky.

This scenario plays out across mid-market companies every day. What begins as a single overseas sales hire can inadvertently trigger "doing business" obligations, creating permanent establishment risks, tax liabilities, and compliance headaches. For HR leaders managing distributed teams across multiple countries, spotting these triggers early can mean the difference between strategic growth and expensive regulatory surprises.

Key Takeaways

Before diving into the warning signs, here are the core insights every HR leader should understand:

• Sales roles abroad trigger "doing business" status through concrete activities like contract negotiation, relationship management, and revenue generation not mere market exploration
• Mid-market companies face higher scrutiny than startups due to sales volume, perceived permanence, and elevated compliance expectations
• Europe varies by threshold: Germany emphasises physical presence duration, France focuses on revenue attribution, the UK examines business substance
• Early detection can reduce penalties and help you select the right employment model (contractor vs EOR vs entity) before triggers activate
• Finance and legal teams must jointly assess risk through documentation trails, activity monitoring, and jurisdiction-specific frameworks

Early Warning Signs Your Overseas Sales Hire Is Now Doing Business

The line between market exploration and "doing business" isn't always clear, but certain activities consistently signal when a sales role has crossed into riskier territory.

Contract Authority and Negotiation Power

When your sales representative moves beyond presenting pre-approved proposals to actively negotiating terms, you're entering dangerous waters. This includes adjusting pricing, modifying contract clauses, or making commitments that bind your company without home office approval.

Market exploration typically involves gathering information, presenting standard offerings, and forwarding serious inquiries back to headquarters. Doing business means your representative has the authority to close deals locally.

Client Relationship Ownership

A clear shift occurs when your sales hire transitions from prospecting to owning ongoing client relationships. This includes managing renewals, handling customer service issues, and becoming the primary point of contact for strategic accounts.

If local clients view your representative as their dedicated account manager rather than a liaison to your main office, you've likely crossed the threshold.

Revenue Generation Responsibility

When your overseas hire becomes quota-carrying with commissions tied to local performance, regulatory authorities often view this as evidence of substantial business activity. This is particularly true if they're responsible for a significant portion of regional revenue.

Physical Presence Indicators

Regular local office hours, even from a home office, can create permanent establishment risk. The OECD's 2025 Model Tax Convention now establishes that working more than 50% of time from a home or relevant place abroad in a rolling 12-month period may constitute a permanent establishment. This includes maintaining a dedicated workspace, using a local address for business purposes, or conducting frequent in-person meetings with clients.

The key isn't just presence - it's the nature of activities conducted during that presence.

Decision-Making Autonomy

Perhaps the strongest indicator is when your representative can approve discounts, customise offerings, or make operational commitments without seeking approval. This level of autonomy suggests they're conducting core business functions, not auxiliary activities.

Geographic Integration Example

Consider a UK-based fintech whose Amsterdam sales representative initially conducted market research and qualified leads. Within eight months, they were negotiating enterprise contracts with Dutch banks, managing implementation timelines, and handling customer support escalations. This evolution prompted immediate EOR evaluation to manage the permanent establishment risk that had developed.

Why Mid-Market Companies Must Spot These Triggers Earlier Than Startups

Mid-market companies operate under different scrutiny levels than early-stage startups, making early detection of "doing business" triggers even more critical.

Revenue Visibility Creates Presumptions

When your company generates significant revenue, regulatory authorities presume commercial substance behind overseas activities. A 500-employee company with a sales representative in Germany faces different assumptions than a 15 person startup testing the market.

Tax authorities often view scaling firms as sophisticated operators who should understand compliance obligations, reducing tolerance for "we didn't know" explanations.

Compliance Infrastructure Expectations

Regulators expect mid-market companies to have proper compliance frameworks in place. The informal approaches that work for startups can create liability when applied at scale.

This includes maintaining proper documentation, understanding local employment laws, and having clear policies around overseas activities.

Audit Likelihood Increases

Companies in regulated sectors like financial services, healthcare, and defence face heightened audit probability as they scale. A single overseas sales role that triggers permanent establishment can expose the entire organisation to scrutiny.

Penalty Severity Scales

Back taxes, fines, and interest charges scale with company size and revenue. What might be a manageable penalty for a startup can become a material financial impact for a mid-market company.

Investor Due Diligence Standards

Series B and later funding rounds typically include thorough employment structure reviews. Clean international employment design becomes a competitive advantage, while compliance issues can derail fundraising.

Contrast Example

German tax authorities approach a 50-person SaaS company's Frankfurt sales activities very differently than a 5-person startup's market testing. The established company faces presumptions of permanence, substance, and sophistication that don't apply to early-stage ventures.

The Five Regulatory Tripwires HR Leaders Miss in Europe

European jurisdictions each have specific triggers that can catch unprepared HR teams off guard. Understanding these nuances can help you stay ahead of compliance risks.

1. Germany - Physical Presence Test

Germany's 183-day rule isn't just about calendar days. Frequent client visits, regular meetings, and maintaining business relationships can imply fixed presence even without a formal office. Recent rulings have lowered this bar further, Germany's Federal Tax Court determined that even a six-month period of fixed place plus activity triggers PE status.

The key consideration is whether activities constitute more than auxiliary or preparatory functions. Active sales negotiations typically cross this threshold.

2. France - Revenue Attribution

French authorities focus heavily on where value is created and revenue is generated. If your sales representative is attributing significant revenue to French activities, this can create taxable presence regardless of where contracts are formally signed. With France maintaining a 36.1% corporate tax rate, among the highest globally, the financial implications of triggering permanent establishment can be severe.

This is particularly relevant for enterprise sales where local relationship building drives deal closure.

3. UK - Business Substance Post-Brexit

The UK has shifted emphasis toward examining what the person actually does rather than mere presence. Substantial business activities like client management, deal negotiation, and revenue generation can trigger obligations, potentially exposing companies to the UK's 25% corporation tax rate for profits over £250,000.

Post-Brexit changes have made UK authorities more focused on genuine business substance rather than formal structures.

4. Netherlands - Profit Attribution

Dutch tax authorities examine whether sales activities generate attributable profit that should be taxed locally. This can include commission structures, deal margins, and the economic value created through local activities.

The focus is on economic substance rather than just physical presence.

5. EU-wide Employment Law Considerations

Beyond tax obligations, sales roles can trigger employment law requirements across the EU. This includes local benefits, working time rules, and termination protections that vary by jurisdiction.

Healthcare Tech Example

A 200-employee healthcare technology company could trigger each threshold through common sales expansion steps. Initial market research in Germany becomes permanent establishment when the representative starts negotiating with hospital systems. French revenue attribution kicks in when local deals close. UK business substance develops through ongoing client management. Dutch profit attribution applies when commissions reflect local deal value.

Contractor, EOR or Entity: A Decision Tree When Sales Activity Escalates

When your overseas sales activities start triggering "doing business" concerns, choosing the right employment model becomes critical. Each option offers different levels of protection and control.

Contractor Suitability

Contractors work best for limited scope activities with minimal control. This includes market research, lead qualification, and presenting standard proposals. The key is maintaining genuine independence and avoiding contractor misclassification.

True contractor relationships require non-exclusive arrangements, project-based work, and limited integration with your business operations. Understanding contractor compliance requirements helps avoid misclassification risks.

EOR Transition Triggers

Consider moving to an Employer of Record when your sales hire becomes quota carrying, owns ongoing client relationships, or maintains regular local presence. EOR arrangements can provide employment law protection while you evaluate longer term strategy.

EOR services can help manage the transition period when activities have escalated beyond contractor scope but don't yet justify entity establishment.

Entity Establishment Timing

Your own entity becomes attractive when you have local revenue targets, growing headcount, need for local invoicing and contracts, or regulatory license requirements. This provides maximum control but requires ongoing compliance obligations.

Hybrid Models and Staged Transitions

Many successful companies use staged approaches piloting through EOR arrangements, then establishing entities when revenue and headcount justify the investment. This avoids compliance gaps while managing costs.

Cost-Benefit Analysis

Compare total costs including fees, taxes, and administrative overhead against operational control and compliance protection. The cheapest option isn't always the most cost effective when compliance risks are considered.

German Fintech Scenario

A 300-employee fintech expanding into Germany might follow this progression:

• Early phase - Contractor for market testing and lead qualification
• Growth stage - EOR once negotiation and account management begin
• Scale phase - Entity establishment when revenue and headcount justify local control and tax efficiency

This staged approach manages risk while building toward long-term strategic goals.

Cost of Ignoring Permanent Establishment in Germany, France and the UK

The financial consequences of missing permanent establishment triggers can be severe, particularly for mid-market companies with substantial revenue streams.

Back-Tax Calculations

Tax authorities typically attribute profit to local activities over deemed operational periods. This can result in significant back-tax liabilities based on revenue generated through local sales activities.

Calculations often include deemed profit margins applied to local revenue, creating substantial financial exposure.

Penalty Structures in Key Markets

Germany: Penalties can include interest charges, late filing fees, and potential surcharges for non-compliance. German authorities are particularly focused on substance over form.

France: French penalties can be severe, with additional charges for failure to register and file required returns. Revenue based penalties can scale quickly.

UK: Post-Brexit enforcement has intensified, with penalties for failure to register and ongoing non-compliance. The UK focuses on business substance and economic reality.

Operational Disruption

Beyond financial penalties, enforcement actions can disrupt sales operations. This might include contract holds, customer relationship impacts, or restrictions on business activities while compliance issues are resolved.

Reputational Impact

In regulated industries, compliance failures can damage customer trust and competitive positioning. Enterprise clients often require clean compliance records from vendors.

Ongoing Obligations

Once permanent establishment is established, companies face heightened audit frequency, ongoing monitoring requirements, and additional reporting obligations across jurisdictions.

Cross-Border Spillover Effects

Issues in one jurisdiction can trigger scrutiny in others across Europe. A permanent establishment determination in Germany might prompt reviews in France and the UK.

How to Engage Finance and Legal for Rapid Risk Assessment

When potential "doing business" triggers emerge, coordinating across HR, finance, and legal teams becomes essential for rapid response.

Documentation Collection Process

Start by gathering comprehensive activity logs showing what your overseas representative actually does day-to-day. Include deal stages, approval workflows, client interaction records, and revenue attribution data.

Travel records, office arrangements, and local business development activities provide additional evidence of business substance.

Risk Assessment Timeline

Establish clear service level agreements for triage - typically 48 to 72 hours for initial assessment, followed by one to two weeks for deeper jurisdictional review involving local counsel.

Quick triage can help determine urgency level and resource allocation for more detailed analysis.

Decision Rights and Escalation

Map clear escalation paths for employment model changes and budget approvals. Define who can authorise EOR arrangements, entity establishment, or other compliance measures.

This prevents delays when rapid action is needed to address emerging risks.

External Counsel Engagement

Engage local experts when activities approach threshold triggers or when sector-specific rules apply. This is particularly important for regulated industries with additional compliance layers.

Local counsel can provide jurisdiction-specific guidance that internal teams might miss.

Implementation Coordination

Coordinate across HR, finance, and legal to execute EOR onboarding or entity setup without compliance gaps. This includes managing employment transitions, payroll changes, and regulatory filings.

Defence Contractor Example

A 500-employee defence contractor coordinates rapid review when their Berlin representative begins negotiating government contracts. The 72-hour triage identifies immediate permanent establishment risk, triggering local counsel engagement and EOR transition within two weeks.

When to Graduate From EOR to Your Own Entity Without Over-Spending

Knowing when to move from EOR arrangements to your own entity can optimise costs while maintaining compliance protection.

Headcount Thresholds

When your local team includes sales plus customer success plus marketing functions, entity overhead often becomes justified. Multiple employees in different functions typically signal permanent market commitment.

The exact threshold varies by jurisdiction, but 3-5 employees often represents the tipping point for entity consideration.

Revenue Attribution Analysis

Local booking and recurring revenue can make entity structures more tax-efficient than ongoing EOR fees. This is particularly relevant when local revenue exceeds certain thresholds or represents significant portions of total company revenue.

Operational Complexity Indicators

Need for local contracts, government tender participation, banking relationships, and procurement requirements often justify entity establishment. These operational needs can outweigh pure cost considerations.

Compliance Evolution

Industry licenses, sector-specific rules, and local benefits frameworks are sometimes better managed through owned entities rather than EOR arrangements.

Strategic Timing Considerations

Align entity establishment with funding rounds, audit cycles, and market entry milestones. This can optimize both operational efficiency and investor perception.

Multi-Country Comparison

A 400-employee SaaS firm might compare Germany, France, and Netherlands markets, graduating to entities first where revenue and headcount hit thresholds earliest while maintaining EOR arrangements in developing markets.

Gain Strategic Clarity With Advisors Who Have Guided 200-2,000 Headcount Teams

Navigating the complexity of international employment strategy requires expertise that matches your company's sophistication level.

Mid-Market Specialisation

Working with advisors who understand the unique challenges facing 200 to 2,000 headcount organisations can provide insights that generic solutions miss. These companies need strategic guidance, not just operational execution.

Mid-market firms face different regulatory expectations, audit probabilities, and investor scrutiny than early-stage startups or large enterprises.

Strategic Advisory Beyond Transactions

The best advisory relationships focus on model selection, graduation timing, and risk management rather than just processing paperwork. This includes guidance on when to move from contractors to EOR to entities based on your specific growth trajectory.

Cross-Jurisdiction Expertise

Access to local legal insight across multiple countries can help you understand jurisdiction-specific nuances before they become problems. This is particularly valuable for European expansion where each country has distinct requirements.

Unified Relationship Management

Managing employment strategy through one strategic partner across markets and models can provide continuity that fragmented vendor relationships cannot match. This becomes increasingly valuable as your international footprint grows.

Rapid Implementation Capability

Once strategy is clear, the ability to execute transitions and onboarding within 24 hours can be critical when compliance timelines are tight.

Teamed combines strategic advisory with operational infrastructure, helping mid-market companies navigate the transition from overseas sales exploration to established international operations. Our advisors can support your evaluation of employment models, guide graduation timing decisions, and execute rapid transitions when compliance requirements demand immediate action.

Whether you're spotting early "doing business" triggers or planning strategic expansion, talk to the experts who understand the unique challenges facing growing companies in regulated industries.

FAQs About Spotting "Doing Business" Triggers

What defines a mid-market company for employment strategy purposes?

Mid-market typically refers to companies with 200 to 2,000 employees or revenue between £10 million and £1 billion. These are scaling firms that need sophisticated employment guidance but don't have enterprise-level resources for dedicated global employment counsel.

Does one salesperson automatically create permanent establishment risk?

Not automatically, but potentially. The risk depends on what activities the salesperson performs rather than just their presence. Contract negotiation, client ownership, and revenue generation can trigger permanent establishment even with a single individual.

How do European permanent establishment thresholds differ from US nexus rules?

Europe typically emphasizes business substance and profit attribution, focusing on the economic reality of activities performed. US nexus rules often center on physical presence thresholds and sales volume, though this varies by state.

Can an EOR arrangement fully eliminate doing business risk?

EOR arrangements can reduce employment law risk but may not completely remove permanent establishment risk if the activities themselves constitute doing business. The nature of work performed often matters more than the employment structure.

How long does entity establishment typically take if risk is imminent?

Entity establishment in Europe typically takes 2 to 6 weeks, though some structures can be expedited. EOR arrangements can often be implemented within days to provide interim protection while entity setup proceeds.

What documentation helps prove limited sales activity to authorities?

Activity logs showing scope of work, approval workflows demonstrating limited authority, revenue attribution records, travel documentation, and clear job descriptions can help demonstrate auxiliary rather than core business activities.

How can advisory services support ongoing compliance monitoring?

Advisory services can provide regular risk assessments, regulatory update monitoring, and threshold guidance to help prevent triggers before they arise. This proactive approach is often more cost effective than reactive compliance remediation.or