Significant economic presence
Also called: SEP · Topic: Taxation: Direct and Indirect Taxes, GST and Global Tax Issues · NCERT: Beyond NCERT
Meaning
Significant economic presence (SEP) is a rule that treats a foreign company as having a taxable presence in India because of its digital business or users here, even if it has no office in India. Old tax rules needed a permanent establishment (PE), meaning a fixed place of business such as an office or factory. Digital firms can earn large sums from a country without any such place. SEP gives India, where the users and money come from, the right to tax that income. India introduced it in the Finance Act 2018.
Example
Since 2021, a non-resident firm has SEP in India if payments from its transactions in India reach ₹2 crore, or if it deals with 3 lakh users in India. A foreign streaming platform with no Indian office but lakhs of Indian subscribers could cross these limits.
Don't confuse with
- Permanent establishment (PE): PE depends on a physical place of business. SEP depends on digital transactions or users.
- Equalisation levy: this was a separate levy on payments to foreign digital firms. The 6% levy (2016) ended from 1 April 2025, and the 2% levy (2020) ended from 1 August 2024.
Related concepts
- Tax haven
- Transfer pricing
- Double Taxation Avoidance Agreement
- Retrospective taxation
- Base Erosion and Profit Shifting
- Equalisation levy
- Pillar One
- Global minimum tax
- Automatic exchange of information