Permanent Establishment in Australia: The Rules, Plainly (2026)
Part of the guide: Do I need to register?
A permanent establishment is a place at or through which you carry on business in Australia — a place with permanence in two senses, geographic and temporal. Australia defines it twice, in section 6(1) of the Income Tax Assessment Act 1936 and in Article 5 of each tax treaty, and the Commissioner’s ruling says the two are built on one concept. For most foreign sellers the thing that creates one is not the warehouse they worry about. It’s a person.
That last sentence is the one this article exists to explain. The permanent establishment — “PE” — is the single hinge on which a foreign company’s Australian income tax turns: without one, a treaty-country company’s business profits are generally not taxable here at all; with one, the profit attributable to it is taxed at the ordinary company rate and a return is due. So it pays to know, plainly, what the term means, where the rules come from, what trips it, and what doesn’t.
| Permanent establishment in one line | |
|---|---|
| The definition | “A place at or through which the person carries on any business” — s 6(1) |
| The two permanences | Geographic (an actual place) and temporal (not purely temporary) — TR 2002/5 |
| The guide | Six months or more of continuous operation; “not a hard and fast rule” |
| Which rules | Article 5 of the treaty where your country has one; s 6(1) where it doesn’t |
| What usually creates one | A person in Australia with authority to conclude contracts who habitually exercises it |
| What doesn’t | Storage/display/delivery of your own goods; a bona fide broker; an agent who can’t sign; a purchasing office; a website on an independent host |
| The consequence | Attributable profit taxed at 30% (25% base rate entity); a return; CGT on the PE’s assets |
| What it doesn’t change | GST — a separate test with no reference to a PE |
(General information for FY 2026–27, not tax advice for your circumstances. The definition and ruling below were read on 5 October 2026 from the ATO legal database — ITAA 1936 s 6(1) and Taxation Ruling TR 2002/5; treaty text from the published US and UK Conventions; the ATO’s own PE guidance from its foreign-residents pages. Permanent establishment is a fact-specific question.)
1. What is a permanent establishment in Australia?
Section 6(1) of the Income Tax Assessment Act 1936 defines it as “a place at or through which the person carries on any business”. The Commissioner’s ruling TR 2002/5 adds the two tests that give those words their shape: the place “must have an element of permanence, both geographic and temporal”.
Take the two halves in turn.
Geographic permanence means an actual place. The ruling: “A place at or through which a person carries on any business … must be geographically permanent. Any area, viewed commercially and as a whole, may, in relation to the business concerned, be a place.” An office, a warehouse floor, a stand at a venue, a site — something you can point to.
Temporal permanence means the presence “must not be of a purely temporary nature. In other words, the business must operate at that place for a period of time”, and the ruling is careful to call that “a question of fact and degree”. It then offers the number everyone remembers:
as a guide, if a business operates at or through a place continuously for six months or more that place will be temporally permanent.
And immediately qualifies it: “the six month guide is not a hard and fast rule.” It runs both ways. Less than six months can be enough “where the connection with Australia is very strong” — the ruling gives the example of a business that “returns to a particular location in Australia on an on-going and regular basis but for short periods each time”, and one that sets up a place intending to stay but ceases early. More than six months might, in “only the most extraordinary of circumstances”, not count — the ruling’s example being staff stranded in Australia by pandemic travel bans.
Two examples from the ruling fix the idea. A professional golfer plays a tournament at one Australian course for seven days including practice: the course is geographically a place, but “sufficient temporal permanence does not exist”, so no PE. A theatre company stages a play in Melbourne for a season: both permanences are satisfied, and it has a place through which it carries on business.
That’s the whole concept. Everything else — the lists in the law, the agent rules, the exclusions — is the legislature and the treaty negotiators spelling out what does and doesn’t amount to a place through which you carry on business.
2. Which rules apply — the domestic definition or a treaty?
Both exist, and where your country has a tax treaty with Australia, the treaty’s Article 5 governs the business-profits question. Where it doesn’t, section 6(1) does. The ruling is explicit that they share a concept: “The subsection 6(1) definition of PE is based on the concept of PE used in Australia’s tax treaties.”
The domestic definition
Section 6(1), after the core phrase, “without limiting the generality of the foregoing, includes”:
- (a) a place where the person is carrying on business through an agent;
- (b) a place where the person has, is using or is installing substantial equipment or substantial machinery;
- (c) a place where the person is engaged in a construction project; and
- (d) where the person sells goods “manufactured, assembled, processed, packed or distributed by another person for, or at or to the order of” them, and one participates in the management, control or capital of the other (or a third person does in both) — the place where that happens.
It then lists what the definition “does not include” — section 4 covers those.
The treaty definition
Every Australian treaty has an Article 5 of the same architecture: a fixed place of business through which the enterprise’s business is wholly or partly carried on; a list that “includes especially” a place of management, branch, office, factory, workshop and natural-resource sites; a list of deemed PEs (dependent agents, substantial equipment, construction projects); a list of exclusions; and a rule that control of or by a local company is not itself a PE. Our articles on the US and UK treaties quote their Article 5 texts in full.
Australia has treaties with more than 40 countries, including all its major trading partners. Treaties are given the force of law by the International Tax Agreements Act 1953, so for a company from one of those countries the treaty definition is the one that decides whether Article 7 lets Australia tax the business profits. For a company from a non-treaty country, section 6(1) and the domestic source rules apply directly.
Where the two diverge
The shape is shared; the details aren’t. Three differences matter to sellers:
| s 6(1) | US treaty | UK treaty | |
|---|---|---|---|
| Construction project | Any construction project | More than 9 months | More than 12 months |
| Processing by another | A related party manufacturing/processing for you (para (d)) | Related-party substantial processing (5(4)(d)) | Any person processing on your behalf (5(3)(c)) |
| Storage exemption | No express exclusion — turns on the core phrase | Express (5(3)(a)–(b)) | Express, “solely” in every limb, subject to MLI anti-fragmentation since 2019 |
Which is why the first question in any PE analysis is “which instrument?”
3. What creates a permanent establishment in practice?
For most foreign sellers: a person. All three sources deem a PE where someone in Australia has authority to conclude contracts on your behalf and habitually exercises it — and that’s the arrangement growing businesses drift into without noticing.
The agent rule, in each source:
- s 6(1)(a) includes “a place where the person is carrying on business through an agent” — then carves out, in (f), an agent “who does not have, or does not habitually exercise, a general authority to negotiate and conclude contracts”. Read together: an agent with that authority, who does exercise it, is a PE.
- US treaty, Art 5(4)(a): a person “who has authority to conclude contracts on behalf of that enterprise and habitually exercises that authority”.
- UK treaty, Art 5(6): a person who “has, and habitually exercises … an authority to conclude contracts on behalf of the enterprise”.
The ATO’s own list says the same: “the place of business of dependent agents who have authority to conclude contracts on behalf of the enterprise and habitually exercise that authority.”
The patterns
| Arrangement | Why it’s a PE |
|---|---|
| An Australian office with staff who sign | A fixed place, plus agents concluding contracts — the textbook case |
| A sales contractor who negotiates and closes in your name | Authority to conclude, habitually exercised. The “contractor” label doesn’t help if they aren’t independent |
| A country manager who commits you to distributor terms | Same rule, more senior |
| A manufacturer processing your goods on your behalf (UK treaty) or a related party manufacturing or packing for you (s 6(1)(d)) | Deemed by the specific limb |
| Substantial equipment held for rental or use for more than 12 months | Both treaties and s 6(1)(b) |
| A construction or installation project past the time limit | s 6(1)(c); 9 months (US); 12 months (UK) |
The temporal trap
The second permanence catches people who’ve thought about the first. A contractor who starts “helping out” from a serviced office in March, and by October is signing distributor agreements every week from the same desk, has given you a place (geographic) used continuously past the six-month guide (temporal) through a person with authority (the agent rule). None of those three things was decided; all three happened. That is the typical PE — not a strategy, a drift.
4. What doesn’t create one?
Five things sellers worry about are expressly not permanent establishments — in the legislation and the treaties, not merely in practice.
A warehouse or 3PL used solely to store, display or deliver your own goods. Both the US and UK treaties say an enterprise has no PE “solely as a result of” (US) or “merely by reason of” (UK) “the use of facilities … for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise”, or holding stock for those purposes. The UK text puts “solely” in every limb — a facility that stores your goods and does more is outside the exemption. The domestic definition has no express storage exclusion; there, the question is whether the warehouse is a place at or through which you carry on business, which for a third-party facility you don’t control it generally isn’t. Our article on FBA stock and permanent establishment works through the fulfilment-centre case in full and we won’t repeat it here.
A bona fide broker or commission agent. Section 6(1)(e) excludes “a place where the person is engaged in business dealings through a bona fide commission agent or broker who … acts in the ordinary course of his or her business as a commission agent or broker and does not receive remuneration otherwise than at a rate customary in relation to dealings of that kind”. Both treaties have the same independent-agent exclusion.
An agent who can’t, or doesn’t habitually, conclude contracts. Section 6(1)(f): an agent “who does not have, or does not habitually exercise, a general authority to negotiate and conclude contracts”, or whose authority is limited to filling orders from local stock without regularly exercising it. A representative who refers enquiries back to head office for signature sits here.
A place kept solely for purchasing. Section 6(1)(g) excludes “a place of business maintained by the person solely for the purpose of purchasing goods or merchandise”; the treaties add collecting information. A sourcing office in Australia buying for export doesn’t create a PE by itself.
A website on an independent host. The ATO’s own line: “Generally, a website that is hosted by an independent internet service provider is not regarded in itself as constituting a permanent establishment in Australia.” Your store, your domain, your customers — none of it is a place through which you carry on business here.
Add the treaties’ catch-all — a fixed place used solely for activities “of a preparatory or auxiliary character”, such as advertising or research — and you have the list.
One caveat on the warehouse exclusion for UK groups. Since 2019 the Multilateral Instrument lets the exemption fall away where a closely related Australian entity carries on complementary functions as part of one cohesive operation. A UK company can’t keep its warehouse inside the exemption while an Australian subsidiary runs the sales office next door. The US treaty carries no such rule.
5. What happens once you have one — and what it doesn’t change?
The profit attributable to the PE — and only that — becomes taxable in Australia at the ordinary company rate, a return is due, and the PE’s assets enter the capital gains net. What a PE never changes is your GST position, which is decided by a different test.
The attribution limit is in the treaties’ Article 7(1): where an enterprise carries on business through a PE, “the business profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.” The PE is taxed as if it were a separate enterprise dealing independently with its head office. Working out that figure is its own discipline — not covered here — but the principle is that having a PE does not expose your worldwide profit, only the slice earned through it.
On that slice, the rate is the ordinary company rate: 30%, or 25% for a base rate entity (aggregated turnover under A$50 million counting the group worldwide, and no more than 80% passive income). You lodge a company return, which means a TFN. And assets you own as part of the PE are generally subject to Australian CGT when disposed of.
The worked example, both years
Priya’s Singapore company sells kitchen gear into Australia: A$600,000 of annual sales, A$90,000 of profit attributable to Australian activity if a PE existed.
| Year one | Year two | |
|---|---|---|
| Set-up | Stock in a Melbourne 3PL; sales from her own site; nobody acting for her here | Adds an Australian sales contractor who negotiates and signs distributor agreements in her name, from a serviced office he’s used since March |
| Geographic permanence | The 3PL is a place — but used solely to store and deliver her goods | A desk used continuously for seven months |
| Temporal permanence | — | Past the six-month guide |
| Agent rule | No one with authority | Authority to conclude, habitually exercised |
| PE? | No | Yes |
| Australian income tax | A$0 | A$27,000 (A$90,000 × 30%), plus a company return |
| GST | Registered — goods in Australia, sales over A$75,000 | Unchanged |
And a temporal contrast: if Priya instead flew in for a ten-day trade show each year and took orders from a stand, the stand would be geographically a place, but ten days a year is not temporal permanence on the ruling’s guide — absent the kind of strong, regular connection the ruling describes.
GST runs on its own rail
The last row of that table is the one to hold onto. GST registration turns on whether you carry on an enterprise and whether your sales connected with Australia reach A$75,000. It does not refer to a permanent establishment, residency or a treaty. Priya was GST-registered in year one with no PE, and nothing about year two changed it. The reverse is also possible — a PE with sales under the threshold — and so is the common case our article on whether foreign companies pay tax in Australia is built around: no income tax, full GST. A PE answers one question. It is silent on the other.
Where it’s worth getting help
If your Australian footprint is stock in a third-party warehouse, a website on an independent host, and nobody here who signs anything, the exclusions in section 4 are written for you, and you can read them and sleep. Many sellers never need more than that.
The judgment calls start the moment anyone in Australia acts for you:
- What exactly are they authorised to do, and do they do it? “Negotiate and conclude contracts” is the test; the job title isn’t.
- From where, and since when? Geographic and temporal permanence can accrue to a serviced desk as easily as to a leased office — the trap is that nobody decided it.
- Is anyone processing or manufacturing for you? Under section 6(1)(d) the related-party version is a PE; under the UK treaty, any person acting on your behalf is.
- UK group with an Australian entity? The anti-fragmentation rule looks at the combined operation, not the warehouse alone.
- Non-treaty country? Section 6(1) and the source rules apply directly, and the ATO itself says source can need advice.
That’s the difference between doing it and doing it right the first time: the seller who checked the warehouse question carefully in year one and never revisited it in year two, when the hire that actually mattered was made.
If you’d like that looked at properly, our initial assessment form scopes it in about twelve questions — who acts for you in Australia, what they can commit you to, and where your stock and people sit — without needing a meeting.
FY 2026–27. General information, not tax advice for your circumstances. Whether a permanent establishment exists is a question of fact and degree; the six-month figure is TR 2002/5’s guide, not a statutory threshold. Treaty positions depend on the treaty that applies. Rules quoted are the published settings as at 5 October 2026; the A$75,000 GST registration turnover threshold is not indexed — confirm the current figure.
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