Remote work and permanent establishment: what the OECD’s 2025 guidance really changes

Remote work is often treated as a flexible HR arrangement. For many founders, it feels operational, not structural.

That assumption is increasingly fragile.

With its 2025 update to the Commentary on the OECD Model Tax Convention, released on 19 November 2025, the OECD has clarified how remote work performed abroad must be analysed for permanent establishment purposes. The result is not a radical change of law, but a clearer and more structured risk framework—one that materially affects companies with distributed teams.

Why remote work has become a tax issue for founders

The concept of permanent establishment is designed to identify when a company has a sufficient presence in another jurisdiction to justify corporate taxation there.

For years, remote work sat uncomfortably within this framework. Employees working from abroad did not fit neatly into traditional categories of offices, branches or factories. This led to inconsistent interpretations across countries, particularly when home offices or flexible work arrangements were involved.

The OECD’s 2025 update aims to address this uncertainty by shifting the focus away from formal requirements and towards factual patterns of presence and activity.

The OECD’s 2025 update: a change in analytical approach

The updated Commentary does not introduce a new tax rule. It refines how existing permanent establishment principles should be applied in the context of remote work.

Three changes are particularly relevant for founders.

The “required to work from home” test is removed

Previously, much of the analysis revolved around whether the employer required the employee to work from home, either explicitly or implicitly. This test proved difficult to apply and produced divergent outcomes.

The 2025 Commentary removes this criterion entirely.

What matters now is not whether remote work was imposed by the employer, but whether the location used by the employee constitutes a sufficiently permanent place of business from the perspective of the enterprise.

This makes the analysis more objective—and less dependent on internal HR policies.

Any foreign work location can now be relevant

The updated guidance makes it clear that the analysis is not limited to private homes.

A fixed place of business may arise from:

• a home office,
• a co-working space,
• a rented office,
• or the recurring use of a third-party location.

The key question is whether the enterprise has a place at its disposal abroad through the employee’s recurring presence, regardless of the formal label attached to the location.

For founders, this means that informal or “temporary” arrangements can still carry tax consequences.

The 50% threshold: a reference point, not a safe harbour

One of the most discussed elements of the 2025 update is the introduction of a 50% threshold over a rolling 12-month period.

If an employee works abroad for less than 50% of their working time, the location is generally not considered sufficiently permanent to constitute a fixed place of business.

Beyond that threshold, however, the analysis becomes fully factual.

Importantly, this is not a bright-line rule and not a safe harbour. Exceeding 50% does not automatically create a permanent establishment. It triggers a closer examination of why the employee is present abroad and how their activities serve the enterprise.

Commercial purpose becomes the central factor

Under the updated Commentary, the commercial purpose of the employee’s presence abroad is decisive.

The risk of a permanent establishment increases significantly where the employee’s activities:

• are client-facing,
• involve business development,
• include managing local personnel,
• or otherwise have an external commercial impact in the host country.

By contrast, purely internal or support functions are less likely to create a sufficient nexus on their own, even when performed remotely.

For founders, this distinction is critical. Two employees working remotely from the same country may carry very different tax risks depending on what they actually do.

What the update does not resolve

The OECD Commentary is influential, but it is not binding law.

Many tax treaties still rely on older versions of the Commentary, and domestic tax authorities may adopt different approaches in practice. Enforcement remains uneven, and grey areas persist.

That said, the direction of travel is clear. The balance of risk has shifted, and remote work can no longer be treated as tax-neutral by default.

Practical implications for founders and scale-ups

Founders with international teams should assume that remote work arrangements may be examined through a tax lens, not only an employment one.

The risk becomes tangible when:

• employees work abroad more than 50% of the time,
• their activities serve a commercial purpose in the host country,
• or the company relies on informal arrangements without clear internal documentation.

Ignoring the issue rarely makes it disappear. It often postpones it until the facts are reviewed under audit conditions.

Conclusion: a checklist before remote work creates tax exposure

Before treating remote work as a purely operational choice, it is worth stepping back and asking a few concrete questions.

A practical checklist for founders

• Do you know where each team member actually performs their work over a 12-month period?
• Are you able to distinguish between internal support functions and activities with external commercial impact?
• Have you assessed whether any employee’s presence abroad serves a commercial purpose for the company?
• Is your documentation aligned with the reality of how work is performed and where decisions are made?
• Would your remote work arrangements withstand a fact-based review rather than a policy-based one?

If any of these questions raises hesitation, the issue is rarely theoretical. It is structural.

How we can help

At Altara Tax, we help founders and scale-ups assess and manage corporate tax exposure arising from cross-border remote work.

Our work focuses on:

• identifying permanent establishment risks early,
• aligning operational reality with tax positioning,
• and designing remote work frameworks that remain workable as teams grow internationally.

Addressing these questions proactively is often far simpler than responding once the tax nexus has already formed.