Remote work is no longer a temporary solution or an HR perk, it has become a structural feature of modern business, and it’s more and more common for that work to be done in a different country, often without fully considering the tax and legal consequences.
What many executives still underestimate is this: a single employee working remotely from another country can be enough to create a permanent establishment with significant corporate tax, compliance, and audit exposure.
When remote work crosses the line into permanent establishment (PE)
Under most tax treaties and domestic tax laws, a PE arises when a foreign company has a fixed place of business or a dependent agent in another country. Remote work challenges both concepts.
An employee working regularly from home abroad may unintentionally create:
A fixed place, if the home office is used on a continuous basis and is effectively at the disposal of the employer; or
A dependent agent, if the employee habitually negotiates or concludes contracts, or plays a principal role leading to their conclusion.
Tax authorities increasingly look beyond formal job titles and focus on actual functions performed, decision-making authority, and economic substance.
During the Covid-19 pandemic, many tax authorities adopted a temporary and flexible approach to remote work, but that tolerance has largely disappeared.
Current trends show:
Increased cross-border data sharing;
Greater scrutiny of payroll, immigration, and social security records; and
A renewed focus on substance over form, aligned with the principles promoted by the Organisation for Economic Cooperation and Development (OECD) and the Base Erosion and Profit Shifting (BEPS) framework
In our cross-border advisory work, we frequently see PE risk arise in scenarios such as:
Senior executives working remotely abroad for extended periods;
Sales or business development personnel interacting with local clients;
Employees managing key suppliers or regional operations;
“Temporary” remote arrangements that become permanent.
Often, these arrangements exist without formal approval, internal documentation, or tax analysis until the issue surfaces during an audit.
An unplanned permanent establishment can result in corporate income tax liabilities, penalties and interests for prior years, increased tax obligations and filings, transfer pricing challenges, profit attribution disputes, and increased audit risk.
The solution is not to prohibit remote work, but to govern it intelligently by:
Mapping where employees are physically located and for how long;
Assessing roles, authority, and decision-making power;
Implementing internal remote work policies with tax guardrails;
Coordinating tax, legal, HR, and immigration teams; and
When managed properly, remote work can coexist with tax efficiency and compliance.
Remote work has rapidly redefined how and where value is created, and tax authorities are adapting just as quickly.
For multinational groups and businesses expanding internationally, the key question is no longer whether remote work creates risk, but whether that risk is being actively managed.
In today’s environment, a single employee can redraw your tax footprint. Awareness, planning, and early action can make the difference between a manageable compliance issue and costly PE exposure.
