A flexible hiring decision can become a tax question faster than many businesses expect.
Hiring one employee in another country can look like a straightforward HR decision. In some situations, however, the employee’s activities can contribute to the company having a taxable presence in that country. This is generally discussed in terms of a permanent establishment (PE). A PE can bring additional corporate tax, registration, filing and reporting obligations, so the issue is worth reviewing before remote working arrangements become permanent.
Does a remote employee automatically create a permanent establishment?
No. A remote employee working from another country does not automatically create a PE. Where a tax treaty based on the OECD Model applies, the analysis looks at whether the business has sufficient presence in the other country. The OECD’s 2025 update to the Model Tax Convention added more detailed guidance for cross-border home working. It makes clear that a home office abroad is not automatically treated as a place of business simply because an employee works there.
Why the amount of time abroad still matters
The updated OECD guidance gives businesses a more practical framework. As a general rule, an individual working from a home in another country for less than half of their total working time would not, on that fact alone, create a place of business for the employer. Where the employee spends more time working from that location, the analysis does not end there. Businesses should also consider whether there is a commercial reason for the work to be carried out from that country and how closely the location is connected to the company’s activities.
The role of the employee matters as much as the location
Risk can become more significant where the employee is commercially important to the business in that market. For example, businesses should review whether the person regularly negotiates or concludes contracts, manages key local relationships, performs core revenue-generating activity, or effectively represents the company in the local market. The exact rules depend on the relevant domestic law and tax treaty, so the same remote-working arrangement can produce different outcomes in different jurisdictions.
Before approving a long-term overseas remote-working arrangement, Euro Accounting can help you review the accounting, payroll and tax implications and identify where specialist local input may be required.
Discuss your cross-border workforce exposure with our team.
Five questions CFOs and founders should ask before approving overseas remote work
- How many days will the employee work from the overseas location?
- Is the arrangement mainly for the employee’s personal convenience, or is there a commercial reason for the business to operate from that country?
- Does the employee negotiate, approve or conclude contracts?
- Does the employee manage local customers, suppliers or revenue-generating activity?
- Could the arrangement also create payroll, social security or employment obligations?
Remote work can also create obligations beyond corporate tax
PE risk is only one part of the picture. Hiring or relocating an employee abroad may also trigger payroll withholding, social security, employment-law, immigration or personal tax issues. A business can therefore be below the PE threshold and still have local compliance obligations. This is why remote-work policies should involve finance and tax teams, not only HR.
Build the review into the hiring process
The best time to assess cross-border exposure is before the arrangement becomes established. A simple internal approval process can capture the country, expected number of working days, employee role, authority to negotiate or sign contracts, local customer-facing activity and whether the arrangement is driven by business need or employee preference. That information gives advisers a much clearer starting point for determining what registrations or controls may be required.
If your employees are working across borders, review the structure early. Euro Accounting supports international businesses with cross-border accounting, payroll and tax coordination.
Speak to Euro Accounting about your international workforce.
