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Working from home abroad and the Permanent Establishment issue

If you’ve not come across the term Permanent Establishment before, here’s the super-quick definition: Permanent Establishment means that a company is generating taxable local business activity and income in a territory outside its country of residency.

For an easy-to-read, but more detailed rundown of this concept, please click here. Otherwise, please keep reading to discover why a cross-border employee who works from home may be a significant factor for the tax authorities to claim that your company has Permanent Establishment in a given territory as a result of the ‘right of use test’.

When does working from home become Permanent Establishment?

Employees can work from home. This – in itself – is not usually an issue. But, there are times when it can be an important decisive point for tax authorities to determine a company’s Permanent Establishment. This could be the case if:

1. The company has some degree of control over the employee’s home as a place of business. In other words, the space is at the disposal of the employer. As an example, the company pays the employee’s rent and covers the costs for their furniture and equipment.

2. The company – rather than having a local office – asks the employee to work from home and uses the premises as a business base. This might include holding occasional business meetings there or using the address for correspondence or to obtain licences.

The way this is viewed varies from country to country, but if you are using your employee’s home as a stand-in for company premises, you are running the risk of creating a Permanent Establishment.

What about working from a hotel room?

If an employee stays for a short time in a cross-border hotel, you’re unlikely to face calls of Permanent Establishment. However, you could face those calls if an employee:

· Stays longer-term in a hotel paid for by the company to carry out work for the company locally

· Rents facilities in a hotel for business purposes only (for example a conference room used as an office)

Want to know more about Permanent Establishment?

At PEO Legal, we provide legal and compliance advice for professional employer organisations and staffing companies around the world. If you want advice about Permanent Establishment - or any other point of cross-border employment law - contact us, today:


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