Can a Remote Employee Create Permanent Establishment?
Yes. A single remote employee abroad can create a permanent establishment (PE). Under the OECD’s 2025 guidance, a home office used for less than 50% of working time over any 12 months is generally not a PE. At 50% or more, the test is whether there is a commercial reason for the employee to be in that country.
Last reviewed: November 2026
AgileHRO, an Employer of Record headquartered in Singapore, runs EOR, payroll and mobility for companies hiring across 150+ countries. PE questions land on our desk every week, usually after a founder has already said yes to a “work from anywhere” request. This guide covers what changed in 2025, how to test a real hire, and what an EOR does and does not fix.
What is permanent establishment?
A permanent establishment is a taxable presence in another country. If your company has a PE there, that country can tax the profits attributable to it, which usually means local registration, a corporate tax return and transfer pricing work.
Most tax treaties follow Article 5 of the OECD Model Tax Convention. It describes two main routes to a PE:
| Route | What triggers it | Typical remote-work example |
|---|---|---|
| Fixed place of business | A place through which the business is wholly or partly carried on, used with some permanence | A sales lead who works from a home office in Germany most of the year |
| Dependent agent | A person who habitually concludes contracts, or habitually plays the principal role leading to contracts that are routinely concluded without material modification | A country manager who negotiates and closes deals with local customers |
Activities that are only preparatory or auxiliary, such as storing goods or gathering information, do not create a PE on their own.
Can one remote employee trigger PE?
Yes, but not automatically. One employee can create a fixed-place PE through their home office, or a dependent-agent PE through what they do, regardless of where they sit. The OECD Commentary says that where one individual is the only or primary person conducting the enterprise’s business in a country, that strongly indicates a PE.
What did the OECD change in 2025?
The OECD Council approved the 2025 Update to the Model Tax Convention on 18 November 2025. It rewrote the Commentary on Article 5 with a clearer test for home offices and other places an employee works from, including second homes and holiday rentals.
The test runs in three steps:
- Continuous use. Is the place used on a continuous basis, or only incidentally? Only continuous use can make it a fixed place of business.
- The 50% threshold. Does the employee work from that place for 50% or more of their total working time for the company, over any 12-month period? Below 50%, there is in principle no PE.
- Commercial reason. At 50% or more, is there a commercial reason for the employee’s activities in that country? If yes, a PE is likely. If no, it generally is not.
The Commentary gives examples of a commercial reason:
- meeting customers, building a customer base or finding business opportunities in that country
- sourcing and managing suppliers
- real-time contact with customers or suppliers in that time zone, such as IT support or call centres
- working closely with local businesses, research partners or group companies
- delivering services that need someone on site, such as training or repairs
It also lists cases with no commercial reason: customer contact that is only incidental, a home office allowed purely to hire or keep the employee, or an arrangement whose main purpose is cutting costs.
Does the OECD guidance apply in every country?
No. The Commentary guides how treaties are read; it is not law. Each country applies its own domestic rules and its own treaties, and some OECD members record observations that depart from the Commentary. Treaties based on the UN Model can also contain a services PE clause, triggered when staff furnish services in the country for more than 183 days in any 12-month period. Always check the specific treaty between the two countries involved.
How do you assess PE risk for a remote hire?
Run these checks before the employee starts, not after the first tax notice.
- Map the calendar. Estimate the share of working time the employee will spend in the other country over a rolling 12 months.
- List the duties. Write down who they will meet, sell to, buy from and manage. Customer-facing and supplier-facing roles carry the most risk.
- Check contract authority. If they can sign, or effectively agree terms that head office rubber-stamps, you have dependent-agent exposure at any time split.
- Read the treaty. Confirm whether a treaty exists, which model it follows and whether it has a services PE clause.
- Separate payroll from PE. Employing someone in a country usually creates payroll withholding and social security duties there, whether or not you have a PE. Treat them as two separate questions.
- Pick the employment model. Compare an entity, an EOR or a short-term assignment using the EOR vs entity tool.
- Review every 12 months. Roles drift. A support engineer who starts handling renewals has a different risk profile a year later.
Does an Employer of Record remove PE risk?
It reduces it; it does not remove it. With an EOR, the employee is legally employed by the EOR’s local entity, so your company has no employment relationship, office or payroll in that country. That addresses the fixed-place question in most cases.
What an EOR cannot change is what the employee does. If they habitually conclude contracts for your company, the dependent-agent rule can still apply. Any EOR that promises “zero PE risk” for a quota-carrying salesperson is overselling. The fix there is limiting signing authority, or setting up an entity once revenue in that market justifies it.
| Scenario | PE risk without EOR | PE risk with EOR |
|---|---|---|
| Engineer, internal work only, no customer contact | Low to moderate | Low |
| Customer support for local clients, home office 100% | Moderate to high | Lower, but review duties |
| Salesperson who negotiates and signs local deals | High | Still high (dependent agent) |
| Country manager running the whole local business | High | High: plan an entity |
Worked example: a Singapore SaaS company hiring in Germany
A Singapore SaaS company hires a senior customer success manager who lives in Berlin. She works from home five days a week, so she is above the 50% threshold. Her role is renewals and onboarding for German enterprise clients, which is direct, regular customer engagement in Germany: a commercial reason under the OECD test.
Hiring her directly from Singapore, with no German entity, creates a clear PE argument and German payroll duties on top. Hiring her through an EOR moves the employment to a German employer and handles payroll locally. The remaining question is contract authority. The company keeps final pricing and signature in Singapore, documents that in her job description and reviews it every year.
If her book of German clients grows to the point where a local team is needed, that is the point to compare EOR cost against an entity with the Employment Cost Calculator.
Where AgileHRO fits
AgileHRO runs EOR, payroll and global mobility under one relationship, with in-country teams across APAC and LATAM and coverage in markets including Germany, the Netherlands, the UK, Singapore, the UAE, India and Brazil. That matters for PE because the risky cases are rarely clean: an employee splitting time across two countries, a visa holder who relocates mid-year, or a regional role covering several markets. We map the time split and role scope at onboarding, flag dependent-agent exposure before the contract is signed, and move the employee to an entity or EOR model that matches where the revenue actually is.
This article is general information, not tax or legal advice; get advice on your specific treaty position.