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One Employee in Texas: Does a Korean Firm Create a US PE?

2026-09-25

Can a Korean company hire one employee in Texas without creating a US permanent establishment (PE)? Not safely. One employee can create a taxable presence under the US-Korea tax treaty analysis, trigger IRS filings, and create Texas franchise tax nexus. Decide the structure before the first day of work.

What is a permanent establishment, and why does one Texas hire matter?

A permanent establishment is the treaty threshold at which a foreign company's business profits can become taxable in the other country. The test is not headcount. It is whether the Korean company has a fixed place of business in the United States, or a person there who acts for it in a way the treaty treats as a presence.

Article 9 of the US-Korea income tax treaty (signed in 1976 and still in force) defines a permanent establishment as a fixed place of business through which a resident engages in industrial or commercial activity, and lists examples such as a branch and an office. Paragraph 3 excludes a fixed place of business used only for activities such as advertising, the supply of information or scientific research that have a preparatory or auxiliary character. Paragraph 4 deems a PE to exist, even without a fixed place, when the company does business through an agent who has authority to conclude contracts in its name and regularly exercises that authority there (unless limited to purchasing goods). Paragraph 6 excludes an agent of independent status acting in the ordinary course of business. The full text and the technical explanation are on the IRS treaty documents page. In practice, three facts drive the analysis for a single Texas hire:

  • Where the person works, and whether the company pays for or controls that space (a home office, a co-working desk, a leased unit).
  • What the person does: carrying out the company's core business, such as sales, points toward PE risk, while preparatory or auxiliary work points away from it.
  • Whether the person has authority to conclude contracts in the Korean company's name and regularly exercises it in the US (treaty Article 9, paragraph 4).

How does the IRS view a foreign company that has a US employee?

Treaty protection is not automatic. A foreign corporation must file Form 1120-F if it "was engaged in a trade or business in the United States" during the year, and the treaty is a separate question about whether tax is actually due. The IRS instructions say a foreign corporation with a US office or place of business "must generally file Form 1120-F by the 15th day of the 4th month after the end of its tax year."

If the company takes the position that the treaty overrides the Internal Revenue Code, the IRS instructions point to Form 8833 for "making a claim that an income treaty overruled or modified any provision of the Internal Revenue Code." A return filed to protect a treaty position is usually cheaper than an unfiled position that the IRS later challenges.

Question Source What it says
Who files Form 1120-F? IRS Form 1120-F instructions A foreign corporation engaged in a US trade or business
When is it due? IRS Form 1120-F instructions 15th day of the 4th month after year end (office or place of business in the US)
How is a treaty position disclosed? IRS Form 1120-F instructions Form 8833

Does one Texas employee create Texas franchise tax nexus?

Possibly, and the treaty is not the answer here. A tax treaty is an agreement between countries, and the Texas franchise tax is a state tax, so do not assume the treaty shields the company from it. The Texas Comptroller states that "The Texas franchise tax is a privilege tax imposed on each taxable entity formed or organized in Texas or doing business in Texas."

An employee working in Texas on the company's behalf can indicate that the company is doing business in the state. Confirm the current nexus rules on the Comptroller's franchise tax pages before you hire.

Nexus is not the same as tax due. The Comptroller sets the no tax due threshold for the 2026 report at "$2.65 million." Below that level the company may owe no franchise tax but can still have reporting duties, and the annual report is due May 15 (next business day if it falls on a weekend or holiday).

Texas item Value Source
No tax due threshold, 2026 report $2.65 million Texas Comptroller
Foreign for-profit corporation registration fee $750 Texas Secretary of State
Franchise tax report due date May 15 Texas Comptroller

Does the Korean company also need to register in Texas?

If the company transacts business in Texas, it generally needs to register with the Texas Secretary of State as a foreign entity. The filing fee for an application for registration for a for-profit corporation is $750. The Secretary of State also warns that the foreign entity "will be assessed a late filing fee for each year of delinquency" if it transacted business in Texas for more than 90 days before registering. Separately, the Texas Workforce Commission (TWC) says an employer must register with it "within ten days of paying an employee wage and becoming liable for unemployment tax." Confirm those details on the agency pages before the start date.

What are the structuring options for the first Texas hire?

Each option trades control, cost and PE risk differently. None removes the need for advice, but some reduce exposure.

  • Hire through a US subsidiary (a Texas or Delaware corporation or LLC) that employs the person. How an LLC is taxed depends on its federal tax classification, so confirm it with a tax adviser before forming one. Either way, the Korean parent's own PE risk depends on how much the parent directs the work and contracts.
  • Use an Employer of Record (EOR) arrangement when the hire is a test. This can cut payroll setup work, but it does not by itself settle the treaty analysis if the person still sells for the Korean company.
  • Employ directly and file as a foreign corporation, relying on the treaty only after you have documented what the employee does and where.
  • Limit the role to preparatory or support work with no authority to negotiate or conclude contracts, and keep that limit in writing and in practice.

A checklist before the offer letter

  • Write down the employee's duties and flag any sales, negotiation or contract signing.
  • Decide whether the person works from a home office, a co-working space or a leased office.
  • Read the current treaty text and technical explanation on the IRS site, then record your PE conclusion.
  • Calendar Form 1120-F and, if relying on the treaty, Form 8833.
  • Register with the Texas Secretary of State and plan for the franchise tax report due May 15.
  • Set up Texas payroll and unemployment insurance accounts before the first payday.

FAQ

Does one remote employee in Texas always create a permanent establishment?

No, not always. The answer depends on the treaty wording, where and how the person works, and whether the person regularly exercises authority to conclude contracts in the Korean company's name. A sales role with signing authority carries much more risk than a purely preparatory support role.

Does the US-Korea tax treaty protect a Korean company from the Texas franchise tax?

Do not assume so. A treaty is an agreement between countries, while the franchise tax is a Texas privilege tax on entities doing business in Texas. Treat nexus as a separate question and confirm it with the Comptroller's guidance.

Do we have to file a US tax return if we conclude there is no PE?

Possibly. The IRS requires Form 1120-F from a foreign corporation engaged in a US trade or business, and a treaty position may need Form 8833. Whether to file a protective return is a judgment to make with a qualified adviser.

Is a US subsidiary safer than hiring directly?

A subsidiary can separate the Texas payroll and liabilities from the Korean parent. Under treaty Article 9, paragraph 7, the related-company relationship by itself is not taken into account in deciding whether the parent has a PE. It does not remove PE risk if the employee acts for the parent, for example by concluding contracts in the parent's name. Document who decides what.

What is the cheapest way to test the Texas market?

Keep the first role limited to support or lead generation with no authority to negotiate terms, use a clear written scope, and review it after a few months. An Employer of Record arrangement can ease payroll, but it does not replace the PE analysis.

Getting the structure right before the first Texas hire is far cheaper than fixing it after the IRS or the Comptroller asks. Get a verified answer for your own facts from OptiMaxWork AI, and start with the 7-day free trial. Start the OptiMaxWork AI free trial

Disclaimer: This article is general information, not legal or tax advice. Sources, captured 2026-09-25: