How International Remote Work Affects Your Company’s Taxation

Recently, the OECD (Organisation for Economic Co-operation and Development) published key updates on the concept of “permanent establishment” (PE), clarifying when international remote work can create additional tax obligations for a company. You can read the full 2025 update here. These updates are essential for any company managing employees outside their home country.

What the OECD Says About International Remote Work

The OECD guidelines focus on Article 5 of its Model Tax Convention, which regulates the concept of permanent establishment. However, it is important to understand that this is a model; the binding rule for a Spanish or foreign company is the specific Double Taxation Agreement (DTA) that Spain has signed with the country where the employee resides.

Most DTAs, like Article 5 of the agreement with France, define a permanent establishment as a “fixed place of business” through which a company carries out all or part of its activities. The new OECD guidelines help interpret when an employee’s location becomes that fixed place of business.

Key Points

1. 50% Threshold: If an employee works from home or any other location not linked to the company less than 50% of the time over a 12-month period, it is generally not considered a permanent establishment.
2. Commercial Purpose: Even if the 50% threshold is exceeded, a PE is not automatically created. The activities performed from that location must have a specific commercial purpose, such as serving local clients or supervising suppliers.
3. Case-by-Case Assessment: Each situation must be analyzed individually. Simply working from another country does not automatically create additional tax obligations for the company.

For those interested in the full text, the 2025 update to the OECD Model Tax Convention can be accessed here.

 

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Practical Examples for Better Understanding

• Employee A: Works from home in another country for only three months a year. No PE exists, as the activity lacks permanence.
• Employee B: Works 30% of their time from home in a country different from the employer’s tax residence. Even though the location is “fixed,” it is not a PE because it does not exceed 50% of the time.
• Employee C: Works 80% from home in another country and regularly serves local clients. In this case, it is considered a PE because there is a real commercial purpose.

*These examples show that tax risk arises only in specific cases, generally when there is regular physical presence linked to a commercial purpose.

What Happens if a Permanent Establishment is Created

If an employee’s activities abroad give rise to a PE, the consequences for the company are significant:

• Tax obligation in the employee’s country: The company must register for tax purposes in that country and pay taxes on profits considered attributable to the PE.
• Profit allocation: It will be necessary to determine what portion of the company’s global profit is attributable to the employee’s activities, a complex process governed by transfer pricing rules.
• Formal obligations: The company must comply with accounting, invoicing, and tax filing requirements in that jurisdiction.

What Companies Can Do Now

The OECD publication is a good opportunity for your company to:

• Review international remote work policies to ensure time limits and commercial purpose requirements are met.
• Assess each case individually for employees working from another country.
• Document activities and commercial purposes to avoid unnecessary tax risks.

How We Can Help from Adlanter

At Adlanter, we support companies with employee mobility, international remote work, and their tax implications. We can help you:

• Analyze whether your employees create a permanent establishment in another country.
• Review and update your remote work policies.
• Design plans that comply with international tax regulations and avoid unnecessary risks.

Contact our professionals now for personalized advice with no obligation.