Permanent establishment risk significantly reduced by home office

The growing mobility of workers and, not least, the increased use of work-from-home arrangements following the COVID-19 pandemic have led to the risk that companies can justify a physical location by having their employees work from home. The update of the OECD Model Commentaries at the end of 2025, as well as information issued by the BMF on January 4, 2026 (BMF - IV/8 (IV/8), GZ 2025-1.050.421), have brought long-awaited clarifications and led to a reduction in the risk of business locations for companies. In the future, numerous mini-businesses with little tax base but high administrative costs can thus be avoided.

In the future, the employer will only be required to justify having an establishment by having employees work from home if, in a first step, the person spends at least 50 % % of their working time in home office within a 12-month period. If this time criterion is not met (which therefore applies to activities of a minor scale), no establishment of the employer will be justified. A calculation period is considered to be any period of 12 months that begins or ends in the respective tax year – this is advantageous, as even temporarily working significantly more than 50% % in home office can be justified without establishing an establishment for the employer.

If the time criterion is met, a second step must be taken to determine whether there is a commercial reason ("commercial reason") for the work from home arrangement. According to BMF Info, the key factor is whether there is a commercial reason for the company to allow the person to work from home. This is assumed to be the case if the person's physical presence in that state facilitates the company's business activities. Such a commercial reason can be assumed, for example, when the person interacts directly with customers, suppliers, affiliated companies, or other individuals for the company, and this interaction is facilitated by their presence in that state. There is a distinction between sporadic contact with these individuals and the assumption that this constitutes a commercial reason and therefore grounds for establishing a business location.

Furthermore, there is no economic reason for the company to allow employees to work from home solely for the purpose of retaining that person or allowing that person to have a job. Similarly, there is no establishment of an office when the employer allows work from home to save costs for providing a workplace. Finally, there is no establishment risk any longer even if the activity is moved to the home office at the employee’s request and there are no points of contact for the employer with the respective state (even if work is predominantly or exclusively done from home).

The clarifications to be welcomed are to be applied as of 2026, following the BMF information. After all, if despite the weakened risk, an employer’s place of business is justified by the employee’s work from home, it must still be examined whether, due to the provision of preparatory or auxiliary activities, a place of business cannot ultimately be excluded.

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