Permanent establishment risk from remote employees abroad

When an employee of a Swiss, German or Austrian company works from home in another country, the first tax question is whether the company now has a permanent establishment (in German, Betriebsstätte) there. A permanent establishment lets the other state tax the profits attributable to it. A home office abroad does not automatically create one. The 2025 update to the OECD guidance uses a working-time indicator of 50 percent over twelve months and then asks whether the company has a commercial reason for the employee to be in that state; recent German and Austrian ministry positions follow it for treaty purposes. Management functions and contract authority raise the risk, and domestic tax definitions can matter even where no treaty permanent establishment exists.

Quick answer

What is a permanent establishment?

A permanent establishment is the connection that allows a state to tax a foreign company’s business profits. The OECD Model defines it as a fixed place of business through which the business of an enterprise is wholly or partly carried on (Article 5(1)). Each double taxation treaty between Switzerland, Germany and Austria uses a similar definition, so the treaty text and each state’s practice decide. The OECD Commentary is an interpretive aid, not a binding legal instrument.

Domestic law has its own definitions, which can be wider:

• Germany: a Betriebsstätte is any fixed business facility that serves the activity of an enterprise (section 12 AO). A permanent representative who sustainably conducts the enterprise’s business under its instructions can also create one (section 13 AO).
• Austria: a Betriebsstätte is any fixed local installation or facility that serves the exercise of a business (section 29 BAO). Austrian ministry guidance (EAS 3415, 2019) reads this more widely than the treaty concept.
• Switzerland: a Betriebsstätte is a fixed business facility in which the activity of an enterprise is wholly or partly carried out (Article 51 DBG). A Swiss company is not taxed on the profits of a foreign permanent establishment (Article 52 DBG), but the foreign state decides whether one exists.

When does a home office count as a place of business?

In November 2025 the OECD added paragraphs 44.1 to 44.21 to its Commentary on Article 5, titled “Cross-border working from a home or other relevant place”. They set two steps:

1. Working-time indicator. A home or other relevant place would generally not be a place of business if the individual worked from there for less than 50 percent of their total working time for that enterprise over any twelve-month period starting or ending in the fiscal year concerned. The individual’s actual conduct determines the calculation. At 50 percent or more, facts and circumstances decide.
2. Commercial reason. This is the prominent consideration once the 50 percent mark is reached. Where the enterprise has no commercial reason for the individual to work in that state, the home would not be a place of business unless other facts and circumstances indicate otherwise. A commercial reason exists where the individual’s physical presence there itself facilitates the business, for example because there are people or resources in the state that the enterprise needs access to, or because the individual engages directly with customers or suppliers and that engagement is facilitated by being located there. Allowing home work solely to obtain or retain the individual’s services, or to reduce costs such as office space, is not a commercial reason. The mere presence of customers or suppliers in the state, or occasional short visits to them, is not enough.

The Commentary also says that where the individual is the only or primary person carrying on the enterprise’s business, different considerations apply. Preparatory or auxiliary activity remains excluded under Article 5(4).

What do Germany and Austria say?

Germany. In a letter of 18 June 2026, the Federal Ministry of Finance states that an employee’s activity in a home office at the employee’s own home usually creates no Betriebsstätte of the employer under section 12 AO or Article 5(1) and (4) of the OECD Model, because the employer typically lacks sufficient power of disposal. This applies in principle even where the employer bears the home-office costs. It treats paragraphs 44.1 to 44.21 as relevant for treaty purposes, so that under 50 percent home-office use generally does not create a treaty permanent establishment, including for employees with management functions. It also says that management functions in a home office can create a place-of-management Betriebsstätte, and that the dependent-agent rules apply without restriction. The letter sets out administrative principles for the German tax authorities; courts and foreign tax authorities are not bound by it, and the other state can decide differently.

Austria. An information issued by the Austrian Federal Ministry of Finance on 4 January 2026 adopts the OECD test for treaty purposes from 2026: a home office can generally create a permanent establishment if the person spends at least 50 percent of working time there within twelve months and the home-office work gives the company a commercial reason. Earlier practice could be applied until the end of 2025. The Information concerns the treaty concept and does not address the domestic definition in section 29 BAO. An older 2019 answer (EAS 3415) took the view that even minor business use of a home office could meet the domestic definition.

Switzerland. We found no statement by the Federal Tax Administration on whether Switzerland applies the new paragraphs. The Federal SME portal reports that the State Secretariat for International Finance recommends having each case checked by lawyers specialised in international tax law before employees or executives are allowed to work from abroad, and notes that extended stays abroad by the managers of a small company can call the company’s place of establishment into question. Verify the Swiss position with a tax adviser.

Which facts raise the risk besides working time?

The percentage is an indicator, not a safe harbour. Check the following separately:

• Management functions. Management activity from a home office can create a place of management. The German ministry accepts this under domestic law (section 12 AO) and for treaty purposes where day-to-day management decisions are taken from the home office, but it also applies the 50 percent threshold for treaty purposes to employees with management functions.
• Dependent agent. Under the treaties between Germany, Austria and Switzerland, a person with authority to conclude contracts in the name of the enterprise, habitually exercised in the other state, can create a permanent establishment. In the Switzerland-Austria treaty the only exception is an agent whose activity is limited to purchasing goods. The 2017 OECD wording (“principal role leading to the conclusion of contracts”) does not appear in the consolidated treaty texts cited here; whether the OECD multilateral instrument changes the Germany-Austria treaty was not checked. The Germany treaties with Switzerland and Austria instead exclude persons whose activities are limited to preparatory or auxiliary ones.
• A place at the company’s disposal. A room or desk the company can use for other staff, or a coworking space rented by the company, is different from an employee’s own home.
• Sole or primary person. If one employee effectively runs the business in the state, the analysis is different.
• Other activity. Sales, negotiation with local customers and recurring client meetings point to a commercial reason.

What follows if a permanent establishment exists?

The other state may tax the profits attributable to the permanent establishment, allocated as if it were a separate and independent enterprise (Article 7). The German ministry confirms the permanent establishment is the main link for allocating taxing rights over business profits. The company may also have to register and file in that state. We verified only the German notification duty for opening a Betriebsstätte (section 138 AO); Austrian and Swiss registration duties for a foreign company’s permanent establishment were not verified for this guide.

Can payroll duties arise without a treaty permanent establishment?

Yes, because the employer status for wage tax follows the domestic definitions, not the treaty test. In Germany, wage tax is withheld where the employer has, among other connecting factors, a seat, management, permanent establishment or permanent representative in Germany (section 38 EStG); because the ministry says a home office at the employee’s own home usually is not a Betriebsstätte under section 12 AO, a home office alone will usually not make a foreign employer a German wage-tax employer. In Austria, a Betriebsstätte for wage-tax purposes is any fixed installation the employer maintains in Austria for more than a month that serves the employee’s work (section 81 EStG 1988), and EAS 3415 treated an employee’s home office as potentially meeting it. Where none exists, withholding is optional (section 47(1) EStG 1988), but the employer must send a wage certificate to the tax office for fully taxable employees whose centre of activity is in Austria for more than six months in a calendar year, unless it withholds voluntarily. This is separate from social security, which follows the A1 and telework rules in the A1 certificate guide.

What does this mean for your hiring model?

An EOR changes who the legal employer is. We found no official statement from the German or Austrian ministries, the Swiss Federal Tax Administration or the OECD that an EOR removes the client’s permanent establishment risk. The risk comes from what the client does through the employee: management functions, contract authority, or a place at its disposal. The country guides, for example hiring in Germany from Switzerland and hiring in Austria from Switzerland or Germany, show how this plays out for a specific work country. For the choice between the three hiring models, see employee, contractor or EOR: how to choose.

Documentation that helps

Keep a work-location log by country, the employee’s duties and authority, the business reason for the location, any lease or room use by the company, and the dated tax advice. Review it when duties, days abroad or customer contact change.

Key terms

Permanent establishment

A tax concept describing a fixed place of business or sufficient business activity in a country that can trigger local corporate tax obligations for a foreign company.

Employee

A worker engaged under a local employment contract, with the employer responsible for payroll, social security contributions and compliance with local labour law.

Employer of Record (EOR)

A third-party provider that legally employs a worker on behalf of a client company in a country where the client has no local entity, handling local payroll, contracts and compliance.

Final checklist

• Record the number of working days from home abroad against total working time, over any twelve months.
• Check whether the employee manages others or can conclude contracts for the company.
• Ask whether the company has a commercial reason for the employee to be in that state.
• Check the domestic payroll definition of the employer in the work country.
• Review the specific treaty text between the two states.
• Keep this analysis separate from social security and the employee’s personal tax.
• Obtain tax advice in the work country before the start date and when facts change.
• Read employee, contractor or EOR: how to choose if the hiring model is still open.