Tax rarely stops an expansion. It quietly makes it less profitable than the business case promised, usually because four questions were answered after entry rather than before it.
Key takeaways
- Permanent establishment is triggered by activity, not incorporation, so you may already have exposure before you formally enter.
- Intercompany pricing needs documentation prepared at the time, not reconstructed under audit two years later.
- Withholding tax relief under a treaty is rarely automatic and usually needs a residence certificate and a correctly filed claim.
- Indirect tax registration causes more early penalties than profit taxes, and several jurisdictions have no threshold for digital services.
- The global minimum tax now runs on a side-by-side basis agreed in January 2026, but it applies to very large groups and most expanding companies remain outside it.
Expansion business cases tend to model revenue carefully and tax as a single percentage. That percentage is where the margin goes. Four questions, asked before you commit, do most of the work of protecting it.
1. When do we create a taxable presence, and have we already?
Permanent establishment is the concept that decides whether a country can tax profits you earn there. It is not triggered by incorporating; it is triggered by activity. A fixed place of business will do it. So, in most treaty language, will a person who habitually concludes contracts on your behalf, which is a fair description of a good salesperson.
This matters most to companies who think they have not entered yet. A remote employee hired through a contractor arrangement, closing deals from their home in the target country, can create a taxable presence before anyone has signed a lease. The exposure is retrospective: assessments, interest, and penalties for years already filed.
Ask it in the present tense first. Where do our people already work, and what do they actually do there? If the honest answer involves someone negotiating or signing, the question is no longer hypothetical.
2. What does the local entity get paid, and can we defend it?
Once a foreign subsidiary exists, transactions between it and the parent have to be priced as if the two were unrelated. Intercompany services, licensing of IP, cost-sharing, and management charges all fall inside this.
The common pattern in early expansion is a local sales entity that books a small cost-plus margin while the parent keeps the profit. That is a perfectly ordinary arrangement, but it needs a functional analysis behind it explaining why the local entity bears little risk, and documentation prepared close to the time. Assembled two years later, under audit, it reads as reconstruction.
Two practical rules: keep the model consistent across markets, because inconsistency is what audit selection looks for; and revisit it when the local operation grows real functions. A country office that has started managing its own pipeline, pricing, and key accounts is no longer a low-risk service provider, whatever the intercompany agreement says.
3. What gets withheld on the way out?
Money moving from the new market back to the parent, whether dividends, interest, royalties or sometimes service fees, often attracts withholding tax at source. Treaty relief can reduce it substantially, but it is not automatic. It usually requires a certificate of residence, a claim filed correctly, and sometimes evidence that the recipient is the beneficial owner rather than a conduit.
Two things follow. First, the holding structure matters, and it is far easier to establish before profits start moving. Second, the relief is only worth what the paperwork supports. Many groups pay the headline rate for a year or two purely because nobody filed the form.
4. Where do the indirect registrations bite?
VAT, GST, and sales tax are not profit taxes, so they get treated as an accounting detail. They are the most common source of early penalties, because registration thresholds and timing rules vary and are unforgiving.
Digital and cross-border services are the sharp edge. Many jurisdictions require registration from the first sale to a local consumer, with no threshold at all. Marketplace rules can shift the obligation onto you or away from you depending on how the transaction is structured. And in several countries payroll registration must be complete before the first employee's start date, not before the first payment run.
Since 2026, indirect tax compliance in Europe also means invoicing mechanics. Belgium, Poland and France have brought mandatory B2B e-invoicing into force this year, each with its own network and format, which we cover in the 2026 e-invoicing deadlines.
Where the global minimum tax fits
Pillar Two, the 15% global minimum tax, generally applies to groups with consolidated revenue above €750 million, so most companies entering their first or second market sit outside it. It is still worth knowing where it stands. After prolonged negotiation, the Inclusive Framework agreed a side-by-side package in January 2026 that lets US-parented groups meeting minimum taxation requirements elect into new safe harbours rather than the full set of interlocking rules, alongside simplification measures and an extension of the transitional country-by-country safe harbour. Domestic minimum top-up taxes remain the primary mechanism for protecting local tax bases. If you are venture or private-equity backed and your group could cross the threshold, ask where your structure lands before you add entities, not after.
Answer them in this order
- Map current activity and check whether a taxable presence already exists. This is a look backwards, and it is the one with retrospective cost.
- Decide the entity and holding structure, and design it for the markets on the roadmap, not only the first.
- Set the intercompany model and write the documentation while the facts are fresh.
- List every registration the market requires, with its deadline, and put an owner against each one.
None of this is exotic. It is ordinary work, and it is dramatically cheaper before entry than after, which is the entire argument for asking early.
This article is general information about how these questions tend to arise, not tax advice for any particular company. Positions vary considerably by jurisdiction, treaty, and facts, and the rules described here continue to change.
Frequently asked questions
What triggers a permanent establishment?
Typically a fixed place of business in the country, or a person who habitually concludes contracts on the company behalf. It follows from activity rather than from incorporation, so exposure can arise before a company formally sets up in the market.
Does the global minimum tax affect a company entering its first foreign market?
Usually not. The rules generally apply to groups with consolidated revenue above €750 million. Smaller companies should still understand where their structure would land if the group grows or is acquired.
When do we need to register for VAT in a new market?
It depends on the country and what you sell. Many jurisdictions require registration from the first sale of digital services to a local consumer, with no threshold, while others apply turnover thresholds. Payroll registration often has to be complete before an employee start date.
Sources
Primary sources for the rules described above. Regulatory dates change; check the source before acting on anything here.
Written by the Nexus Notabu team. If this raises a question about a market you are considering, tell us where you want to grow.