Tax Advice: The Use of Salaried Sales Representatives Abroad

The Use of Salaried Sales Representatives Abroad  (Permanent Representatives)

Would your company like to strengthen sales activities abroad by using salaried sales representatives? Then you need to clarify tax law and social security questions that arise if your employees do not work in Germany (for further information see our download “The Deployment of Employees Abroad”). You need to check whether the use of a salaried sales representative abroad creates a permanent establishment. Essentially a permanent establishment is a fixed business facility where business activities of your firm take place (see article 5, paragraph 1 of the OECD Model Tax convention). That means you are maintaining a branch, a manufacturing facility or something similar abroad. If a salaried sales representative works for your company abroad, and has the authority to conclude contracts in the name of your firm and exercise authority, he is considered a permanent representative. That means that business premises abroad are assumed to be notional, even if your firm does not have a fixed business facility there.

An example: You hire a sales representative who sells your products in France. The sales representative is equipped with the power of attorney and negotiates and signs contracts with your customers in France. That means by the permanent representative, the business premises are simulated in France. In this case your firm needs to be registered in France and a part of your profits will be taxed in France.

As many firms shy away from the associated administrative expenses, they often delegate a sales representative who only initiates contracts. Contracts are actually signed by German management. You need to keep in mind that this is not recognized if the contracts have already been previously negotiated in detail by the sales representative, and the signing of the contract at the German headquarters is merely a formality.

If you have any questions, please contact us.