Permanent Establishment (PE) Risk from Remote Work
The rapid increase in cross-border remote working has heightened concerns globally regarding the inadvertent creation of a Permanent Establishment (PE). The 2025 Update addresses this issue directly, offering a more practical and predictable framework for employers.
The revised Commentary on Article 5 introduces detailed guidance on when an individual’s home office — or any other location not provided by the enterprise—may constitute a “fixed place of business” for the employer. As a general rule, a home office will not be considered a PE where it is used for less than 50% of an employee’s total working time over any rolling 12-month period. This threshold provides a clear and workable benchmark for organisations in managing and monitoring cross-border remote work. The guidance also reiterates that the location must be used with sufficient permanence for business activities to be regarded as “fixed”; occasional or incidental use of a home office will not trigger a PE.
Importantly, exceeding the 50% threshold does not automatically result in a PE. The remote-work arrangement must also be established with a commercial reason connected to the enterprise’s business in that jurisdiction for it to be considered a fixed place of business. A commercial reason exists when the employee’s physical presence materially facilitates the conduct of the enterprise’s core business activities in that jurisdiction—such as supporting market development, servicing local clients, or managing local suppliers. Conversely, permitting an employee to work abroad solely to retain talent, accommodate personal preference, or reduce operational costs does not generally constitute a commercial reason under the updated guidance. This significantly reduces PE risk in many typical remote-work scenarios.
Extractive Industries
The 2025 Update also introduces an optional article designed to reinforce source-country taxing rights over natural resource income, thereby strengthening the fiscal position of countries rich in extractive resources.
Other Technical Improvements
Further refinements have been made throughout the MTC to enhance consistency in treaty interpretation and promote greater tax certainty for both taxpayers and tax administrations.
For further information, please feel free to contact our team at taxadvisory@bdomalta.com.
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