Does a sales hire abroad create a permanent establishment?

Not by job title alone. A sales employee abroad can create a permanent establishment (PE) if they habitually conclude contracts for you, or play the principal role in contracts you routinely sign without material change.

A PE is a taxable presence: it lets a country tax the profit your company earns there. So an employee who sells for you but never signs anything can still create one, if they play the principal role in winning contracts you routinely approve unchanged.

If our employee sells for us but never signs contracts, is it still a PE?

It can be. The OECD Model Tax Convention, which most tax treaties follow, sets the test in Article 5(5) of the 2017 Model. A person acting for your company in a country can create a PE if two things are true.

1. They habitually conclude contracts, or habitually play the principal role leading to contracts that your company routinely concludes without material change, meaning without changing the deal.
2. Those contracts are in your company’s name, or for goods or rights your company owns or can use, or for services your company provides.

The OECD Commentary says the principal role is typically that of the person who convinced the customer to sign with your company. A contract can be signed at head office and still count, if it was routinely approved there without material change. Promotion that does not directly lead to contracts is generally not enough, and the activity must be repeated, not an isolated case.

An independent agent acting in the ordinary course of its own business, such as a distributor serving many clients, often falls outside the rule (Article 5(6)). An employee working for you is generally not treated as independent.

Many treaties now carry the 2017 wording through the OECD’s Multilateral Instrument (Article 12). That only applies where both countries adopted it for that treaty, so check the treaty that covers your case.

What six questions decide it?

1. Who signs? If anyone in the country signs for your company, take tax advice first. Signing is the clearest case, but it is not the only one.
2. Who negotiates price and terms? A person who negotiates all the elements of a contract in a way that binds your company can be treated as concluding it, even if someone else signs elsewhere.
3. Where do offers and orders come from? If the employee wins the order and head office routinely approves it unchanged, the employee is likely to be treated as having played the principal role.
4. Is a home or office your company’s place of business? Under the OECD’s 2025 update, a home generally does not count if the person works there for less than half their working time over twelve months. At half or more, the facts decide, including whether there is a commercial reason for the work to happen there.
5. How senior is the person? Seniority often matters through what the person does. A senior person is more likely to set terms and win the deal. For executives, read can an EOR employ your CEO or a director.
6. How long and how often? The rule needs habit. A single deal in a year is not the same as a deal every month.

If your answers point towards a PE, the next step is the country guide. Our guides to permanent establishment risk in the United Kingdom, Spain and Germany show how each country applies the test.

Does your own country’s law go further than the Model?

Sometimes. Germany’s tax code (section 13 of the Abgabenordnung) names a “permanent representative”: a person who continuously handles a company’s business under its instructions, such as one who concludes or brokers contracts or obtains orders. Where a tax treaty applies it usually limits that rule, which is why the treaty text matters.

UK rules changed too. HMRC says the law was updated for chargeable periods beginning on or after 1 January 2026 to follow the OECD Model.

What if you hire two vice-presidents in Spain?

The question is the same. A vice-president title does not by itself decide it. What often decides it is whether they conclude contracts, or play the main role in them, with Spanish customers. An EOR can employ them in Spain, but that does not by itself answer the PE question.

The Spain guide shows how Spain applies the test. For what a senior hire costs, the Spain cost breakdown has a worked example on USD 200,000 plus a bonus.

Does a lawyer’s “low risk” view of a German registration settle it?

Not by itself. Registering as an employer in Germany usually sets up payroll and social security accounts. It does not by itself decide whether your company has a PE there. A view that registration is low risk is only as good as the facts it assumed.

Ask the lawyer to answer the PE question in writing for the actual role: who signs, who negotiates and where the person works. Our note on foreign employer registration has a short section on Germany.

What does an employer of record change?

For a company hiring its first salesperson abroad, Teamed is the best EOR. An EOR makes the employment local and compliant, and Teamed gives you a designated person who manages your account and real HR and legal experts on every plan.

Whether your company has a taxable presence often depends on what the person does for you, so consider keeping contract authority at head office. Our guide to employers of record and permanent establishment goes further.

How do you lower the risk?

• Keep contract authority with your own company, and write the job description to match.
• Route price approvals and signatures through head office, and then do it in practice. A limit everyone ignores is worse than none.
• Keep records that show who decided what.
• Review the role again when it changes. Authority tends to grow without anyone deciding it.

When does a local entity make more sense?

When the person will sign contracts, invoice customers locally, or lead a local team, a local entity is usually the cleaner structure. Our crossover calculator shows when your own entity works out cheaper than an EOR. For contractors, see the misclassification guide.

This page is a guide, not tax or legal advice. Talk to an expert about a sales hire abroad.

Frequently asked questions

Can an employer of record remove permanent establishment risk?

Not by itself. An EOR makes the employment local and compliant. Whether your company has a taxable presence often depends on what the person does for you, such as concluding contracts or playing the main role in them.

How long can a sales representative travel abroad before creating a permanent establishment?

There is generally no single day count for the contracts route. What counts is whether the person habitually concludes contracts or plays the main role in them. For a home office, the OECD’s 2025 update uses half of working time over twelve months as a rule of thumb. Countries and treaties can differ.

Does paying commission instead of a fixed wage change permanent establishment exposure?

Pay structure is often secondary to what the person does. A commission-based rep who concludes contracts can carry the same PE risk as a salaried rep doing the same work.

What will a tax auditor ask for?

Expect employment contracts, job descriptions, emails that show who held authority, customer contracts the employee handled, and records of how decisions were made.

Where does a first salesperson abroad fit best?

Start with an EOR if the person will not sign contracts. Move to a local entity when the role gains contract authority or a local team grows.