Permanent Establishment Risk When You Hire Abroad (2026)

How a remote hire can make your company taxable in another country, what an employer of record changes and what it cannot, and how to check every role before you hire.

On 18 November 2025, the OECD gave cross-border remote work its first numeric tax test: a home office is generally not a place of business of the company if the person works from it for less than 50 per cent of their working time over any twelve-month period - OECD, The 2025 Update to the OECD Model Tax Convention. Above that line, the facts decide, and one of the OECD's own worked examples ends with a single support employee, working from her home in another time zone, giving her employer a taxable presence in that country.

Here is the problem. Most companies that hire abroad think hard about the employment side of the hire: the contract, payroll, social security, benefits and termination rules. An employer of record (EOR) solves exactly that side, which is why it has become the default way to hire in a country where you have no entity. Corporate tax asks a different question. It does not care who signs the payslip. It asks whose business the person is carrying on, from where, for how long and with what authority, and the answer can give the other country the right to tax part of your company's profits, require a local tax registration and return, and add penalties and interest for every year nobody noticed.

That exposure is called permanent establishment (PE) risk, and it is the one risk in international hiring that no service agreement can transfer, because it attaches to your company's activity rather than to the employment contract. The good news is that the rules are knowable. They are written in a small number of treaty articles, explained in official commentary that was rewritten in 2025, and applied by courts in decisions you can read.

This guide works through those rules from the treaty text up, not from vendor marketing: the four routes by which a person can create a PE, the new home office test and the countries that have said they will not follow it, the dependent agent rule that catches sales teams whoever employs them, what an EOR changes route by route, what a PE costs once it exists, a role-by-role risk scoring for your own hiring plan, and a playbook for reducing the risk without stopping hiring. Every rule is quoted from its source and every source is linked.

Contents

1. What a permanent establishment is, and why one hire can create one
2. Three tax questions that get confused: PE, the 183-day rule and social security
3. The home office test after the OECD's 2025 update
4. The dependent agent test: the route that catches sales teams
5. Service PEs, project PEs and day counts
6. Founders and executives abroad: the place-of-management risk
7. What an employer of record changes, and what it cannot
8. What a permanent establishment costs once it exists
9. How to assess PE risk role by role
10. How to reduce the risk without stopping hiring
11. Country hot spots: where the general rules move
12. Where the rules are heading in 2026 and beyond
13. The bottom line
14. Frequently asked questions

PE risk at a glance: nine common roles, scored

Before the detail, here is how nine roles that companies commonly fill abroad score on the factors that actually decide PE exposure under the OECD Model. Higher scores mean higher risk. Each cell gives the score from 0 to 10 and the reason for it, and the table is sorted from the riskiest role down. The scores describe a typical version of each role under the OECD approach; a specific job description, a specific treaty or a country that rejects the OECD's 2025 guidance (Section 3) can move a role up or down.

Sources for the criteria: OECD Model Tax Convention (2017), Article 5 and its Commentary and the new Commentary paragraphs 44.1 to 44.21 in the 2025 Update to the OECD Model Tax Convention. The roles and scores are BestEOR's own analysis of those rules.

The Risk column is the weighted score: 7 and above marks a high risk, 4 to 6.9 a mid-level risk and anything below 4 a low risk. The four criteria and their weights come straight from the structure of the rules. Contract role (35%) carries the most weight because the dependent agent rule in Article 5(5) can create a PE with no fixed place at all, and it applies to employees of other companies as readily as to your own (Section 4). Local reason (25%), meaning a commercial reason for the person to be in that country, is the test the OECD's 2025 Commentary uses to decide whether a home office used for at least half of someone's working time becomes your company's place of business (Section 3). Time and place (20%) captures the permanence of a home office, client site or project, and the day counts in treaties that have a services PE (Section 5). Seniority (20%) reflects the extra exposure of people who manage the business itself, from the founder rules some countries apply to home offices to the place-of-management tests for companies (Section 6).

Read the table as a map of where to look first, not as a verdict. A country manager working through an EOR still scores 9.6, because none of the four criteria depends on who the employer is. A software engineer scores 2.7 whether employed directly, through an EOR or through a local subsidiary, because what keeps the score low is the absence of contracts and of a commercial reason for the location. That is the central point of this guide, and Section 7 tests it against what EOR providers themselves claim. Section 9 turns the same four criteria into a decision flow you can run for any role on your hiring plan.

1. What a permanent establishment is, and why one hire can create one

A tax treaty between two countries exists to decide which of them may tax which income. For the business profits of a company, the answer in the OECD Model, the template that most of the world's income tax treaties follow, is simple: "Profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein" - OECD Model Tax Convention, Article 7. The permanent establishment is therefore the threshold. Below it, your profits are taxed at home. Above it, the other country may tax the profits attributable to your presence there.

The basic definition is short. A PE is "a fixed place of business through which the business of an enterprise is wholly or partly carried on", and the term "includes especially" a place of management, a branch, an office, a factory and a workshop - OECD Model Tax Convention, Article 5. Three elements are packed into that sentence: a place, a degree of permanence that makes it fixed, and your business being carried on through it. None of them mentions employment, which is why the identity of the employer is not, by itself, an answer to the question.

Two more points complete the frame. First, the OECD text is a model, not law. What binds is the specific treaty between your company's country and the country where the person works, and where no treaty applies, only that country's own domestic law decides, without the treaty's limits. Second, the OECD's interpretation changes over time without the treaties being renegotiated. The OECD states that changes to its Commentaries "are normally applicable to the interpretation and application of conventions concluded before their adoption, because they reflect the consensus of the OECD member countries as to the proper interpretation of existing provisions" - OECD Model Tax Convention, Introduction. That is how a document approved in November 2025 can change the analysis of a treaty signed decades earlier, and also why a country that disagrees with the new Commentary can keep applying its own reading.

The treaty also lists activities that never create a PE on their own. Under Article 5(4), a fixed place used solely for activities "of a preparatory or auxiliary character", such as storing goods or collecting information, is not a PE. That exception matters for remote hiring, because a person who only gathers market information or supports colleagues may fall inside it. It has a limit added in 2017: the exception does not apply where the same company or a closely related company carries on complementary activities in the same country that, together, form "a cohesive business operation". Splitting one business into small pieces across a country no longer keeps each piece below the line - OECD Model Tax Convention, Article 5(4) and 5(4.1).

The diagram above shows the four routes through which people create PEs. Each has its own test, and they are cumulative: avoiding one does not protect you from the others. A salesperson who never sets foot in an office can still create a dependent agent PE, and an engineer with no authority at all can still create a fixed place PE if the facts of the home office point that way. The practical consequence is that PE risk has to be assessed per person and per route, which is exactly what the scoring table above does in compressed form.

One hire is enough because the definition looks at the business being carried on, not at its size: a single person who habitually closes deals for you is a dependent agent PE just as a fifty-person office is a fixed place PE. The profit attributable to one person is usually modest (Section 8), but the registration, filing and penalty consequences arrive in full, so the first hire in a new country is the moment to run the analysis, not the tenth.

2. Three tax questions that get confused: PE, the 183-day rule and social security

Most of the bad advice about remote workers abroad comes from merging three separate questions into one, each with its own rules and thresholds. The first is the one this guide is about: does your company have a permanent establishment, and therefore owe corporate tax on attributable profits in that country? The second is whether the employee's salary is taxable in the country where they work, which is governed by Article 15 of the OECD Model and its famous 183-day rule. The third is which country's social security system covers the employee, which is not a tax treaty question at all but a matter of social security coordination rules and bilateral agreements.

The 183-day rule is the most misunderstood of the three. Article 15(2) of the OECD Model lets a person working temporarily in another country stay taxable only at home if three conditions are all met: they are present there for no more than "183 days in any twelve month period", the remuneration "is paid by, or on behalf of, an employer who is not a resident of the other State", and "the remuneration is not borne by a permanent establishment which the employer has in the other State" - OECD Model Tax Convention, Article 15. It is a rule about the individual's income tax. Staying under 183 days does not prevent your company from having a PE, and a remote employee who lives in the other country is usually taxable there from the first day anyway, because the work is performed where they live.

The third condition shows how the questions interact. If your company has a PE in the other country and the cost of a person's salary is borne by that PE, the 183-day exemption fails for that person. A PE therefore changes more than your corporate tax return: it can pull the salaries of short-term visitors working for it into the local tax net as well, which affects payroll reporting for people who were never meant to be local employees.

Social security runs on separate tracks again. Inside the EU, EEA and Switzerland, the coordination rules decide which single system covers a worker, and since 1 July 2023 a multilateral framework agreement has allowed people who habitually telework from their country of residence to stay insured in their employer's country, provided that "the cross-border telework in the State of residence is less than 50%" of their working time - Framework Agreement on cross-border telework. Estonia joined with effect from 1 February 2026, bringing the number of participating countries to 23 - KPMG GMS Flash Alert 2026-041. The threshold looks like the OECD's new home office test, but it is a different rule, in a different legal system, with a formal application through an A1 certificate. Qualifying for it settles social security and says nothing about corporate tax.

The table explains why an EOR feels like a complete answer to the people who buy it. Two of the three questions are about the employment relationship, and the EOR genuinely takes them over. The first is about your company, and it stays with you.

How to apply this: for every planned hire abroad, write three separate lines in the hiring file. One line for the employee's income tax and withholding (who withholds, from when), one for social security (which system, whether an A1 or certificate of coverage is needed), and one for your company's PE position (which route could apply and why it does or does not). If the third line is blank, the analysis has not been done.

3. The home office test after the OECD's 2025 update

For most of the history of remote work, the official answer to whether an employee's home office can be the employer's PE was a short paragraph of Commentary with a single decisive question: did the company require the person to work from home? A home office used continuously for the business could be at the company's disposal where the company had required its use, "e.g. by not providing an office to an employee in circumstances where the nature of the employment clearly requires an office" - OECD, The 2025 Update to the OECD Model Tax Convention. The old Commentary itself said the question "will rarely be a practical issue".

The pandemic broke that assumption, and the OECD's first response was temporary. Its January 2021 guidance said that teleworking because of public health measures "would not create a PE for the business/employer, either because such activity lacks a sufficient degree of permanency or continuity or because the home office is not at the disposal of the enterprise" - OECD, Updated guidance on tax treaties and the impact of the COVID-19 pandemic. The same note warned that a person who keeps working from home after the measures end may give the home office "certain degree of permanence", so the relief was always going to expire with the emergency.

The permanent replacement arrived in November 2025. The OECD deleted the old paragraphs and added a new section of Commentary, paragraphs 44.1 to 44.21 on Article 5, under the heading "Cross-border working from a home or other relevant place". The OECD described the purpose plainly: the update "clarifies when remote work across borders, such as from a home office, creates a taxable presence for business. This responds to the rise in such arrangements following the COVID-19 pandemic" - OECD press release, 19 November 2025.

The two-step test

The new Commentary asks two questions in order. First, is the place fixed? A home or other place needs a degree of permanence, judged under the long-standing rules on duration. The OECD's Example A makes the point: an employee who rents a place in another country and works from it for three consecutive months after a holiday does not create a fixed place, because the place "lacks permanence". A home used one or two days a week throughout a year, by contrast, is fixed.

Second, is the fixed place a place of business of the enterprise? Here the Commentary introduces its numeric line: the home "would generally not be considered a place of business of the enterprise if the individual worked from that home or relevant place for less than 50 per cent of their total working time for that enterprise over the course of any twelve-month period". Working time is measured by "the actual conduct of the individual", not by what the contract or the remote work policy says. At or above 50 per cent, "whether the enterprise has a place of business at such a place will be determined by the facts and circumstances", and the most prominent fact is whether there is a commercial reason for the person to be in that country.

That sentence is the one most remote work policies will now be written around. Note what it does and does not say. It speaks of the person's total working time for that enterprise, so time spent at the company's offices, at customer sites or travelling counts in the denominator. It uses a rolling twelve-month period that starts or ends in the tax year, so a calendar year below the line does not settle the question. And it says "generally", which leaves room for other facts to point the other way.

The OECD's treaty team presented the new paragraphs in a webinar recorded in December 2025. The section on home office PEs runs from the 10:21 mark to about 33:00 and is the closest thing to hearing the drafters explain the time threshold and the commercial reason test in their own words.

What counts as a commercial reason

A commercial reason exists, in the Commentary's words, "where the physical presence of the individual in that State will itself facilitate the carrying on of the business of the enterprise, such as where there are people or resources in that State to which the enterprise needs access". The clearest case is direct engagement: a commercial reason "will be present where the individual directly engages with customers, suppliers, associated enterprises or other persons on behalf of the enterprise and that engagement is facilitated by the individual being located in that State". The Commentary then lists situations that can amount to one when they are facilitated by being in that country, of which these five matter most for hiring plans:

• Customer meetings held in that country or its region
• Cultivating customers or identifying business opportunities there
• Time-zone coverage, real-time service such as call centres or IT support
• On-site services for customers, such as training or repairs
• Working with colleagues of your company or group in that country

Just as important is what the Commentary says is not a commercial reason. A company that lets someone work from home abroad "solely to obtain or retain the services of that individual" does not have one, and neither does a company that permits home working "solely to reduce costs". The "mere presence" of customers in the country is not enough on its own, nor is the fact that the home is in a different time zone, and "short occasional visits to the premises of a customer" do not create one either. For the most common reason companies hire abroad, which is that the best candidate lives there, this is the most important sentence in the update: hiring for talent, without more, is not a commercial reason.

The list and the exclusions together give a practical reading. Engineers, designers, analysts and other people hired for their skills, who work for colleagues and customers elsewhere, sit on the safe side even when they work from home full time. People whose job is to be near your customers sit on the other side once their home office passes half of their working time. The line between the two is not the employment contract or the job title, but the reason the person is located where they are.

The OECD's five examples, side by side

The Commentary closes with five worked examples, labelled A to E. They are short and they are the closest thing to official answers that exists, so they are worth reading in full in the source. The table summarises them.

Example E deserves a second look because it surprises most companies. The employee in that example serves customers in the company's home country and elsewhere, not in the country where she lives, yet the conclusion is a PE in her country, because being there "enables the employee to be fully available (e.g. offering real-time or near real-time services around the clock) to customers of RCo in the time zones where those customers are located". A follow-the-sun support team built from remote employees in a country where you have no entity is precisely the arrangement the OECD used to illustrate a PE.

Example D shows the opposite edge. A client-facing employee who works from home abroad for 60 per cent of the time, provides services remotely and visits a local client once a quarter does not create a PE, because the visits are "intermittent and incidental" and the mere presence of clients is not a commercial reason. The difference between D and C is not the share of time at home, which is high in both, but whether the job depends on being physically close to customers in that country.

One more paragraph matters for small companies. The Commentary says that "different considerations" apply "where an individual is the only person, or the primary person, conducting the business of an enterprise", and repeats the classic example of a consultant running her own consulting business from a home office, which is a PE. A founder who moves abroad and runs the company from a kitchen table is closer to that example than to any of A to E, which is why Section 6 treats senior people separately.

Who has already said no

The Commentary reflects the consensus of OECD members, but members can record observations and reservations, and countries outside the OECD record positions. On the new home office paragraphs, six countries did so in the 2025 update itself, and two of them are among the most common destinations for remote hiring.

Source for every row: the observations and positions published in the 2025 Update to the OECD Model Tax Convention, pages 30-31 and 67-68.

India's position matters most, because India is one of the largest markets for remote engineering talent. It states that "individual's home can be considered as being at the disposal of the enterprise, and it constitutes a place of business of the enterprise for the purpose of application of Article 5", so the talent argument that protects a remote engineer in most OECD countries carries much less weight in an Indian tax audit. Our India country page covers the employment side of hiring there.

Beyond these formal positions, tax administrations are still deciding how to use the new guidance at home. Germany and Austria have adopted it in official guidance, and KPMG reports that the United Kingdom treats the 2025 changes "as non-substantive, viewing them as clarifications" - KPMG, Navigating permanent establishment risk in a remote work era, part 1, while most countries have not said anything yet. Section 12 sets out where each stands.

How to apply the home office test

The test rewards companies that can show three facts on paper: where each person actually worked, for how much of their time, and why they are located where they are. Most companies already collect working location for payroll and security reasons; the gap is usually that nobody connects it to the tax question.

The practical steps are straightforward. Record the reason for the location at the time of hiring (for most remote hires, that the person was the best candidate and lives there). Keep a reliable record of working location by day, so a rolling twelve-month share can be produced on request. Avoid giving home-based staff in countries without an entity duties that the Commentary lists as commercial reasons, above all regular customer meetings and local business development, unless you have decided to accept or structure for a PE there. And review the answer whenever a role changes: an engineer who becomes a solutions consultant visiting local customers has moved from the safe side to the exposed side without anyone signing a new contract.

4. The dependent agent test: the route that catches sales teams

The second route to a PE needs no place at all. Under Article 5(5) of the OECD Model, where a person acting in a country on behalf of a company "habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise", and those contracts are in the company's name, transfer its property or are "for the provision of services by that enterprise", the company "shall be deemed to have a permanent establishment in that State" - OECD Model Tax Convention, Article 5(5). The person can work from a car, a café or a client's lobby; what matters is what they do.

This is the route that matters most for an expansion plan, because it maps directly onto sales roles. The OECD Commentary says the purpose of the rule is "to cover cases where the activities that a person exercises in a State are intended to result in the regular conclusion of contracts to be performed by a foreign enterprise, i.e. where that person acts as the sales force of the enterprise". The test is about substance over signatures: the principal role "will therefore typically be associated with the actions of the person who convinced the third party to enter into a contract with the enterprise".

Who counts as the "person"

The single most important sentence for anyone hiring through an intermediary is in paragraph 83 of the Commentary on Article 5: "Persons whose activities may create a permanent establishment for the enterprise are persons, whether or not employees of the enterprise, who act on behalf of the enterprise and are not doing so in the course of carrying on a business as an independent agent". Paragraph 86 adds that a person acts on behalf of an enterprise "where an agent acts for a principal, where a partner acts for a partnership, where a director acts for a company or where an employee acts for an employer", and that a person "cannot be said to be acting on behalf of an enterprise if the enterprise is not directly or indirectly affected by the action performed by that person".

The Commentary's own example is the clearest proof that a different legal employer does not break the chain. In paragraph 90, a subsidiary (SCO) employs salespeople who persuade large customers to buy the parent's (RCO's) products on standard online terms that the salespeople cannot change. The conclusion: "SCO's employees play the principal role leading to the conclusion of the contract between the account holder and RCO", and the fact that they "cannot vary the terms of the contracts does not mean that the conclusion of the contracts is not the direct result of the activities that they perform on behalf of the enterprise". The employer was the subsidiary; the PE belonged to the parent whose contracts the employees produced.

Swap "subsidiary" for "employer of record" and the analysis is the same, with one difference that makes it worse rather than better: a subsidiary is at least a taxpayer in its own right that can be remunerated for its sales activity under transfer pricing rules, while an EOR only invoices an employment-cost fee and is not carrying on your sales business at all. The salesperson is acting for you, on your contracts, and the treaty test looks straight through the employment contract to that fact.

What still falls outside the rule

The rule has limits that are worth knowing precisely, because they define what a non-sales role can safely do. Pure marketing is outside it: Article 5(5) "does not apply, however, where a person merely promotes and markets goods or services of an enterprise in a way that does not directly result in the conclusion of contracts", and the Commentary's example is pharmaceutical representatives who visit doctors, whose activity "does not directly result in the conclusion of contracts" even though sales may rise as a result. Isolated deals are outside it too: the Commentary requires that contracts are concluded "repeatedly and not merely in isolated cases". And activities that would be preparatory or auxiliary at a fixed place, such as acting purely as a buying agent, stay outside even when the person is not independent.

None of these limits is a safe harbour to design around casually. Paragraph 88 closes the most common workaround, a policy that head office signs everything: the rule applies "even if the contracts are not formally concluded in the State, for example, where the contracts are routinely subject, outside that State, to review and approval without such review resulting in a modification of the key aspects of these contracts". If head office approval is a formality that never changes price, scope or terms, the person who negotiated the deal still played the principal role. A genuine approval process, in which terms are actually negotiated and changed at head office, is a different fact pattern; a rubber stamp is not.

Why the answer depends on the treaty's age

Article 5(5) in its current form dates from the 2017 update of the OECD Model, which implemented Action 7 of the OECD/G20 project on base erosion and profit shifting (BEPS). The older rule was easier to sidestep. As the BEPS report put it, "since Art. 5(5) relies on the formal conclusion of contracts in the name of the foreign enterprise, it is possible to avoid the application of that rule by changing the terms of contracts without material changes in the functions performed in a State", most famously through commissionnaire arrangements in which a local agent sold in its own name, and "in most of the cases that went to court, the tax administration's arguments were rejected". The report then set out the policy that the new wording implements: where an intermediary's activities "are intended to result in the regular conclusion of contracts to be performed by a foreign enterprise, that enterprise should be considered to have a taxable presence in that country" - OECD BEPS Action 7 final report.

A treaty only contains the wider wording if the two countries put it there, either by renegotiating or through the Multilateral Instrument (MLI), the convention that lets countries amend many treaties at once. Under the MLI, the dependent agent change is Article 12, and countries could opt out of it.

The OECD's own ten-year review shows how far the tightened PE rules have spread through that route. As of July 2025, "nearly 40% of the agreements modified through the BEPS MLI (around 750 tax treaties) included at least one of the Action 7 measures", the package that includes the dependent agent change - OECD, A Decade of the BEPS Initiative.

The rising bars hide a split. At least one Action 7 measure can mean a narrower rule on preparatory activities or contract splitting rather than the new dependent agent test, which roughly half of the ratifying countries refused.

The result is a patchwork. Our count of the position documents the OECD publishes for each MLI signatory finds that of the 91 jurisdictions that have ratified the instrument, 45 apply Article 12 and 46 opted out of it, and a given treaty changes only where both partners adopted the article and listed the same clause - OECD, Signatories and Parties to the MLI. For the countries companies hire in most often, the split looks like this.

Source: each jurisdiction's MLI position document on the OECD website, status as of 15 September 2026; Brazil and Colombia (adopted) and Italy (opted out) have signed but not ratified, so their choices are provisional.

The table explains why the same salesperson can be a PE risk under one treaty and not under another. A treaty between two adopters, such as France and India, now carries the "principal role" wording; a treaty involving any country that opted out keeps the older "authority to conclude contracts" test, unless the two countries renegotiated it bilaterally. Opting out of Article 12 does not make a country relaxed about sales activity, though: the United Kingdom opted out for its treaties but, as Section 12 shows, rewrote its own domestic definition to the wider wording from 2026, and German guidance stresses that an agent PE can arise from work done entirely at home.

The United States sits outside this system altogether. It is not a party to the MLI, and in the 2025 update it reserves "its right to follow the versions of paragraphs 5 and 6 as they stood before the 2017 update of the Model Tax Convention" - OECD, The 2025 Update to the OECD Model Tax Convention. For a US company, that means the treaty test in each country is usually the older "authority to conclude contracts" wording, but it also means the other country's domestic law and court practice carry more weight, and several of those courts have read the older wording broadly.

What the courts have done with sales intermediaries

The older wording produced a run of taxpayer wins, which is why it was changed. France's highest administrative court held in Zimmer (2010) that a commissionnaire selling in its own name "ne peut en principe constituer" a PE of its principal (cannot in principle constitute one), "quel que soit le degré de sa dépendance" (whatever its degree of dependence) - Conseil d'État, 31 March 2010, no. 304715. Norway's Supreme Court reached the same result for Dell in 2011, rejecting the tax authority's functional reading, under which an agent that bound its principal in practice was enough, because the treaty wording required contracts that legally bind the foreign company - Norwegian Supreme Court, HR-2011-02245-A.

Even under the old wording, courts have looked through structures where local staff really decide the deals. In Valueclick (2020), the Conseil d'État found that the choice to conclude each advertising contract, and every task needed to conclude it, "relèvent des salariés de la société française, la société irlandaise se bornant à valider le contrat par une signature qui présente un caractère automatique" (fell to the French company's employees, the Irish company merely validating the contract with a signature that was automatic), held that the appeal court had erred in law in finding no PE, and sent the case back - Conseil d'État, 11 December 2020, no. 420174. The people in Valueclick were employed by a separate local company, which is the closest published fact pattern we found to an EOR-employed sales team: no court or tax authority ruling on an EOR arrangement itself has been published that we could find.

How to apply the dependent agent test

The practical question for every customer-facing hire abroad is simple to ask and hard to fudge: if this person did their job well for a year, would contracts with your company exist that would not exist otherwise, and who convinced the customer to sign them? If the honest answer is this person, the role is a dependent agent risk wherever you have no entity, regardless of whether the employer is your company, a subsidiary or an EOR.

That leaves three workable choices: shape the role so it stays in marketing, lead generation or technical support, with closing done where you already have a taxable presence; accept the PE and register it, often cheaper than it sounds for a small sales presence (Section 8); or set up a local entity that employs the sales team and is paid under transfer pricing rules. What you cannot do is keep the sales role, keep the country and rely on the employment structure to make the issue disappear.

5. Service PEs, project PEs and day counts

The OECD Model's own text has no general services PE: a consultant who spends months at a client's site in another country creates a PE under the OECD wording only if the site becomes a fixed place of business at the consultant's disposal, or if the consultant acts as a dependent agent. Many treaties, especially those with developing economies, go further and tax services by the calendar. The United Nations Model, the template for treaties between developed and developing countries, is where that approach comes from.

The 2025 edition of the UN Model treats as a PE "the furnishing of services by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue within a Contracting State for a period or periods aggregating more than 183 days in any twelve-month period commencing or ending in the fiscal year concerned" - United Nations Model Tax Convention 2025, Article 5(3)(b). Two phrases in that clause matter for anyone using an intermediary employer. The services are those of "the enterprise", meaning the company whose business they serve, and they count when they are furnished through "employees or other personnel engaged by the enterprise", a wording wide enough to cover people placed with you by another employer.

The OECD's own Commentary offers an optional services provision for countries that want one, and its last sentence matters directly to anyone using an intermediary employer. Services performed by an individual on behalf of one enterprise "shall not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual" - OECD Model Tax Convention, Commentary on Article 5, paragraph 144. In an EOR arrangement, the client company directs and controls the work; that is the commercial point of the arrangement. Under a provision written this way, the services count as the client's.

Real treaties set the count in very different places, and some of the lowest thresholds are in treaties with India, one of the largest markets for remote engineering and services talent. The US-India treaty creates a PE from services furnished "through employees or other personnel" where the activities continue "for a period or periods aggregating more than 90 days within any twelve-month period", or where the services are performed for a related enterprise, with no day threshold at all - US-India income tax treaty, Article 5(2)(l). The UK-India treaty uses the same 90 days, falling to "more than 30 days within any twelve-month period" for services to an associated enterprise - UK-India double taxation convention, Article 5(2)(k).

The chart shows the practical point: a consultant or engineer who spends a quarter of the year at an Indian client's site can trip a PE that the same work in China or Canada would not. The Canada-US threshold looks like the UN default but is narrower: it deems a PE only where one individual present for 183 days or more generates "more than 50 percent of the gross active business revenues of the enterprise", or where services are provided for 183 days or more "with respect to the same or connected project for customers" in that country - US-Canada treaty, Fifth Protocol, Article V(9). Many treaties contain no services clause at all, like the OECD Model itself, and many that do count days per project or connected projects rather than per person, so the specific text always decides.

Indian courts have shaped how these clauses apply to people placed inside another company. In Morgan Stanley (2007), the Supreme Court distinguished staff sent to check the quality of an Indian service provider's output, which did not create a services PE ("In our view MSCo is merely protecting its own interests in the competitive world by ensuring the quality and confidentiality of MSAS services"), from staff deputed to work there while keeping their jobs with the US parent, which did - Supreme Court of India, E-Funds (2017), reproducing Morgan Stanley. In Samsung (2025), the Delhi High Court found no PE where seconded employees worked for the Indian subsidiary's own business, framing the test as whether people are deployed "in furtherance of the business of their formal employer or intended to be utilized for the business of the enterprise with whom they are placed" - Delhi High Court, PCIT v Samsung Electronics (2025). That "whose business" question is exactly the one an EOR arrangement raises, and in an EOR the answer is usually the client's. The Supreme Court's 2025 Hyatt judgment adds that for a services day count "the relevant consideration is the continuity of business presence in aggregate", so rotating several people through a country does not reset the clock - Supreme Court of India, Hyatt International Southwest Asia (2025).

Project PEs follow the same calendar logic for construction, installation and similar work. The OECD Model says a building site or construction or installation project "constitutes a permanent establishment only if it lasts more than twelve months" - OECD Model Tax Convention, Article 5(3), and many treaties shorten that period.

The UN Model shortens it to projects that "last more than six months" - United Nations Model Tax Convention 2025, Article 5(3)(a). Treaties go lower still: the US-India treaty catches a building site or an installation or assembly project that continues "for a period of more than 120 days in any twelve month period", counted together with other such sites and projects - US-India income tax treaty, Article 5(2)(k). For companies that send engineers to install equipment or supervise a build, these clauses can matter more than any home office question.

How to apply this: for every country where people deliver services to customers on site, look up the actual treaty between your company's country and that country, find out whether it has a services PE clause, note its day threshold and how it counts days (per project, per twelve-month period, or across connected projects), and track days against it. Where the threshold is close, the choice is between scheduling work to stay below it with a margin, and registering the PE in advance, which is usually cheaper than arguing about day counts after the fact.

6. Founders and executives abroad: the place-of-management risk

The most senior people in a company carry a risk that ordinary employees do not, because their work is the management of the business itself. The OECD Model lists "a place of management" first among the examples of a permanent establishment, ahead of a branch or an office - OECD Model Tax Convention, Article 5(2). A chief executive who runs the company from a home in another country for most of the year is not doing anything the new home office Commentary was written to protect: the Commentary itself says "different considerations" apply "where an individual is the only person, or the primary person, conducting the business of an enterprise".

Some countries go further on paper. Israel recorded in the 2025 update that it "reserves the right to consider a home office used by one of the primary persons of an enterprise, such as a founder, partner or relatively significant senior executive, to constitute a permanent establishment of the enterprise" - OECD, The 2025 Update to the OECD Model Tax Convention. For a startup founder, Israel's position is a fair description of the risk almost everywhere: the person whose decisions are the business is the person most likely to turn a home into a place of business.

There is a second, larger risk for the people at the very top: corporate residence. A company that is resident in a country can be taxed there on all of its profits, not only on the profits of a PE, and under many domestic laws residence depends on where a company is managed as well as where it was incorporated. Where two countries both claim a company, the 2017 OECD Model leaves the answer to the tax authorities, who "shall endeavour to determine by mutual agreement" its residence "having regard to its place of effective management, the place where it is incorporated or otherwise constituted and any other relevant factors", and without agreement the company loses treaty relief except as the authorities allow - OECD Model Tax Convention, Article 4(3). Under treaties that still follow the pre-2017 wording, the place of effective management decides on its own.

The OECD described what that place is during the pandemic, when executives were stuck in the wrong countries and companies worried that a relocation of board members or senior executives "may have as a consequence a change in a company's residence under relevant domestic laws". Its guidance says the place of effective management is "the place where key management and commercial decisions that are necessary for the conduct of the entity's business as a whole are in substance made", and lists the factors authorities weigh, including "where the meetings of the company's board of directors or equivalent body are usually held; where the chief executive officer and other senior executives usually carry on their activities; where the senior day-to-day management of the company is carried on" - OECD, Updated guidance on tax treaties and the impact of the COVID-19 pandemic. The pandemic relief rested on the change being "extraordinary and temporary"; a founder who simply prefers to live elsewhere has no such argument. Hungary went further still in the 2025 update, reserving the right to take into account "the place where the chief executive officer and other senior executives usually carry on their activities" when it applies the place of effective management test.

No single factor decides the question. A founder who spends a winter abroad but holds board meetings, signs contracts and runs the team from the home country leaves a very different record from one who has quietly relocated the whole leadership function. The difference matters because a residence shift is not a PE problem with a modest attributable profit; it can put the company's entire profit in scope of a second country's tax system, which is a far larger exposure than anything else in this guide.

How to apply this: treat any plan for a founder, chief executive or other senior executive to work from another country for more than a few months as a board-level tax decision, not an HR request. Decide where board meetings and key decisions will be held and document them there, keep the signature of major contracts with people in the company's home country, and take advice in both countries before the move, not after. An EOR can employ an executive abroad, but it does nothing for this risk, because the risk follows the decisions, not the payroll.

7. What an employer of record changes, and what it cannot

An employer of record becomes the legal employer of a person who works under your direction: it issues the contract, runs local payroll, withholds tax and social security and carries the employer's obligations under local labour law, while you decide what the person works on. Our guide to what an employer of record is explains the mechanics and costs. The question here is narrower: which PE routes does that change of employer actually affect?

The answer follows from what each route tests. The fixed place test asks whether your business is carried on through a place; the dependent agent test asks whether a person habitually produces your contracts; the services tests ask whether services are performed for your enterprise and under your direction; the management tests ask where your company is run. Not one of them asks who issues the payslip. Changing the employer therefore changes the analysis only where the employer's identity is part of the facts, which is mainly the employment-related obligations covered in Section 2.

An EOR and a PE analysis are therefore complements, not substitutes: the EOR solves the problems of employing someone where you have no entity, and the PE analysis solves the problem of doing business there through that person. A company can do the first perfectly and still fail the second.

One argument deserves a direct answer because it is often made: that the person is the EOR's employee, so their home office is the EOR's place and their activities are the EOR's business. The Commentary's own words close that door. The home office test looks at whether the individual carries on "activities related to the business of an enterprise" at the home; the business those activities relate to is yours. And in India's highest court, in a 2025 judgment that rejected a similar argument about a separate local operating company, the court stated that "legal form does not override economic substance in determining PE status" - Supreme Court of India, Hyatt International Southwest Asia Ltd (2025).

Whether the EOR owns its local entity or works through a partner makes no difference here either. That distinction matters a great deal for service quality, data handling and accountability, which is why we track it for every provider on our owned-entity versus aggregator EOR page, but the PE question is about your company's activity, and it is the same under either model.

What EOR providers say about it

We read what eight of the largest EOR providers publish about permanent establishment. Most describe an EOR as reducing or mitigating PE risk, and the more careful ones say plainly that it does not remove it. The differences are worth knowing, because a buyer who reads only the strongest sentence on a provider's site can come away with a belief the provider's own longer guidance contradicts.

Sources: Deel, PE risk guide and Deel, enterprise guide; Oyster; Velocity Global; Remote; G-P; Papaya Global and Papaya Global on employee numbers. All read on 5 October 2026.

The pattern is reassuring where it matters. The providers that give the most detail (Deel, Oyster and Velocity Global) describe the same limits this guide derives from the treaty text: contract authority, sales, management and services. Remote's article contains both an unqualified "eliminates" and, further down, the opposite, which is a reminder to read a provider's full guidance and its contract rather than a single line. None of these pages is a warranty: what a provider actually takes responsibility for is set out in its service agreement, not its blog.

What tax and employment lawyers say

Independent advisers are more consistent than vendor pages. Taylor Wessing's 2025 guide to employer of record arrangements across 15 jurisdictions warns, in its UK chapter, that "engaging employees via an EOR could cause end-users to unwittingly establish a Permanent Establishment" and that a PE "is more likely to be triggered by certain activities, for example those relating to core income-generating business or the signing of contracts in the end-user's name" - Taylor Wessing, Employer of Record guide. The same guide's France chapter lists what a tax inspector looks for: "business cards, e-mail signature block, presentation of the employee on networks (LinkedIn, etc.), attendance at communication events as a company representative".

EY Germany gives the most balanced summary we found. It accepts that without an EOR "besteht unter bestimmten Umständen allerdings ein noch größeres Betriebsstättenrisiko" (there is, in certain circumstances, an even greater PE risk), because the company itself might otherwise have a fixed place of business abroad, but it singles out employees who conclude contracts for the client "oder zumindest eine wesentliche Rolle beim Vertragsschluss spielen" (or at least play a significant role in concluding them), and states that managing directors abroad "begründen unabhängig davon, ob ein EoR eingeschaltet wurde, regelmäßig dort eine Betriebsstätte" (regularly create a PE there, regardless of whether an EOR was used) - EY Germany, Vorteile und Risiken des Modells Employer of Record. That is the position this guide takes as well: an EOR genuinely helps with the fixed-place question for ordinary employees, and does nothing for sales authority or management.

How to apply this: ask any EOR provider you are considering what it says about permanent establishment in writing, and read how its service agreement allocates tax liabilities arising from your own activities. Then run the five-question check in Section 9 for each role you plan to place through it. The provider can be an excellent employer of record and still be the wrong answer for a sales role, and the honest providers will tell you so.

8. What a permanent establishment costs once it exists

A PE is often described as a catastrophe, which leads companies either to ignore the risk or to refuse sensible hires. The real cost has three layers, and only one of them is the tax itself; getting the proportions right is what lets you decide when to accept a PE, structure around it or set up an entity.

The first layer is the tax on attributable profit. Article 7(2) of the OECD Model attributes to a PE "the profits it might be expected to make, in particular in its dealings with other parts of the enterprise, if it were a separate and independent enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the functions performed, assets used and risks assumed" - OECD Model Tax Convention, Article 7. The tax is levied on that slice of profit, not on your company's revenue in the country. A PE that consists of one person doing routine work for the rest of the company usually has a modest slice; a PE that consists of the people who find, negotiate and close the country's customers can have a much larger one, because the functions that generate the profit sit there.

The second layer is the rate applied to that slice, which varies more than most companies expect. India taxes the income of a foreign company, including one with a PE in India, at a basic rate of 35 per cent before surcharge and cess, which PwC puts at an effective 36.40 to 38.22 per cent depending on income - PwC Worldwide Tax Summaries, India. That rate is ten points above the 25.17 per cent the OECD lists for India, because the OECD figure describes the regime for domestic companies.

The spread in the chart is the reason the same PE can be a rounding error in one country and a real line item in another. The rates for Brazil, Germany, Mexico, Canada, the United Kingdom, Poland and Ireland are the OECD's combined statutory rates for 2026, which include sub-central taxes where they apply, so Germany's 30.1 per cent reflects an average municipal trade tax and Canada's 26 per cent an average provincial rate - OECD, Corporate Tax Statistics 2026. The OECD's own caution applies to every bar: "Some jurisdictions impose different tax rates on non-resident companies than on resident companies", which is exactly what India does.

Some countries add a second charge when a PE's profits go home. The United States imposes, on top of its corporate tax, "a tax equal to 30 percent of the dividend equivalent amount" on a foreign corporation's US branch earnings that are not reinvested - 26 U.S.C. 884, a rate that US treaties generally reduce. Canada charges a special 25 per cent branch tax on after-tax profits not invested in Canada, which treaties can reduce to the dividend withholding rate - PwC Worldwide Tax Summaries, Canada branch income. The Philippines taxes profits remitted by a branch to its head office at 15 per cent - PwC Worldwide Tax Summaries, Philippines branch income. France and Spain levy a branch tax on head offices outside the EU, while the United Kingdom, Germany, the Netherlands, Ireland, India, Japan, Australia and Singapore charge nothing on the transfer itself; for the United Kingdom, PwC notes that "tax is not generally withheld on transfers of profits from a UK PE to the head office" - PwC Worldwide Tax Summaries, United Kingdom branch income.

The third layer is process, and for a PE discovered years later it usually costs more than the tax. Tax authorities typically add interest from the original due dates and penalties for failing to register or report, as three large hiring markets show. India's Income-tax Act 2025, in force from 1 April 2026, sets the penalty for under-reported income at "50% of the tax payable on under-reported income", rising to "200% of the tax payable on under-reported income" where the under-reporting results from misreporting - Income-tax Act 2025, section 439. In the United Kingdom, a company that should have told HMRC it was liable to corporation tax faces a failure-to-notify penalty of up to 30, 70 or 100 per cent of the potential lost revenue depending on its behaviour, and "the penalty will be less if you tell HMRC about your error before they find out about it" - HMRC, Corporation Tax penalties. The United States is harsher on silence than on tax: under its rules, "a foreign corporation that does not file a return will lose the right to take deductions and credits against effectively connected income", generally once the return is more than 18 months late, which means tax on gross rather than net income - IRS, Instructions for Form 1120-F.

Double taxation is the last part of the process cost. The treaty obliges your home country to relieve tax paid on a PE's profits, but when the two countries disagree about whether a PE exists or how much profit it earned, the fix is the mutual agreement procedure (MAP) between their tax authorities, and it is slow. The OECD reports that in 2024 the average MAP case took 27.4 months, "with transfer pricing cases slightly improved at 30.9 months (down from 32 months in 2023) and other cases averaging 24.5 months" - OECD, Key trends: 2024 MAP and APA statistics. Disputes about the profit attributed to a PE fall in the slower group: the OECD classes any case "relating to the attribution of profits to a permanent establishment" together with transfer pricing cases - OECD, MAP statistics FAQs.

The chart shows that attribution disputes have not come below the OECD's own 24-month target in any year since 2017, and have mostly taken around two and a half years. For a small company, that means tax paid twice on the same profit, held between two authorities for years. Avoiding the dispute, by deciding the PE question before hiring, is worth far more than winning it.

A PE also reaches beyond corporate tax. If the cost of a person's salary is borne by the PE, the 183-day exemption in Article 15 stops applying to that person (Section 2), so short-term visitors can become taxable locally; and once a company has a taxable presence, local registration, bookkeeping and reporting duties follow from it. Put together, the realistic cost of a PE found in an audit is the attributable tax, plus interest and penalties for every open year, plus the advisers and management time to fix it, plus double tax held in a dispute for two years or more.

How to apply this: price the PE before you hire, not after. For a role you expect to create one, estimate the profit that could be attributed to that person's function, apply the country's rate from the chart above (and any branch tax), and add the cost of a local filing each year. Compare that number with the cost of a local subsidiary and with the cost of shaping the role so it stays outside the PE tests. Registering a small PE can turn out to be the cheapest compliant answer; an undeclared one is usually the most expensive.

9. How to assess PE risk role by role

Everything in Sections 3 to 6 reduces to a short sequence of questions any hiring manager can answer about a planned role. The dependent agent question comes first because it can create a PE with no place at all; the home office question only matters if the first answer was no. The flow is the same logic as the scoring table at the top of this guide.

It is deliberately conservative. An outcome marked for review does not mean a PE exists; it means the facts deserve a look by an adviser who knows the specific treaty and that country's domestic law before you sign anyone. A low-risk outcome means the role matches none of the patterns the OECD uses to illustrate a PE, which is the most an internal check can tell you.

Three practical notes make the flow more reliable. First, answer question 1 from the job description and the compensation plan, not from the job title. A customer success manager paid on expansion revenue who negotiates renewals is doing sales; a sales engineer who never discusses price may not be. Second, answer question 4 from real location data for existing employees, and from the plan for new hires, remembering that the test uses a rolling twelve-month window. Third, write down the answers. A dated record that shows the company asked these questions, and why it reached its conclusion, is the first thing an adviser or a tax inspector will want to see.

The flow also shows why the same role can be fine in one country and a problem in another. Question 3 depends on whether the specific treaty has a services PE, and the final low-risk box depends on whether the country accepts the OECD's 2025 home office approach. A software engineer in Portugal and a software engineer in India answer the five questions identically and still deserve different levels of comfort, because India has said it will not apply the 50 per cent and commercial-reason tests (Section 3).

10. How to reduce the risk without stopping hiring

None of this is an argument against hiring abroad. It is an argument for deciding deliberately which roles go where, and for keeping the facts aligned with the decision. Companies that get into trouble rarely made one bad choice; they let roles drift, let a remote engineer become the local face of the company, or let three home-based salespeople run a country for years without anyone asking whether it had become a taxable presence.

The playbook starts with controls that cost nothing but discipline and ends with structures that cost money but turn uncertainty into a known, compliant position. Most companies need both: discipline for the engineers and specialists who make up most remote hiring, and structure for the few roles that face customers.

Controls that cost nothing but discipline

The first control is role design. Keep negotiation, pricing and contract closing with people located where your company already has a taxable presence, and write that boundary into job descriptions, commission plans and the approval workflow. Remember that a head office signature only helps if head office genuinely negotiates and changes terms; the Commentary treats routine approval without material modification as no protection at all.

The second is location discipline. Track where people actually work, by day, and set a policy for working from abroad that distinguishes between someone spending a few weeks in another country and someone relocating there. Most employers already allow some of both: KPMG's 2025 benchmarking survey of 456 global mobility professionals found cross-border remote work on the rise, "with half of organizations now offering short ‘workations’ and nearly one in four embracing permanent remote-work arrangements" - KPMG Global Mobility Benchmarking Report 2025, yet in Mercer's 2025 spot survey "just above half can only track international remote working manually" - Mercer, 2025 Outlook and International Remote Working Spot Survey. Write down the business reason for each remote hire's location at the time of hiring, because under the 2025 Commentary "to obtain or retain the services of that individual" is not a commercial reason, and that is the reason for most remote hires.

The third is customer-contact discipline for home-based staff in countries without an entity. Regular in-person customer meetings, local business development and on-site services are exactly the activities the Commentary lists as commercial reasons. Where those activities are needed, staff them deliberately, from a country where you have an entity, or accept that the country now needs a structure.

Structural choices that cost money but buy certainty

When a country's roles genuinely need a local presence, there are three structures, and each is a legitimate answer. Registering the PE (or a branch) means filing a local corporate tax return on the profits attributable to the activity; for a small sales or service presence the attributable profit is often modest (Section 8), and the cost is mainly compliance. Setting up a subsidiary turns the presence into a separate local taxpayer that is paid at arm's length for its functions under transfer pricing rules, and the OECD Model confirms that control between companies "shall not of itself constitute either company a permanent establishment of the other" - OECD Model Tax Convention, Article 5(7), although a subsidiary that acts as its parent's dependent agent can still create one (the example in Section 4). Using an EOR remains the right answer for roles with low PE exposure in that country, and for the period before a subsidiary is justified.

The table is a reminder that the EOR's job is employment, not tax structure. The EOR fee buys a compliant employer in the country; it does not change which row of the table a sales team belongs in. Our guide to what an employer of record is explains where the model fits and when companies move from an EOR to their own entity, and the EOR cost calculator shows what the employment side costs in each country, which is the number to put against the cost of a subsidiary.

Review on a schedule, not on a surprise

The last control is a calendar entry. Review every country with employees but no entity at least once a year, and whenever a role changes, a headcount threshold is crossed or a new kind of customer activity starts. For each country, refresh the answers to the five questions in Section 9, update the rolling home office percentages, and record the conclusion. That record is what turns a PE inquiry from an argument about what might have happened into a demonstration of what did.

11. Country hot spots: where the general rules move

The OECD Model and its Commentary describe a shared baseline, but tax is collected by national authorities applying national law and specific treaties, and in 2026 several of the most common hiring markets have taken visibly different positions. The table summarises the ones we found in official sources.

Sources: the OECD 2025 Update (India, Israel, Czechia, Chile, Nigeria, Malaysia), German Federal Ministry of Finance (18 June 2026), Austrian Federal Ministry of Finance (4 January 2026), Netherlands policy decree of 6 August 2026, HMRC International Manual, Danish Tax Council binding answers, the CRA's 2023 IFA roundtable answer and the IRS, each linked in the text below or in Sections 3 and 12.

Denmark is the clearest warning that the 50 per cent line is not universal yet. In a 2024 binding answer, the Danish Tax Council found that a Swedish employer had a PE in Denmark because its chief executive worked from his Danish home for a planned 40 per cent of his time; the work "ikke alene opstod tilfældigt og sporadisk, men derimod på forhånd var planlagt til at udgøre 40 pct. af arbejdstiden" (was not merely random and sporadic but planned in advance to make up 40 per cent of working time) - Skatterådet, SKM2024.432.SR. In an earlier answer about a German company's sales employee who lived in Denmark, what decided the case was that the employee "faktisk udførte mellem 40-50% af arbejdet i Danmark" (actually performed between 40 and 50 per cent of the work in Denmark), even though work on the Danish market made up at most 5 per cent of the employee's time - Skatterådet, SKM2022.250.SR. The Danish tax authority's own guidance says it will incorporate the 2025 Commentary after the OECD publishes its consolidated 2026 edition, and it lists sales functions as a weighty factor in home office cases - Skattestyrelsen, Den juridiske vejledning, C.D.1.2.2.

The Netherlands, Germany and Austria are moving the other way, formally adopting the OECD approach. The Dutch policy decree of August 2026 states that a home is as a rule not a PE where the person worked "minder dan 50 procent van zijn totale werktijd vanuit die woning" (less than 50 per cent of total working time from that home) over twelve months, and that above that line the facts decide, "in het bijzonder of er commerciële redenen zijn om de werkzaamheden in die staat uit te voeren" (in particular whether there are commercial reasons to carry out the work in that state) - Netherlands, Beleidsbesluit toepassing internationaal belastingrecht in de winstsfeer 2026. The decree treats the new Commentary as a clarification that is relevant to all existing treaties that follow the OECD's Article 5, the same reasoning the OECD itself uses for applying Commentary changes to older treaties.

Canada sits in between. The Canada Revenue Agency said in 2023 that "a home office of an employee, in and of itself, does not create a permanent establishment", while warning that remote employees can create an agency PE "if they routinely enter into contracts in Canada on behalf of" their employer, and that the Canada-US treaty can deem a services PE where employees working from home in Canada provide services "for an aggregate of at least 183 days in any 12 months period in respect of a single project, or connected group of projects for Canadian customers" - Canada Revenue Agency, 2023 IFA roundtable, question 5. As of March 2026, the CRA "has not issued a formal administrative statement expressly confirming whether it will adopt or apply the revisions", although Canada filed no reservation against them - BLG, Permanent establishment and remote work.

The United States starts from a different question. US domestic law has no permanent establishment concept: a foreign company is taxed on income effectively connected with a US trade or business, and the IRS explains that foreign persons "generally are engaged in a U.S. trade or business when personal services are performed in the U.S.", provided the activity is considerable, continuous and regular - IRS, Effectively Connected Income. Only a company resident in a treaty country can then rely on the treaty's PE test to limit that, and US treaties follow the US Model rather than the OECD's; KPMG's US practice reports that the IRS and Treasury treat the OECD Commentary as "non-binding interpretive and background material" - KPMG, GMS Flash Alert 2025-234. For a foreign company with a remote employee in the United States, the 2025 home office paragraphs are therefore a weak argument, and the employee's actual business activity in the US is the question to answer first.

The pattern is consistent with the rest of this guide. Countries differ most on the home office question, where the 2025 Commentary changed the analysis, and least on the dependent agent question: from the Canadian tax authority to Danish rulings and German guidance, people who sell from home are treated as a PE risk. For a remote team of engineers and specialists, the country positions mostly change your paperwork; for people who sell or manage, they change your structure.

The tax position is only one half of each country decision; the other half is what the employment itself costs and requires, which our country pages set out for each market with every figure cited. The India page, for example, opens with the statutory contributions, leave and notice rules an employer of record has to apply there.

How to apply this: keep a country register that records, for every country where you employ people without an entity, the treaty that applies, whether that country has published guidance on remote work and PE, whether it is on the list of countries that disagree with the OECD's 2025 approach, and which roles you have there. Our country pages cover the employment side of hiring in each of these countries, which is the other half of the same decision.

12. Where the rules are heading in 2026 and beyond

The 2025 update settled the text of the OECD's guidance, not its application. The OECD has said the changes "will be reflected in revised condensed and full editions of the OECD Model Tax Convention to be released in 2026" - OECD press release, 19 November 2025, but how each tax administration and court reads the new home office paragraphs is being decided country by country, and most countries have not said anything yet.

The best snapshot of that process is a survey KPMG's EU Tax Centre ran in March 2026 across its member firms in 63 jurisdictions. The headline is that "the vast majority of surveyed KPMG Member Firms report that their jurisdictions have not yet (as at April 2026) expressed a position on the relevance of the revised Commentary and have not updated domestic guidance" - KPMG, Navigating permanent establishment risk in a remote work era, part 2. KPMG is careful to add that the responses "do not generally reflect official positions taken by the tax authorities" - KPMG, part 1, which makes the numbers below a forecast rather than a rulebook.

The chart carries the most important practical message of 2026: "only 17 percent of in-scope jurisdictions are likely to consider the temporal threshold to operate as a safe harbour under domestic law, whilst 33 percent are likely to view it as a safe harbour in the context of double tax treaties", while "a clear majority of responding KPMG Member Firms (63 percent) indicate that, in their view, PE assessments in their jurisdictions are likely to continue to depend on a case-by-case assessment of the relevant facts and circumstances" - KPMG, part 1. KPMG's own summary is that the 50 per cent threshold "is rarely expected to be treated as a binding safe harbour" - KPMG, part 2, and that it will instead work as a reference point inside a broader assessment of the role, its seniority and the substance of the activity.

The early movers are among the most common hiring markets. Germany's finance ministry stated on 18 June 2026 that, for treaty purposes, paragraphs 44.1 to 44.21 are "maßgeblich und zu beachten" (decisive and to be observed) and that the 50 per cent threshold applies "auch in Betreff solcher Arbeitnehmer, die Leitungsfunktionen ausüben" (also to employees who exercise management functions), while warning that management functions exercised from a home office, or agency work done there, can still create a PE - German Federal Ministry of Finance, 18 June 2026. Austria applies the 2025 clarifications to its treaties from 2026, stating that "Ab 2026 sind die im November 2025 veröffentlichten Ausführungen des OECD-MK maßgeblich" (from 2026, the Commentary published in November 2025 is decisive) - Austrian Federal Ministry of Finance, 4 January 2026, a real relaxation from a 2019 ruling that treated even minor business activity in an employee's home as potentially enough - EAS 3415.

The United Kingdom is on a different track. HMRC's manual notes that the Commentary "is not imported into UK domestic law", so a material change would need Parliament before it shaped domestic PE - HMRC International Manual, INTM264050. Parliament has, however, rewritten the domestic agent test itself: for chargeable periods beginning on or after 1 January 2026, it covers a person who "habitually plays the principal role leading to the conclusion of contracts" - HMRC International Manual, INTM264300. A treaty still limits what the UK can tax a company from a treaty country, but for companies from countries without a UK treaty the wider test applies directly.

For a shorter briefing, PwC's global tax policy team discussed the new guidance in January 2026 in a seven-minute episode whose chapters cover the scope of the remote work changes, their impact on how treaties apply and, from 4:51, practical compliance steps.

Three open questions will shape the next few years, and none of them is answered by the 2025 text. The first is clusters: KPMG notes that "the treatment of multiple employees working remotely from the same jurisdiction remains unclear, as the Commentary does not expressly address whether the cumulative presence of several employees should be considered where no individual presence would, in isolation, give rise to a PE", and Israel has already reserved the right to find a commercial reason where employees form "a meaningful group" - OECD, The 2025 Update. The second is management from home, where Denmark's Tax Council found a PE in a 2024 ruling "solely due to an executive employee working from a home office with decisive influence on management decisions" - KPMG, part 2. The third is enforcement attention: 30 per cent of KPMG's respondents said their tax authorities are paying more attention to these arrangements, even though most do not yet see remote work as a primary audit focus.

How to apply this: build your remote work policy on the OECD's 2025 tests, because they are the best statement of where most countries are heading, but do not treat the 50 per cent line as a guarantee anywhere. Keep a list of the countries where you employ people without an entity, note for each whether its tax authority has published guidance (Germany, Austria, the Netherlands and the United Kingdom have; most countries have not), and revisit the list every six months while the positions settle.

13. The bottom line

Permanent establishment risk comes down to one structural fact: tax treaties follow the business, not the payslip. Corporate tax asks whether your company's business is carried on in a country through a fixed place, through a person who habitually produces your contracts, or through services and projects that last long enough. The employment contract answers none of those questions, which is why changing the employer changes so much about payroll, social security and labour law and so little about PE.

The decision framework that follows from that fact is short. Hire for skills freely: engineers, designers, analysts and other specialists who work for colleagues and customers elsewhere carry little PE risk in most countries under the OECD's 2025 approach, whether you employ them directly or through an EOR, as long as you document why they are where they are. Treat customer-facing roles as a country decision: the first person who negotiates, closes or serves local customers from a home in a new country is the moment to decide between shaping the role, registering a PE or setting up an entity. Treat senior people abroad as a board decision: founders and executives can move management, not just a desk. And in India, Israel, the Czech Republic, Chile, Nigeria and Malaysia, do not rely on the OECD's home office line without local advice, because each has said in writing that it reads the rules differently.

An employer of record fits into that framework exactly where its strengths are. It is the fastest compliant way to employ someone in a country where you have no entity, and it fully takes over the employment side of the hire. It is not a tax structure, and several of the largest providers say so in their own guidance (Section 7). Use it for the roles where the PE answer is already favourable, plan an entity or a registration for the roles where it is not, and keep the facts (who sells, who decides, who works where and why) aligned with the structure you chose. Our buyer's guide to EOR providers and the provider directory compare the providers themselves; this guide is the question to settle before you pick one.

How this guide was researched

The research behind this guide was split across several AI research agents working in parallel, each given one body of primary material (the OECD texts, the treaty clauses, the court decisions, national guidance and providers' claims, and tax and dispute statistics), and every quotation in the guide was checked word for word against its source page before publication. BestEOR is built and run on Founden, and the person behind BestEOR runs Founden as well; Founden's field guide to running many AI agents at once sets out what that way of working can do, what it costs and where it breaks.

The guide quotes treaty and Commentary text directly rather than paraphrasing it, because PE disputes turn on exact words, and it links every rule to the document that states it so you can read the surrounding paragraphs yourself. It is a map of the rules, not advice on your facts: before you hire someone into a customer-facing or senior role in a country where you have no entity, take advice from a tax adviser who knows that country's domestic law and the specific treaty that applies.

Frequently asked questions

What is permanent establishment risk?

It is the risk that your company becomes taxable in another country because of what its people do there. Under treaties based on the OECD Model, a country can tax a foreign company's business profits only if the company has a permanent establishment there: a fixed place of business, a person who habitually concludes or leads to its contracts, or, in many treaties, services or projects that last beyond a day threshold. Once a PE exists, the country can tax the profits attributable to it, and registration, filing and penalty rules follow.

Can a remote employee create a permanent establishment?

Yes, through two main routes. A remote employee who habitually negotiates or closes your contracts can create a dependent agent PE wherever they work. A home office can also become your fixed place of business: under the OECD's 2025 Commentary that is generally not the case below 50 per cent of the person's working time over any twelve-month period, and above it the key question is whether there is a commercial reason for the person to be in that country, such as serving local customers. Hiring someone because they are the right person, and they live there, is not a commercial reason on its own.

Does using an employer of record eliminate permanent establishment risk?

No. An EOR takes over the employment side of a hire (payroll, withholding, social security and employment law), but the PE tests look at your company's business activity, not at who employs the person. The OECD Commentary says the people who can create a dependent agent PE are persons "whether or not employees of the enterprise". An EOR suits roles with low PE exposure, such as engineers hired for their skills; for sales and other customer-facing roles, the risk stays with you whatever the employment structure.

What is the 50 per cent home office rule?

It is the threshold in paragraph 44.8 of the Commentary on Article 5, added by the OECD's 2025 update: a home "would generally not be considered a place of business of the enterprise" if the person works there for less than 50 per cent of their total working time for the enterprise over any twelve-month period. It is guidance on reading treaties, not a law. India, Israel, the Czech Republic, Chile, Nigeria and Malaysia recorded disagreements or reservations, and in a KPMG survey covering 63 jurisdictions only 17 per cent expected the line to work as a safe harbour under domestic law - KPMG.

How many days can an employee work abroad before creating a PE?

There is no universal number, because the routes work differently. A fixed place needs some permanence: in the OECD's example, three months working from a rental abroad was not enough, and HMRC notes that PEs "have not been considered to exist" where a fixed place of business was maintained for less than six months - HMRC International Manual, INTM264430. A dependent agent PE has no day threshold at all. Treaties with a services PE set their own counts, often 183 days in a twelve-month period and as low as 90 days in some treaties with India. The 183-day rule most people know is a different test, about the employee's own income tax.

What happens if a company has an undeclared permanent establishment?

The country can assess corporate tax on the profits attributable to the PE for each open year, usually with interest and penalties for late registration, late filing or under-reporting. The home country normally relieves the foreign tax under the treaty, but resolving double taxation through the mutual agreement procedure has averaged more than two years. Declaring early is almost always cheaper: HMRC, for example, says "the penalty will be less if you tell HMRC about your error before they find out about it" - HMRC, Corporation Tax penalties.

Is the 183-day rule the same as permanent establishment?

No. The 183-day rule in Article 15 of the OECD Model decides whether an employee's salary can be taxed where they work. PE decides whether your company's profits can be taxed there. A person can be under 183 days and still create a PE (a salesperson closing deals), and a PE can cost a short-term visitor the 183-day exemption, because the exemption only applies if the salary is not borne by a PE the employer has in that country.

Do contractors create permanent establishment risk too?

They can. Article 5(6) excludes agents who carry on business as genuinely independent agents and act for the company in the ordinary course of that business, and a contractor who in practice works only for you, on your contracts and under your direction, is hard to fit into that exception. Such a contractor may also be an employee in law, which creates employment and tax problems of its own; our guide to employers of record covers how classification is tested.

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This guide reflects treaty texts, OECD Commentary, national guidance and court decisions as of October 2026. It is general information, not tax or legal advice: whether a permanent establishment exists depends on the specific treaty, the domestic law of the country concerned and the facts of each role, so take advice from a qualified adviser in that country before relying on it.