When people work from home or a vacation home, the tax result is often a mess. And a recent OECD solution leaves doubts.
People in many sectors can work online wherever they want – at the office, at home or in a vacation home in another country by the beach or in the hills. All they need is an internet connection. Sounds fun?
Unfortunately, things are not so simple and the OECD tried to do something. Will it help remote workers or tourists employed by a company in a different country? Not always.
In general, tax treaties say a visitor is taxable in a local country if he/she works there as an employee of a foreign company at least 183 days in a year, or less time if the foreign company has a permanent establishment (“PE”) in a local country i.e. a fixed place of business there. That can include a home or vacation home.
In such a case, not only is (1) the individual taxable in the local country on their pay, but also (2) the foreign employing company is taxable in the local country on its profit stemming from the individual’s efforts. That’s on top of possible (3) personal tax and (4) corporate tax in the home country(ies) concerned.
Quadruple taxation is every CFO’s worst nightmare. It means additional bureaucracy and high taxes if no action is taken.
Unfortunately, this is a frequent issue in the modern global village.
Enter the OECD!
The work-away-from-the office issue is potentially relevant to anyone whose work contributes to the company’s profits – advice, trading, contacting customers and/or suppliers, investors, etc.
The issue cannot be shrugged as governments want more tax revenues without raising tax rates.
The OECD has issued a 2025 update to its Model Tax Convention commentary which is potentially applicable to all OECD member countries.
What the OECD says:
The new OECD commentary says that In many cases, carrying on of activities related to the business of an enterprise at the home of an individual (e.g. an employee), or at another relevant place, will be so intermittent or incidental that the place will not be considered to be a place of business.
So the OECD lays down criteria for a fixed place of business (PE) as follows:
(1) 50% of working time: if the individual worked from that home or relevant place for at least 50 percent of their total working time for that enterprise over the course of any twelve-month period commencing or ending in the tax year concerned, and
(2) Commercial reason: If there is a commercial reason for the activities to be undertaken by that individual in the country where the home or other relevant place is located e.g. where the individual directly engages with customers, suppliers, associated enterprises or other persons on behalf of the enterprise, and
(3) Location facilitates: the engagement is facilitated by the individual being located in that country e.g. because they require physical interaction in that State or in the same geographic region, such as: (a) meetings with customers, (b) cultivation of a new customer base, or identification of business opportunities; (c) identification of new suppliers, managing relationships with suppliers, or undertaking, (d) monitoring or managing contractual arrangements with suppliers;
Different time zone issue:
The OECD sends out mixed messages regarding time zones. The fact that an employee’s home or “other relevant place” is located in a different time zone is not a commercial reason…unless other facts and circumstances indicate otherwise (Paras 44.18, 44.19).
But the OECD gives an example of other facts and circumstances which may well cause confusion. In Example E (Article 5, Para 44.21) “an employee of RCo, an enterprise of State R, works almost exclusively from her home located in State S. The employee provides services virtually to customers in State R and/or in other jurisdictions located in time zones which differ from that in State S. The performance of those activities in State S enables the employee to be fully available around the clock… The home would be a place of business and a fixed place of business PE of RCo in State S.”
Comments:
Hard working people everywhere are often available around the clock. We anticipate disputes between taxpayers and tax authorities regarding whether or not the employee’s time zone matters to the employer. Consider employing the employee via a local company where the employee is located instead of the foreign company. The new OECD commentary doesn’t fully resolve corporate tax risks for employees working away from the office in a different country.
Next Steps:
If you work for a company based in a different country, related or not, take professional advice about whether to use a local company structure. We can help arrange this.
Factors to consider include: corporate taxation, legislated and tax treaty rules, transfer pricing, VAT, avoiding double taxation, ESOPs, using any local tax and grants incentives.
As always, consult experienced advisors in each country at an early stage in specific cases
© Leon Harris, December 1, 2025
The writer is a certified public accountant and tax specialist at Harris Consulting & Tax Ltd.