International Tax Panorama

Remote work has made it easier for businesses to have employees working from different countries.

But this creates an important international tax question:

Could an employee working from another country create a permanent establishment (PE) for the business?

The answer is not automatically yes. But businesses should understand when a remote-working arrangement may create a taxable presence.

What is a permanent establishment?

A permanent establishment is generally a business presence in another country that can give that country the right to tax profits attributable to that presence.

For example, a PE can arise through a fixed place of business such as an office or factory. In some circumstances, the activities of an employee or other person can also be relevant.

If a PE exists, the business may face additional obligations, such as:

• Corporate tax registration
• Local corporate tax filings
• Tax on profits attributable to the PE
• Payroll obligations
• VAT/GST or other local compliance

What has the OECD said about remote working?

The OECD approved its 2025 Update to the Model Tax Convention in November 2025. The update added new Commentary on Article 5 dealing with cross-border remote working. The full 2025 Model Tax Convention was published on September 30, 2026.

The new guidance helps businesses assess when an employee’s home in another country could be considered a place of business.

Importantly, an employee working from home in another country does not automatically create a PE.

The 50% starting point

The OECD Commentary provides a useful starting point.

Where an individual works from a home in another country for less than 50% of their total working time over a 12-month period, the home would generally not be considered the employer’s place of business, assuming there are no other relevant facts pointing in that direction.

But reaching 50% does not automatically mean that a PE exists.

The next question is whether there is a commercial reason for the employee to work from that country.

For example, a commercial reason may exist where the employee’s presence helps the business serve customers in that country.

Personal reasons, such as an employee simply preferring to live and work there, generally do not provide the same commercial connection.

Two simple examples

Example 1: 30% remote work

An employee works from their home in another country two days a week, representing about 30% of their working time.

If there are no other relevant facts, the OECD example indicates that the home would not be the employer’s place of business for PE purposes.

Example 2: 80% remote work

An employee works from their home in another country for about 80% of their working time and regularly visits the company’s local customers.

Here, there is a commercial reason for the employee’s presence in that country. The OECD example indicates that, absent other facts pointing the other way, the home could be a place of business and could result in a fixed-place PE.

So, 50% is not a simple PE threshold. The facts and circumstances still matter.

Other questions businesses should ask

A remote-working arrangement should also be reviewed for:

• What is the employee actually doing?
• Is the employee serving customers in the foreign country?
• Does the employee negotiate or conclude contracts?
• Are the employee’s activities central to the business?
• Why does the employee work from that country?
• How long will the arrangement continue?
• Does the company already have an office, employees or another presence there?

Businesses should also consider the dependent-agent PE rules separately where an employee has authority relating to contracts.

Country and treaty positions matter

The OECD Model Tax Convention is a model used as a basis for negotiating and interpreting tax treaties. It is not itself a tax treaty or domestic law.

Therefore, businesses should always look at the specific tax treaty and domestic rules applicable to their situation.

The OECD has also noted that the remote-working clarifications relate to the interpretation of existing Article 5(1) provisions, which is relevant when considering treaties concluded before the 2025 update.

A practical example

Imagine a company based in Country A has a sales manager who moves to Country B.

The manager works from home in Country B for most of the year and regularly serves customers there.

The company should consider:

Where is the employee working?

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How much of their working time is spent there?

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Why are they working there?

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What activities do they perform?

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Do they interact with local customers?

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Do they have contract authority?

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Does the company have any other presence there?

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What does the applicable tax treaty say?

This analysis can help identify whether a more detailed PE review is needed.

Check your remote-working PE risk

We have created a free Remote Work PE Check in Global Tax Desk by Tax Panorama.

It asks a few practical questions about the employee’s location, working pattern and activities and gives you a preliminary indication of factors that may require further review.

If your employees, founders or contractors work across borders, a country-specific international tax review may be appropriate.

This article and the Remote Work PE Check provide general educational information only. They do not constitute tax advice or determine whether a permanent establishment exists. The applicable domestic law, tax treaty and specific facts should be reviewed.