EU Permanent Establishment Risk Guide 2025 for Remote Teams
EU Permanent Establishment (PE) Risks in 2025
Hiring remote talent abroad can inadvertently create a permanent establishment, exposing companies to corporate tax in the employee’s country. Proactive management minimises exposure.
What Triggers a PE?
Key indicators include having a fixed place of business (home office with company control), employees negotiating or concluding contracts, or significant decision-making occurring locally. OECD Model updates and local interpretations tighten thresholds.
Risk Assessment Framework
- Map employee activities against treaty definitions.
- Review authority to sign contracts or close deals.
- Check for inventory storage, warehouses, or project sites.
Mitigation Strategies
Limit local authority, document that home offices are optional, and rotate teams when possible. Consider contracting via employer-of-record partners, or intentionally create a subsidiary when business volumes justify it.
Documentation and Monitoring
Maintain board resolutions, employment contracts, and policy manuals clarifying remote work conditions. Reassess arrangements when employees change roles, gain managerial authority, or when local audits occur.
Recommendation: Collaborate with tax advisors in each country, track time spent abroad, and implement PE risk dashboards to inform executive decisions.