Remote work and contract negotiations are increasingly leading to taxable presence abroad

In the aftermath of the COVID crisis, remote working and working from home have become a structural part of operations for many businesses. While this flexibility brings clear benefits, it also comes with important tax implications.

Tax authorities are placing greater emphasis on verifying the actual location where employees carry out their work to determine taxing rights. In this context, the OECD has recently published updated interpretations of the OECD Model Tax Convention. These clarifications increase the likelihood that remote work results in the creation of a taxable permanent establishment (PE), potentially triggering tax liabilities and administrative obligations.

What is new?

The OECD’s revised commentary provides clearer guidance on when foreign workplaces – such as a home office, rented workspace, or other location – might qualify as a permanent establishment. The key points are:

• 50% threshold: If an employee works from the same foreign location for more than 50% of the time over a twelve‑month period, this location may be deemed a permanent establishment.
• Emphasis on commercial purpose: The assessment places increased focus on the underlying business purpose and the economic value derived from maintaining a presence abroad (e.g., regular client or supplier interactions, real‑time service delivery in other time zones, etc.).
• No formal obligation: Whether remote work is explicitly or implicitly required by the employer is no longer the determining factor; the actual working circumstances now carry the most weight.
• Broadened scope: Relevant work locations include not only the employee’s home office, but also any other place where professional activities are performed — such as co‑working spaces, temporary offices, or holiday residences.

Additional point of attention: sales representatives and contract negotiations

In addition to the classic permanent establishment concept based on a fixed place of business, special attention should be given to the potential risk of creating an agency permanent establishment.

If sales representatives or other employees operate abroad and:

• negotiate contracts on behalf of the company,
• play a decisive role in concluding contracts that are subsequently routinely approved,
• and/or physically sign these contracts,

may give rise to the establishment of a taxable permanent establishment in the jurisdiction where the activities are performed, notwithstanding the absence of a fixed physical place of business. The concurrence of remote working arrangements with extensive commercial authority materially increases this exposure, particularly where such activities are systematically and continuously carried out from a foreign location.

National tax perspectives remain crucial

Alongside these international developments, it remains essential to take into account national legislation and administrative practice. Several countries have made reservations to the updated OECD commentary or apply a broader domestic concept of permanent establishment, (such as e.g. Belgium) which may lead to registration and compliance obligations regardless of the treaty analysis.

Furthermore, the effective date of the updated commentary differs by country. Belgium and the Netherlands, for example, have established a bilateral agreement on the taxation of remote work, introducing a 50% threshold in their mutual arrangements. In addition, with regard to the agency permanent establishment risk for sales representatives, practice shows that — pending the new double tax treaty — both Belgian and Dutch tax authorities are more inclined to swiftly assert taxable presence when contract negotiations are involved.

What does this mean for your organisation?

The existence of a taxable permanent establishment can lead to, among other things:

• Corporate income tax and related formalities in the work country and/or country of residence;
• Payroll tax withholding obligations for the employer in the employee’s country of residence;
• Potential impact on the employee’s personal income tax;
• Additional obligations, including social security considerations.

Where is action required?

These developments are particularly relevant for companies with employees who:

• regularly work from abroad,
• reside abroad for prolonged periods,
• carry out commercial activities (such as sales or contract negotiations),
• or work flexibly from multiple locations.

We recommend, among other things:

• reviewing the international staffing structure and commercial powers;
• actively monitoring cross‑border employment and workplace locations;
• timely identifying and managing permanent establishment risks to avoid unexpected tax liabilities.

Every situation requires a tailored approach and may be relevant for your company as well. Our specialised team of international tax advisors will gladly assist you in mapping the specific risks and tax obligations arising from these developments.