Permanent establishment occurring through home office arrangements: OECD updates its interpretation, Czechia disagrees

The updated interpretation, published in mid-November 2025, is relatively favourable to employers and should bring greater certainty and flexibility in the use of home office abroad. However, the Czech Republic has disagreed with this interpretation in its Reservations to the OECD Commentary and confirmed its previous strict interpretation when assessing work from home in the Czech Republic for foreign employers: exclusively in accordance with the relevant double taxation treaty.  
 

OECD interpretation

According to the updated OECD Commentary, two key factors must be taken into account when assessing the existence of a permanent establishment in connection with remote work. 

1. Scope of work from home
   If an employee works from home abroad for less than 50 percent of their working hours over a 12-month period, the employer should not be considered to have a permanent establishment in that country on the basis of this home office.  
    
2. Business nature of the activity
   Even if the 50 per cent threshold of working hours performed from home abroad is exceeded, a permanent establishment is not automatically created. It must also be proven that the employee's activity in the country in question is of a business nature. According to the OECD Commentary, there must be a clear link between the employee's work in the given location and the company's business activities – for example, the employee in the country deals directly with customers, suppliers, affiliated companies or other persons, and the fact that they are located in the given country facilitates these dealings. Conversely, a situation where an employee works from home abroad solely for personal reasons or to save costs is not considered a business reason. 

The OECD Commentary also includes examples illustrating the application of the new approach. 

• Example A: An employee works from their home abroad for 30 per cent of their working time during the year. Although the home is permanent and regularly used, this does not, without other decisive factors, create a permanent establishment for the employer, as the employee works there less than 50 per cent of the time. 
   
• Example B: An employee works from their home abroad 80 per cent of the time and regularly visits local clients. The home is permanent and, because of the business purpose (serving local clients), is considered a place of business and a permanent establishment of the company. 
   
• Example C: An employee works from their home abroad 60 per cent of the time, provides remote services to clients in various countries and only occasionally visits a local client. Although they spend more than 50 per cent of their time in their home country, their work from home is not considered a permanent establishment for the employer, as there is no business reason for the employee’s presence there.
   

Reservation of the Czech Republic

Although the new update to the OECD Commentary provides companies with a relatively clear overview of the factors to be considered when assessing the existence of a permanent establishment, it is important to note that not all OECD member states fully agree with the updated guidelines. 

The Czech Republic has voiced its reservations regarding the application of the criteria mentioned in the commentary, as it does not agree that the mere type of place used to perform work should be a determining factor limiting the possibility of a permanent establishment. It can therefore be assumed that the Czech Republic will continue to follow its current strict interpretation, and unless the activities carried out here are of a preparatory or auxiliary nature, a permanent established of a foreign company in the Czech Republic may occur due to the remote work of its employees, without getting to consider the other criteria set out in the OECD Commentary.