Can a remote worker create a permanent establishment (PE)?

More and more employers are recruiting employees (or even directors) based in another country and yet the risks of when a permanent establishment (PE) can be created are often misunderstood or simply overlooked.

Where the activities of remote worker are considered to have created a PE in that country, the company in question will be considered to have a taxable presence in that country and need to register with the appropriate tax authority and file tax returns as would any other local entity. There can therefore be a significant compliance cost to an employer where this is the case.

This can apply equally to UK employers with overseas workers as for overseas employers with UK workers.

General principles

As can be inferred from the title itself, there needs to be a degree of permanence to the arrangement in order for a PE to be created. So while there could be personal income tax issues for a worker temporarily working from another country for 6 months for personal reasons, this would be unlikely to create a PE for their employer. However, for longer or indefinite length arrangements there is a risk that needs to be considered with the other factors in reaching a determination.

The OECD (Organisation for Economic Co-operation and Development) recently published (November 2025) updated guidance around this matter and their approach is not necessarily accepted by all Tax Authorities, but HMRC has shown a general acceptance of OECD commentary and has not registered any reservations to these interpretations.

Essentially the OECD commentary is that for hybrid workers who spent less than 50% of their working time in their home location then there is generally little risk of a PE being created. Where they exceeded 50% then a PE is not automatically created but a deeper review is required considering the main criteria that have historically been used in reaching such determinations.

While determining whether a PE exists is highly fact-specific, the risk is often greater where an employee:

• Holds a senior management or leadership role
• Has authority to negotiate or conclude contracts
• Undertakes key sales or business development activities
• Has office space provided for them or is required to make their home available for work
• Works indefinitely from another jurisdiction

The risk will be considerably lower for say an IT or HR support worker who supports the internal business than for a senior manager or director who deals directly with clients and manages the business from this remote location. The risk can increase though where there are multiple remote workers in the same country.

Additionally, we do see a number of employers looking to use an Employer of Record (EoR) arrangement to manage local payroll and HR issues. This does not automatically obviate the need for employers to consider if a PE has been created, as there are still risks for say senior employees who can agree contracts on behalf of the company.

How OSCO can help?

Whether looking to authorise a move or new remote hire or looking to review an existing arrangement, we can advise on the risks, and how a PE risk can be minimalised. Where a PE is created then we can also assist in how best the PE should be structured and what tax registrations and filings will be required in the country in question.