Permanent establishment

What it means

A permanent establishment is a place or activity through which a foreign person carries on business in Slovakia and becomes taxable here. A registered branch is not required.

It can arise from a long construction site or an office, and equally from a dependent agent who habitually concludes contracts here on the foreign company’s behalf.

A permanent establishment is a tax concept; an organisational unit is a concept of commercial law. One can exist without the other: a registered branch that only coordinates and sells nothing here need not create a permanent establishment, and a permanent establishment can arise with no registration at all. Taxation follows the actual activity, not the register.

How it works in practice

Time matters: the double tax treaty sets how many months of construction or services create an establishment.

Once it exists, the profit attributable to it is taxed here, not the company’s entire profit. Attribution follows functions, risks and assets, the logic of transfer pricing.

The same rules work the other way round. When a Slovak s. r. o. carries out installation or construction in Austria or Germany, it may after a time have a permanent establishment there, with a duty to pay local income tax. For clients with longer jobs abroad we therefore track how long they run and warn them before the threshold approaches.

What to watch out for

Remote work from another country can create an establishment with no intent whatsoever. So for employees working from abroad, what exactly they do and for how long has to be assessed.

A foreign company that has a permanent establishment here must register with the Slovak tax administrator and file a return here. If it does not, it pays the tax retrospectively with penalties, and the Slovak customers who paid it may in some cases have had a duty to withhold a tax security from their payments, which they often do not even know about.