Dear Clients,
The labor market has become increasingly international in recent years. Companies employ staff in other countries who work from home for their employer. For example, a German company may employ an employee in Austria who works from their private residence (i.e., home office) for the German employer. This raises the question of whether the German company creates a permanent establishment in Austria through this employee, along with the associated tax consequences (e.g., corporate income tax obligations).
Article 5 (1) OECD Model Convention
In November 2025, the OECD published an update to the OECD Model Convention that includes new provisions regarding home office permanent establishments. Notably, the changes were not made directly in Article 5 (1) of the Convention but rather in the commentary on Article 5 (1).
Under what conditions does a home office permanent establishment exist?
Following the 2025 update of the OECD Model Convention, the assessment of a home office permanent establishment is now based on new criteria. The employer’s control over the home office is no longer decisive. If less than 50% of the employee’s working time is spent in the home office, a permanent establishment is generally not constituted.
Indicators that a permanent establishment is created:
- The existence of a fixed place of business through which the company’s business is wholly or partially carried out (=same as before);
- The existence of a dependent agent permanent establishment under the relevant double taxation treaty (=same as before);
- The activity is carried out on a continuous and lasting basis and
- at least 50 % of the employee’s working time over a twelve month period is performed in the home office or at another relevant location and
- there is a business or commercial reason (commercial reason) for performing the work in the home office state.
A “commercial reason” exists when the employee’s home office activity creates a recognizable added value for the company. If the home office facilitates the company’s business operations and the employee’s presence in that country provides a benefit to the company, this criterion is considered fulfilled. Personal motives, such as caring for relatives or an employee’s chosen place of residence without business relevance, do not constitute a sufficient commercial reason. Pure cost savings also do not qualify. Similarly, the mere presence of customers in the home office state is not automatically a commercial reason that leads to the creation of a permanent establishment.
If the above criteria indicate the existence of a permanent establishment, it must still be examined whether the exceptions under Article 5 (4) OECD MC 2025 for preparatory or auxiliary activities apply.
Please note: Whether a home office permanent establishment exists must be checked individually in each case. We are happy to support you in evaluating or re evaluating your situation based on these criteria.
Best regards
Vienna, January 2026
