An American software company, 'USoft Inc.', wants to expand into the UK. Let's look at two scenarios to see when a 'Permanent Establishment' is created.

A UK Permanent Establishment (PE) would make USoft Inc. liable for UK Corporation Tax on its UK profits.

Scenario 1: No PE

USoft Inc. sells its software directly to UK customers via its website. Customers pay online, and there are no UK staff or offices.
In this case, USoft Inc. is simply trading with the UK, not in the UK. No PE is created.

Scenario 2: PE is Created

USoft Inc. decides to rent a small office in London to house a UK sales team. The UK team is responsible for finding new clients and signing contracts on behalf of USoft Inc.
By having a fixed place of business (the London office) from which it carries on its business activities, USoft Inc. has now created a Permanent Establishment in the UK.

The Tax Consequence

The profits that are attributable to the activities of this UK office are now subject to UK Corporation Tax.
USoft Inc. will need to register with HMRC and file a UK Company Tax Return.

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