Fixed Place Permanent Establishment

What Is a Fixed Place Permanent Establishment?

A Fixed Place Permanent Establishment (Fixed Place PE) is the original and most common way a foreign company becomes taxable in India on its business profits. It arises when a foreign enterprise has a physical location in India — an office, a factory, a workshop, a branch — that is fixed in place, sufficiently permanent, and used to actually carry on the enterprise's business. This entry covers the fixed-place sub-type specifically. For the other routes to a Permanent Establishment (PE) — construction PE, service PE, agency PE, and Significant Economic Presence — see the main PE entry.

Fixed Place PE matters because it is the default test under Article 5(1) of nearly every Indian tax treaty, and it requires no minimum number of days, no contract-signing authority, and no digital threshold. A single rented desk used continuously to run part of the business can be enough.

Legal Basis

Treaty Definition — Article 5(1) and 5(2)

Where a Double Taxation Avoidance Agreement is in force, its PE article — almost always Article 5 — governs, and its definition overrides the domestic Income-tax Act definition. Article 5(1) of India's tax treaty with the United States defines a permanent establishment as "a fixed place of business through which the business of an enterprise is wholly or partly carried on." Article 5(1) of India's tax treaty with Germany uses the identical phrase: "a fixed place of business through which the business of an enterprise is wholly or partly carried on." This wording — drawn from the OECD and UN Model Tax Conventions — is the general fixed-place test that Article 5(2) then illustrates.

Article 5(2) lists examples that "especially" qualify as a fixed place PE. The two treaties illustrate how the list can vary in detail even though the underlying test is the same:

The construction and service items in this table are technically their own PE categories (construction PE and service PE) rather than pure fixed-place items, but both treaties fold them into the same Article 5(2) list. See the main Permanent Establishment entry for how those thresholds are applied across more treaty partners.

Domestic Law — Section 173(c), and Why "Business Connection" Is a Different Test

The Income-tax Act, 2025 does define "permanent establishment" in fixed-place terms. Section 173(c) of the Income-tax Act, 2025 (section 92F(iiia) of the Income-tax Act, 1961) — the definitions clause for the transfer-pricing and related sections — states that "'permanent establishment' ... includes a fixed place of business through which the business of the enterprise is wholly or partly carried on". The same fixed-place wording is repeated in section 397(2)(d) of the Income-tax Act, 2025, which spares a non-resident "who does not have permanent establishment in India (which includes a fixed place of business through which the business of the enterprise is wholly or partly carried on)" from the higher rate of tax collection that otherwise applies where a valid Permanent Account Number is not furnished.

But this domestic "fixed place of business" phrase is not the operative deeming rule for ordinary business income. That rule sits at section 9(2)(c) of the Income-tax Act, 2025 (section 9(1)(i) of the Income-tax Act, 1961), which deems income accruing through a "business connection in India" to arise in India. Section 9(9)(a) defines "business connection" — and its two limbs are an agency/operations test (a business carried out in India, including through a dependent agent who habitually concludes contracts, maintains a stock of goods for delivery, or habitually secures orders) and a Significant Economic Presence test. Neither limb is phrased as a fixed-place test. In practice this means: where a DTAA applies, Article 5(1)-(2)'s fixed-place language is what decides whether a physical location creates a PE; where no DTAA applies, the broader "business connection" concept under section 9(9) governs instead, and a foreign company can be caught even without anything resembling a fixed place.

The Three Elements of the Fixed Place Test

Tax authorities and courts applying Article 5(1) generally look for three elements together, drawn from how the OECD Model Commentary explains this test (secondary source, used here for interpretive framing only — the binding text is the treaty article itself):

• A place of business exists. Premises, facilities, or equipment at the enterprise's disposal — owned or rented, and even a portion of another company's premises can qualify if the foreign enterprise has an element of control over that space.
• The place is fixed. It must be at a distinct geographical point and have a degree of permanence — a location used for a single, brief transaction is unlikely to qualify, while a location used continuously or repeatedly over time typically does.
• Business is carried on through it. The enterprise's own personnel or automated equipment must conduct business activity from that location, and the activity must go beyond the preparatory-or-auxiliary exclusions described below.

What Does Not Qualify — The Preparatory or Auxiliary Exclusion

Both treaties carve out a list of activities that do not create a fixed place PE even though they happen at a fixed location. Article 5(4) of the India-Germany DTAA excludes: (a) use of facilities solely for storage, display or delivery of the enterprise's own goods; (b) maintaining a stock of goods solely for storage, display or delivery; (c) maintaining a stock of goods solely for processing by another enterprise; (d) a fixed place used solely for purchasing goods or collecting information for the enterprise; (e) a fixed place used solely for any other activity of a preparatory or auxiliary character; and (f) a fixed place used solely for a combination of (a) to (e), provided the overall activity remains preparatory or auxiliary. Article 5(3) of the India-US DTAA carries the same substantive exclusions — storage, display or occasional delivery of goods; maintaining stock for processing by another enterprise; purchasing goods or collecting information; and advertising, information supply, scientific research, or other preparatory or auxiliary activities.

These exclusions exist so that genuine support functions — a small liaison desk that only collects market information, or a warehouse that only stores goods before delivery — do not by themselves expose the foreign parent to Indian tax. The moment that same location starts negotiating deals, servicing customers, or performing the enterprise's core revenue-generating activity, the exclusion stops applying.

Why Fixed Place PE Matters for a Foreign Company

• No minimum stay is required. Unlike construction PE (120 days under the India-US DTAA, six months under the India-Germany DTAA) or service PE (90 or 183 days depending on the treaty), a fixed place PE can arise from day one if the location is genuinely fixed and used to carry on business.
• Tax follows the profits attributable to that place. Once a fixed place PE exists, India can tax the business profits reasonably attributable to it, computed on an arm's-length basis.
• It applies even without any local entity. A rented office used by remote staff, with no Indian subsidiary or branch registered at all, can still be a fixed place PE — registration status is irrelevant to the tax analysis.

Practical Example

A US-headquartered analytics company rents a small office in Pune where four employees maintain servers and provide ongoing technical support to the company's global customers. The office is leased on a rolling basis and has been in continuous use for over a year. Under Article 5(1) of the India-US DTAA, this is a fixed place of business through which part of the company's business — technical support — is wholly or partly carried on. The preparatory-or-auxiliary exclusions in Article 5(3) do not help, because ongoing technical support to customers is a core business function, not mere information-collection or advertising. The company has a fixed place PE in India and must have the profits attributable to the Pune office assessed to Indian tax, even though it has no registered branch or subsidiary there.

Common Mistakes

• Assuming only a branch office or subsidiary can trigger a PE. A fixed place PE has nothing to do with registration — an unregistered rented desk used to run part of the business is enough.
• Treating every physical presence as taxable. Warehousing, information-collection, and purely preparatory activities are excluded under Article 5(3)/5(4) of most treaties — the exclusion depends on what the location actually does, not merely that it exists.
• Reading the domestic Income-tax Act's "fixed place of business" wording as the operative test. Section 173(c) restates the fixed-place idea for definitional cross-references — as does section 397(2)(d) for the no-PAN collection rate — but the actual deeming rule for ordinary business income runs through the "business connection" test in section 9(9), which is an agency/operations and Significant Economic Presence test, not a fixed-place test.
• Applying one treaty's Article 5(2) list to another country. Both treaties list a warehouse, a sales outlet and a farm or plantation, but the wording and the thresholds differ — the India-US DTAA confines its warehouse item to "a person providing storage facilities for others", and sets its construction threshold at over 120 days against Germany's six months. Always check the specific treaty in force with the relevant country.

Frequently Asked Questions

Does a fixed place PE require any minimum number of days in India?

No. Article 5(1) has no day-count threshold — it asks only whether a fixed place of business exists and is used to carry on the enterprise's business. Day thresholds (90, 120, or 183 days, or six months) apply to the separate construction PE and service PE categories under Article 5(2), not to the general fixed-place test.

Can a home office or co-working desk used by a remote employee create a fixed place PE?

It can, if the location is used with a degree of permanence to carry on the enterprise's actual business (not merely preparatory or auxiliary work) and is effectively at the enterprise's disposal. Ownership is not required — a rented or shared space can qualify.

Does the Income-tax Act, 2025 define "fixed place of business" separately from the DTAA?

Section 173(c) of the Income-tax Act, 2025 (section 92F(iiia) of the Income-tax Act, 1961) does use fixed-place language for definitional cross-references, but where a DTAA is in force, the treaty's Article 5(1)-(2) definition governs the actual PE determination, since a treaty applies where it is more beneficial than domestic law.

What is the difference between a fixed place PE and the "business connection" concept in section 9?

Fixed place PE is a treaty concept requiring a fixed physical location used to carry on business. "Business connection" under section 9(9) of the Income-tax Act, 2025 (section 9(1)(i) of the 1961 Act) is the domestic-law deeming rule, built around agency activity (habitual contract-concluding, stock-holding, or order-securing) and Significant Economic Presence — it applies independently of any DTAA and does not require a fixed place at all.

Do storage warehouses always avoid fixed place PE status?

Only if the warehouse is used solely for storage, display, or delivery of the enterprise's own goods, per the preparatory-or-auxiliary exclusions in Article 5(3)/5(4). A warehouse also used to negotiate sales, manage inventory decisions, or perform other core business functions falls outside the exclusion and can be a fixed place PE.

See also: Permanent Establishment (PE), Double Taxation Avoidance Agreement (DTAA), and Branch Office.

Not sure whether your India office or team creates a fixed place PE? Beacon Filing helps foreign companies assess and structure their India presence to manage PE risk.