Operating in a Foreign Country
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Operating in a Foreign Country
Triggering Permanent Establishment
If you are operating in a foreign country, you need to be aware of the threshold called permanent establishment. You can cross this threshold intentionally or unintentionally, but once you have done so, you may be subjecting ASU and your project to entity registration, taxation and reporting requirements in that country – a process that is costly and time-consuming.
A foreign government may view the following activities as creating a permanent establishment in their country:
- Hiring independent contractors/consultants or employees
- Leasing or owning office space (formal office or home office)
- Purchasing capital equipment and/or durable goods
- Opening a local bank account
- Wiring money in or out (institutional or personal accounts)
- Conducting regular and/or continuous activity (e.g. study abroad program, executive education program)
If your project includes any of the above activities, contact Global Operations. We will engage legal and tax experts to evaluate your project and determine whether or not your activities risk creating a permanent establishment in that foreign country.
ASU’s Legal Entities
In rare cases, ASU may make a strategic decision to create a permanent establishment and register as a legal entity in a foreign country. If you believe this is necessary for your project, contact Global Operations. The Global Oversight Committee reviews all such requests to ensure there is a sufficient business case and return on investment for ASU. If approved, ASU’s Office of General Counsel leads the execution of such requests. At present, ASU has 11 legal entities in strategic locations around the globe.
Avoiding Permanent Establishment
In most cases, it is preferable to avoid creating a permanent establishment in a foreign country. Options for doing this include:
- Partnering with a local organization
- Contracting with a local service provider
Local organizations have the necessary business structures in place and can perform activities, such as employing workers, on behalf of ASU and your project.
Partnering with a Local Organization
Partnering with a local organization, such as a local university, is often your best option to avoid creating a permanent establishment. We recommend you include the local organization as a subrecipient in your sponsored project proposal. If awarded, ASU will issue a subaward to the subrecipient to formalize the partnership. For more information on ASU-issued subawards, see Subaward Basics.
Contracting with a Local Service Provider
Contracting with a local service provider, such as a professional employer organization, is usually preferable to creating a permanent establishment. However, it can also be costly. You should include funds in your sponsored project budget for such services, preferably at proposal time. It can also be time-consuming. You should include time in your sponsored project schedule for finding the right service provider and setting-up a contract with them. For more information on local service providers, contact Global Operations.
For more information on the implications of creating a permanent establishment, see Foreign Tax Liabilities.