Operating in an International Location

Triggering Permanent Establishment

If you are operating in an international location, 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 non-U.S. 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)
• Staying in the country for more than an aggregated total of 183 days in one year's time

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 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 another country. If you believe this is necessary for your project, contact Global Operations. ASU Administration 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. 

Avoiding Permanent Establishment

In most cases, it is preferable to avoid creating a permanent establishment in another 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 (PEO), 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.