On 18 November 2025, the OECD Council approved the 2025 Update to the OECD Model Tax Convention, and the new Commentary on Article 5 states that a home or other relevant place would generally not be considered a place of business of the enterprise if the individual worked from that place for less than 50 per cent of their total working time for that enterprise over the course of any twelve-month period commencing or ending in the fiscal year concerned.
Rise is a global payroll and Employer of Record platform for companies that hire and pay people across borders without standing up a local entity in every market.
That 50 percent benchmark, not a 183-day travel calendar, is now the starting analysis for whether a remote or home-office employee can create a taxable presence for the company itself.
Permanent establishment is a corporate-tax question, not the same as the employment and payroll model finance and legal teams already run.
Key Takeaways
The OECD 2025 Commentary on Article 5 generally treats a home or other relevant place as not a place of business if the individual works from it for less than 50 percent of total working time for that enterprise over any twelve-month period commencing or ending in the fiscal year concerned.
Crossing 50 percent is not an automatic PE. The next test is qualitative: whether there is a commercial reason for the work to be done in that country, rather than talent retention or office-cost savings.
Agency PE is a separate Article 5 test. A dependent agent who habitually concludes contracts that bind the enterprise can create a PE even when the home office fails the fixed-place analysis. The 2025 update did not rewrite that rule.
PE is whether the company has a taxable presence in the host country. Shadow payroll is the host reporting rail for an employee who stays on home payroll. Employee tax residency is a third question.
Day count is not PE. Use an Employer of Record when the person is staying as an employee and the company has no host entity. Use an Agent of Record only for a genuine contractor.
What Permanent Establishment Means
A permanent establishment is a taxable presence of the enterprise in another country.
Under Article 5 of the OECD Model, that presence is typically a fixed place of business through which the business of the enterprise is wholly or partly carried on: a place of management, a branch, an office, a factory, or a workshop.
A home office was never on that list, but it can still qualify if the facts show that the individual's home, or another relevant place such as a second home, a holiday rental, or a relative's house, is being used as a place of business of the company.
If a PE exists, the host country may tax the profits attributable to that presence, require corporate registrations and filings, and open profit-attribution work under Article 7.
The individual's own income tax, social-security affiliation, and immigration status do not answer that question.
Baker McKenzie notes that the 2025 update replaced the 2017 home-office paragraphs with new Commentary in paragraphs 44.1 to 44.21, and that those paragraphs address only fixed-place PE from a home or other relevant place.
They do not rewrite dependent-agent PE, and they do not create a new statutory PE definition.
Grant Thornton is explicit that the commentary is not binding, though many European countries follow it when they assess PE.
Reservations matter.
Baker McKenzie records that India does not agree with the 50 percent threshold or the commercial-reason test and treats a home office as at the disposal of the employer, that Chile does not adhere to the updated guidance, and that the Czech Republic reserved its position on the home-office paragraphs as a whole.
A PE conclusion in those markets still turns on local law and the applicable treaty.
The OECD 2025 Home-Office Test
The 2025 Commentary sets a two-step analysis for cross-border work from a home or other relevant place.
1. The 50 percent working-time benchmark.
A home or other relevant place is generally not a place of business of the enterprise if the individual works from it for less than 50 percent of their total working time for that enterprise over any twelve-month period commencing or ending in the fiscal year concerned.
The OECD states that exceptions to that approach are not anticipated in most situations, in part because the individual often chooses the location for personal reasons.
The measurement is actual working time for that enterprise, not calendar days in the country and not the wording of the employment contract.
A hybrid split that keeps the person in a home-country office three days a week will often sit below the line, while a full-time remote hire who lives and works in the host country will sit above it.
Baker McKenzie flags an open question the Commentary does not close: how "total working time" is read when the employment or the project lasts less than a full year.
Treat the 50 percent figure as a rolling twelve-month test, not as permission to ignore the first six months of a new hire.
2. The commercial-reason test.
If the individual works from the home or other relevant place for at least 50 percent of total working time over that twelve-month period, the location is not automatically a PE.
The Commentary turns to facts and circumstances, and the prominent factor is whether there is a commercial reason for the activities to be undertaken by the individual in that place.
A commercial reason exists, in the OECD's framing, if the physical presence of the employee in the other country, by itself, facilitates the carrying on of the business of the enterprise.
Baker McKenzie restates the Commentary examples: direct engagement with customers, suppliers, or associated enterprises that is facilitated by being in the state; cultivating a new customer base; managing in-country relationships; performing services that require physical presence; and real-time interaction with customers or suppliers in different time zones.
Enabling the individual to work from home solely to obtain or retain their services is not a commercial reason, and neither is permitting home working solely to reduce costs, including office-space cost.
The mere existence of customers, suppliers, or related parties in the country is not enough, and short occasional customer visits are not enough.
Grant Thornton adds the practical reading: an in-country sales role, or a person based there to actively manage client relationships, points toward PE once the time threshold is crossed, while an engineer who moved for family reasons and has no local customer or supplier contact generally does not.
If the individual is the only or primary person carrying out the business activities of the enterprise, the home office will generally constitute a fixed place of business.
Even after a place of business is found, Article 5(4) still excludes activities that are solely preparatory or auxiliary.
A PE finding is a sequence of time, commercial reason, character of the activity, and then profit attribution, not a single percentage.
Agency PE Is a Separate Test
Fixed-place PE from a home office is only one Article 5 path.
The other path that remote hiring actually creates is agency PE, sometimes called dependent-agent PE.
Under Article 5(5) of the OECD Model, an enterprise is deemed to have a permanent establishment where a person, other than an independent agent acting in the ordinary course of business, habitually concludes contracts that bind the enterprise.
Baker McKenzie is clear that the 2025 home-office guidance does not deal with dependent-agent PE at all.
The 50 percent working-time benchmark therefore does not protect a salesperson, partnership manager, or country lead who lives in the host country and habitually closes deals, issues order confirmations, or binds pricing.
That person can create a PE on the agency test while the home office itself fails the commercial-reason test, or the other way around, so the two tests have to be run in parallel.
A full-time employee, or a contractor who in substance works only for the enterprise and takes instruction on how deals are done, is not an independent agent.
If the host-country person must not create agency PE, contract-concluding authority has to stay outside the host, and the file has to match the org chart.
PE Versus Employee Tax Residency Versus Shadow Payroll
Three labels get used as if they were one problem.
They are not.
Permanent establishment is a question about the company: whether the enterprise has a taxable presence in the host country, through a fixed place of business or through a dependent agent, such that the host may tax business profits attributable to that presence.
Employee tax residency is a question about the individual.
Domestic tests look at physical presence, a permanent home, centre of vital interests, and habitual abode.
Once the individual is a host resident, the host generally taxes that person's employment income on a different base than a day-apportioned non-resident, and that result does not, by itself, mean the company has a PE.
Shadow payroll is a reporting rail: the host-country calculation, withholding, and filing run for an employee who continues to be paid on a home-country payroll.
Rise's explainer on what shadow payroll is covers the 183-day, residency, and social-security triggers for that rail.
The rest of this article stays on PE.
Shadow payroll can be the first document set an auditor asks for when PE is in question, but it does not create or eliminate a PE.
A company can owe host wage withholding and social contributions with no PE, and it can also have a PE while the individual's tax is still being reported on a home payroll plus a shadow file.
Do not let a clean shadow run stand in for a PE opinion.
Day Count Is Not Permanent Establishment
The 183-day figure that appears in most mobility policies is an Article 15 treaty test for employment income, not a PE threshold.
It is one of three conditions that must all be met before the host state is generally prevented from taxing the individual's salary, the other two being that the remuneration is paid by, or on behalf of, an employer who is not a host resident, and that the remuneration is not borne by a host permanent establishment.
An employee can be in the host for 40 days, conclude contracts, and still create agency PE.
An employee can be in the host for 200 days, work only for personal reasons with no commercial link, and still sit on the safe side of the 2025 fixed-place commentary, subject to local reservations.
The OECD home-office test is a share of total working time for that enterprise, measured over any twelve-month period commencing or ending in the fiscal year concerned.
A person who spends 120 days in France and 245 days in the United States can still exceed 50 percent of working time in France if those 120 days are almost all working days and the US days include weekends, leave, and office time for a different role.
Grant Thornton also warns that recruiting multiple people into the same country, each working from a home office, is a different risk profile from a single employee, because the Commentary is written around an individual and is not a safeguard that scales automatically with headcount.
Track working-time splits, role, authority, and local counterparties.
Do not track only passport stamps.
When EOR, Contractor, or AOR Is the Right Response
PE analysis tells you whether the company may have a taxable presence.
It does not tell you how the person should be employed.
Those are linked decisions, and they are not the same decision.
Keep the person on home payroll only for a defined, temporary presence.
A short project, a genuine assignment, or a hybrid split that stays below the 50 percent working-time line, with no contract-concluding authority in the host, is the case where home employment plus mobility controls can still be the right model.
Even then, individual tax and social-security rules can apply before PE does.
Use an Employer of Record when the person is staying as an employee and the company has no host entity.
A full-time remote employee who lives in the host country is, by definition, at or above the 50 percent working-time line.
If the role also has a commercial reason to be there, or if agency PE is in play, the company is looking at a taxable presence on top of an unregistered employment relationship.
Incorporating is the right answer when the company intends to build a local business, and it is the slow answer when the need is one or several employees and no branch.
An Employer of Record is the local legal employer.
It issues a local contract, runs local payroll, and administers mandatory benefits, while the company directs the work.
Rise EOR is priced at $399 per employee per month and is live through owned entities in the US, UK, Canada, Australia, Ireland, Cyprus, New Zealand, and South Africa, with expansion to 60+ countries by the end of 2026.
The operating sequence for standing that model up is in Rise's guide to global payroll through an Employer of Record.
EOR is not a treaty opinion and it is not a promise that PE cannot exist.
It is the employment structure that matches a person who should be employed where they live, without waiting on a subsidiary.
Use a contractor or Agent of Record only when the person is a genuine contractor.
Misclassifying an employee as a contractor does not reduce PE risk.
It adds employment-law and tax-withholding exposure to the same facts.
If the person is a true independent, an Agent of Record can sit as the contracting party, run classification and documentation, and pay across borders.
AOR is the contractor rail, not an EOR with a different label.
Hybrid fiat and crypto payroll does not change the PE analysis.
It changes how the person is paid once the employment or contractor model is correct.
How Finance and Legal Should Control PE Risk in 2026
The companies that will stay out of unplanned PE assessments treat remote work as a gated process, not as a laptop policy.
1. Inventory every cross-border worker against the 50 percent test.
Name the country, the working-time split over a rolling twelve months, and whether the location is a home or another relevant place.
Contract language that still says the home-country office is the place of work is not the OECD test.
2. Score commercial reason and agency authority as two separate flags.
Customer, supplier, and related-party contact in the host country is a commercial-reason flag.
Authority to conclude or negotiate binding contracts is an agency flag.
Either flag at or above 50 percent working time is a PE file.
3. Do not use day-count caps as the PE control.
Article 15 day counts and social-security telework thresholds answer different questions.
Build the PE control on working-time share, role, and authority.
4. Choose the employment model before the person starts.
If the person is staying, employ them locally through a group entity or an EOR.
If the person is a genuine contractor, use a contractor or AOR structure.
If the person is on a defined assignment, keep home employment and run the individual-tax and social analysis on its own track.
Legal and compliance should see the same record as payroll.
5. Reassess markets that reserved against the 2025 Commentary.
India, Chile, and the Czech Republic are not places to paste the 50 percent benchmark into a policy and stop.
Take local advice.
6. Keep pay data and presence data on one record.
Rise runs direct payroll across 190+ countries and 90+ local currencies, under SOC 2 Type II controls, including hybrid fiat and crypto where that is the pay method.
Payroll will not issue a PE opinion.
It will stop the usual failure mode, which is a working-time reality that tax never sees.
Conclusion
The 2025 OECD update did not abolish permanent establishment risk for remote employees.
It replaced a vague disposal discussion with a working-time benchmark and a commercial-reason test for home and other relevant places.
Below 50 percent of total working time for the enterprise, a home office is generally not a place of business of the company.
At or above 50 percent, the question is why the person is there, what they do, and whether they habitually bind the enterprise.
That is a corporate-tax question, and it is not answered by employee residency, by a 183-day calendar, or by a shadow-payroll file.
The operating response is to match the employment model to the facts: home payroll only for a defined temporary presence, an Employer of Record or local entity when the person is staying, and an Agent of Record only for a genuine contractor.
Book a demo with the Rise team to map current remote and home-office employees onto the right employment and payroll path before the next rolling twelve-month period closes.
FAQs
1. What is permanent establishment risk for remote employees?
Permanent establishment risk is the risk that a remote or home-office employee's presence in another country creates a taxable presence for the company itself.
If a PE exists, the host country may tax profits attributable to that presence and require corporate filings.
The 2025 OECD Commentary on Article 5 now starts that analysis with a 50 percent working-time benchmark and a commercial-reason test for homes and other relevant places.
2. Does working from home more than 50 percent of the time create a PE?
No.
Below 50 percent of total working time for the enterprise, a home or other relevant place is generally not a place of business.
At or above 50 percent, PE still depends on facts and circumstances, with commercial reason as the prominent factor.
Talent retention and office-cost savings are not commercial reasons.
3. Is the 183-day rule the same as permanent establishment?
No.
The 183-day test in Article 15 of the OECD Model is a treaty condition for host taxation of the individual's employment income.
PE is an Article 5 question about the company.
A short stay can still create agency PE if the person habitually concludes contracts.
4. Does shadow payroll solve PE risk?
No.
Shadow payroll is the host reporting rail for an employee who remains on home payroll.
It addresses individual income tax and social-security withholding, and it is not a substitute for local employment or an Employer of Record when the person is staying.
5. When should a company use an Employer of Record instead of keeping a remote employee on home payroll?
Use an EOR when the person should be employed in the host country and the company does not have a local entity.
That is the usual case for a full-time remote employee who lives in the host country.
Keep home payroll only for a defined temporary presence, and use an Agent of Record only for a genuine contractor.
Rise EOR is $399 per employee per month through owned entities in the US, UK, Canada, Australia, Ireland, Cyprus, New Zealand, and South Africa, expanding to 60+ countries by the end of 2026.