Cross-border remote work: foreign Permanent Establishment risk where an employee temporarily works abroad

Facts

UAE Co is a company incorporated and tax resident in the UAE. Its management, operational infrastructure, personnel supervision, contractual approval process, accounting records, and primary business activities remain centred in the UAE. The company does not have a branch, office, leased premises, or other fixed business infrastructure in the UK.

An employee of UAE Co, Ms. A, ordinarily performs her role from the UAE. Her duties are capable of being performed remotely and are not inherently tied to physical performance in the UK. Ms. A asks UAE Co to permit her to spend a temporary period in the UK for personal reasons while continuing to work remotely. The company agrees to this arrangement as an accommodation to the employee.

The permission is not connected with any plan of UAE Co to enter or develop the market in the UK or adjacent countries. The company does not send Ms. A there in order to place her closer to customers, suppliers, associated enterprises, regulators, or business opportunities in that jurisdiction or region. It does not intend to use her foreign presence to cultivate a client base there, to hold in-person meetings there, or to build a regional commercial platform there. Had Ms. A remained in the UAE, the company would have been equally content from a business perspective.

While in the UK, Ms. A works primarily from her home. Over the course of a twelve-month period commencing or ending in the relevant fiscal year, she performs more than 50% of her total working time from the UK. She remains subject to UAE Co’s ordinary reporting lines and supervision from the UAE. Strategic and commercial decisions continue to be made in the UAE. Ms. A does not habitually conclude contracts in the UK on behalf of UAE Co and is not presented to the market as UAE Co’s representative in the UK. Any contacts she may have with persons in the UK are incidental and do not form part of a deliberate business-development strategy of the company.

The arrangement is not one of legal or factual compulsion in the strict sense. Ms. A was not stranded abroad, and her departure from the UAE did not result from public-health restrictions, exit bans, or a formal inability to remain in, or return to, the UAE. Rather, against the background of heightened regional security concerns, she temporarily chose to work from the UK in order to reassure close relatives outside the UAE, who regarded that location as safer for the time being. From the employer’s perspective, however, the arrangement remained precautionary and personal in nature, not commercially driven, and UAE Co had no business reason to have her perform her duties from the UK rather than from the UAE.

Questions

Whether, on these facts, UAE Co is likely to be regarded as having created a fixed place permanent establishment in the UK because Ms. A works from her home there for more than 50% of her working time during the relevant twelve-month period.

Whether the answer should differ materially from the conclusion reached in the compulsory-displacement scenario considered in our recent publication, and in particular whether the 50% working-time threshold should operate here in a manner analogous to a case where the employee could not return to the UAE office because of restrictions or other objective external constraints.

Executive Summary

Based on the analysis set out below, we conclude as follows:

• On the assumed facts, UAE Co should more likely not be regarded as having created a permanent establishment in the UK. The 2025 Commentary on Article 5 does not treat the crossing of the 50% working-time threshold as an automatic PE trigger. Rather, once that threshold is crossed, the analysis turns to the facts and circumstances, with a prominent emphasis on whether there is a commercial reason for the employee’s activities to be undertaken in the foreign State.
• The decisive point here is that the employee’s foreign presence is not commercially driven from the enterprise’s perspective. A commercial reason requires a link between the individual’s presence in the UK and the carrying on of the enterprise’s business. Such a link is absent where the enterprise enables the individual to work from home or another relevant place solely to obtain or retain that individual’s services. Where there is no commercial reason for undertaking the activities from the home or other relevant place in the foreign State, that place would not be a place of business of the enterprise unless other facts and circumstances indicate otherwise. That language fits the present scenario closely.
• The fact that Ms. A spends more than 50% of her working time in the UK is therefore relevant but not determinative. Example D in the new Commentary is particularly instructive. There, an employee works from home in State S for 60% of his working time and has an exclusively client-facing role, yet no PE is found because the mere presence of clients in State S and intermittent, incidental visits do not establish a commercial reason for his presence there. That example shows expressly that crossing the 50% threshold does not itself create a PE.
• The conclusion is somewhat less secure than in a force-majeure case. In the OECD’s COVID-19 treaty guidance stated that an exceptional and temporary change in the location where employees work because of the pandemic should not create new PEs for the employer. Our recent note treated that as the stronger case, because compulsion, temporariness, and reversion intent make it easier to show that physical location does not reflect deliberate business redeployment. But the absence of force majeure here does not reverse the answer. It simply removes one favourable argument. The ordinary Article 5 analysis still points away from PE where there is no commercial reason for the work to be performed in the foreign State.
• The position changes materially if the facts evolve. If UAE Co combines the employee’s personal wish to be abroad with a business purpose such as client proximity, regional market development, supplier management, regular in-person interaction, time-zone coverage, or the establishment of a stable local business base, the commercial-reason test may become satisfied. The Commentary gives concrete examples of those circumstances, and paragraphs 44.17 and 44.20 make clear that PE risk rises where the foreign presence facilitates the enterprise’s business in that State or where the individual is the only or primary person carrying on the enterprise’s business there.

Analysis

1. The starting point is Article 5(1) of the OECD Model, as elaborated by the 2025 update to the Commentary[1] dealing specifically with cross-border work from a home or other relevant place. The update explains that where an individual uses a home or other relevant place to carry out activities related to the enterprise’s business, that place will generally not be considered a place of business if the individual worked there for less than 50% of total working time over the relevant twelve-month period.[2] It then states that if the individual works there for at least 50% of total working time, whether the enterprise has a place of business at that location is to be determined by the facts and circumstances.[3] The Commentary therefore does not erect a 50% rule of automatic inclusion. It creates a threshold that triggers further inquiry.

2. That structure matters for present purposes because it directly answers the concern that the 50% threshold might operate as a bright-line PE rule. It does not. The threshold determines whether one moves into a fuller facts-and-circumstances analysis. Once that analysis begins, the Commentary identifies the prominent consideration as the existence or absence of a commercial reason for the relevant activities to be undertaken in the State where the home or other relevant place is located.[4]

3. This is one of the most important developments in the 2025 update. The OECD itself described the new Commentary as providing detailed guidance on when cross-border home-office arrangements do and do not create taxable presence, in response to the rise of such arrangements after the COVID-19 pandemic.

The decisive discriminator is “commercial reason”

4. Paragraph 44.11 states that a prominent consideration is whether there is a commercial reason for the activities to be undertaken by the individual in the State where the home or other relevant place is located. Paragraph 44.12 explains that such a reason generally exists if the enterprise has a reason to have the employee physically present in that State for the conduct of the enterprise’s activities and the use of that home or other relevant place facilitates those activities.

5. The Commentary gives concrete illustrations, including circumstances where the enterprise needs access to people or resources in that State, or where direct engagement with customers, suppliers, associated enterprises, or other persons is facilitated by the individual being located there. Paragraph 44.17 then expands that idea by listing examples such as meetings with customers, cultivation of a new customer base, identification of business opportunities, supplier management, real-time interaction across time zones, access to business-relevant expertise, collaboration with other businesses, or services requiring physical presence in that State.

6. The negative side of the same test is even more important for the present case. Paragraph 44.15 states that a commercial reason requires a link between the individual’s presence in that State and the carrying on of the business of the enterprise, and it then says expressly that this would not be the case where an enterprise enables an individual to work from home or another relevant place solely to obtain or retain the services of that individual.

Paragraph 44.16 adds that permitting work from home solely to reduce costs is likewise not a commercial reason for the individual to perform the activities in that State.

Paragraph 44.19 then completes the logic by stating that where there is no commercial reason for undertaking the activities related to the enterprise’s business from the home or other relevant place in the other Contracting State, that place would not be a place of business of the enterprise unless other facts and circumstances indicate otherwise.

7. That sequence of paragraphs is exceptionally helpful for the present fact pattern. The company is not using the employee’s foreign presence as part of its market strategy. It is merely tolerating that presence because the employee wishes to be there. The updated Commentary says, in substance, that such an arrangement does not by itself provide the commercial link needed to convert the employee’s home into the enterprise’s place of business.

The facts assumed here align more closely with the no-PE examples than with the PE examples

8. The illustrations in the para 44.21 are highly instructive because they show how the 50% threshold and the commercial-reason test interact.

8.1. Example C is a positive PE example. There, the employee works from home in State S for 80% of working time and regularly visits clients in State S to provide services. The Commentary concludes that there is a commercial reason for the employee’s presence in State S because that presence facilitates the provision of services by the enterprise to customers in that State, and that the home would therefore be a place of business of the enterprise.

8.2. Example E reaches a similar result where the employee works almost exclusively from State S and the location enables real-time or near real-time provision of services across relevant time zones.

Both examples (E and C) involve a clear business rationale for the employee’s physical presence in the State where the home is located.

8.3. Example D points in the opposite direction and is especially relevant here. In that example, the employee works from home in State S for 60% of working time and has an exclusively client-facing role. Even so, the Commentary concludes that there is no commercial reason for him to carry out activities at his home in State S because the mere presence of clients of the enterprise in State S is not enough, and his visits to a client are only intermittent and incidental. As a result, the home is not treated as a place of business of the enterprise.

8.4. Example B confirms the easier case on the other side of the threshold: where the employee spends only 30% of working time in the foreign home, the home is not a place of business absent other facts and circumstances.

8.5. Example A further shows that temporary foreign work for personal reasons following a holiday stay does not even satisfy permanence on those facts.

9. Current scenario fits most naturally between Examples A and D. It is more substantial than Example A because the period abroad is long enough to cross 50% working time. Hence, permanence may cease to be the central objection. But it remains much closer to Example D than to Examples C or E because the company has no commercial reason to have the employee in the host State. It does not seek to use the foreign location to access customers, suppliers, or local opportunities, and the work could equally be performed from the UAE. On the logic of the new Commentary, that should generally mean no fixed-place PE.

The 50% threshold does not “work the same way” as in the compulsory-displacement analysis

10. Our recent publication used a majority-activity threshold in a different setting. There, the question was not whether a fixed place permanent establishment existed under Article 5, but how one should understand personnel “location” under UAE Free Zone substance rules and, especially, under the GLoBE SBIE payroll carve-out where a person was unable to return because of force-majeure constraints.

In this context, we treated the majority-activity concept as an allocation mechanism or evidentiary proxy and argued that, where planned presence in the intended jurisdiction was objectively prevented, a purposive approach could justify attributing the disrupted period to the intended jurisdiction rather than to the place of forced presence.

11. That logic should not be transposed mechanically into the present voluntary remote-work case. In a compulsory-displacement scenario, the analytical force comes from the fact that actual location is distorted by external compulsion. The strongest position depends on proof that in-jurisdiction presence was planned or required by the role, that inability to return resulted from an objective external constraint, and that the arrangement was time-bounded with a demonstrable intent to revert. That is why the same considerations could plausibly argue for an “intended jurisdiction” allocation in the SBIE context.

12. Here, by contrast, the employee is abroad voluntarily. So the compulsion-based correction of the actual-location proxy is much harder to justify. One should therefore not say that the 50% threshold works “similarly” in the sense of reattributing voluntary foreign time back to the UAE. The better formulation is different. Even if the actual foreign working time exceeds 50%, the PE analysis does not end there, because under Article 5 the crossing of that threshold merely initiates the facts-and-circumstances inquiry. Once that inquiry is conducted, the absence of any commercial reason for the enterprise to have the employee in the host State still points away from PE. In other words, the voluntary case is weaker than the compulsory case, but not because 50% suddenly becomes decisive. It is weaker because the compulsion argument falls away but it is still defensible because the commercial-reason test remains unsatisfied.

Why the enterprise’s lack of commercial purpose is enough to support no PE even after the threshold is crossed

13. Once one accepts that the 50% working-time threshold is not self-executing, the present case becomes conceptually straightforward:

• The employee is in the UK because she wishes to be there.
• The company does not need her there in order to conduct its business. It does not need access to customers there, suppliers there, expertise there, regulatory contact there, or time-zone advantages deriving from that location.
• UAE Co has not structured the arrangement to combine the employee’s personal wish to live abroad with the development of the company’s business in that region. It is merely permitting a personal arrangement to continue while the employee remains attached to UAE-based business functions.

Paragraphs 44.15 and 44.19 of the Commentary are directed precisely at that divide. A location chosen for employee convenience or retention, without a business link to the conduct of the enterprise’s activities in that State, is not enough.

14. This is also why the analysis should not be formulated in terms of whether there was some business benefit in a broad or abstract sense. The Commentary expressly proceeds on the basis that each part of an enterprise contributes to the productivity of the whole, so the inquiry is not whether the individual’s use of the home or other relevant place had a productive character. Rather, the question is whether one of the reasons for carrying out the relevant activities from that State was a commercial reason in the treaty sense.[5] Read together with the requirement of a link between the individual’s presence in that State and the carrying on of the enterprise’s business,[6] and with the statement that, absent such commercial reason, that place would not be a place of business of the enterprise unless other facts and circumstances indicate otherwise,[7] this is a narrower jurisdictional nexus inquiry, not a general inquiry into whether the employer derived some benefit from retaining a useful employee. On the assumed facts, that question should be answered in the negative.

The no-PE conclusion can be lost if the facts drift into business deployment

15. The conclusion above is fact-sensitive and should not be overstated. The Commentary’s examples and paragraphs 44.17 to 44.20 show clearly how the answer can change.

16. If UAE Co allows or encourages the employee to use her foreign location in order to hold meetings with clients there, cultivate a new customer base there, identify opportunities there, manage supplier relationships there, collaborate with other businesses there, or provide services that require physical presence there, then the foreign location ceases to be merely personal.[8] It becomes part of the enterprise’s business footprint.

17. The same is true if the company relies on that location for meaningful time-zone coverage or if the employee becomes the only or primary person conducting the enterprise’s business from that State. In such cases, the home or other relevant place may indeed become a place of business of the enterprise.[9]

18. For that reason, this case study makes clear that its conclusion rests on a disciplined fact pattern. The company must not treat the employee’s presence abroad as an undeclared soft-launch into the region. The arrangement must remain what it is said to be: an employee-convenience accommodation, not a commercially motivated deployment of business activity.

Documentation support

19. Our earlier force-majeure note emphasized that an employer’s task is to make the legal character of the displacement legible in evidence. That observation remains valuable here, even though the present case is not one of compulsion.

20. In the voluntary scenario, the documentation file should show that:

• the employee’s role remained attached to UAE-based business functions,
• UAE management retained supervision and decision-making,
• no local market-development mandate was given,
• no local premises were placed at the company’s disposal, and
• the arrangement did not evolve into a parallel operating platform in the foreign State.

Our earlier note described this evidentiary architecture in terms of continuity, no migration, and avoidance of hollowing-out. Those are equally apt descriptors here.

Conclusion

21. On the assumed facts, the better view is that UAE Co should not be treated as having created a permanent establishment in the UK merely because it permits an employee to work temporarily from home there for personal reasons, even where that arrangement results in the employee spending more than 50% of working time in the UK during the relevant twelve-month period.

22. The 2025 update to the Commentary on Article 5 does not make the 50% threshold an automatic PE rule. It merely moves the analysis into a fuller factual inquiry. In that inquiry, the decisive question is whether there is a commercial reason for the employee’s activities to be undertaken in the foreign State. Where the employee’s presence there is not used to access customers, suppliers, opportunities, expertise, time-zone advantages, or any other business objective of the enterprise, but is simply tolerated as a personal arrangement, paragraphs 44.15 and 44.19 support the conclusion that the home is not a place of business of the enterprise.

23. Example D confirms that even more than 50% working time, and even a client-facing role, do not suffice where the foreign presence lacks commercial rationale.

24. The force-majeure scenario discussed in our previous publication remains the stronger case, because the OECD COVID-19 guidance expressly treated exceptional and temporary pandemic-driven relocation as non-PE creating, and because compulsion strengthens the argument that physical presence does not reflect deliberate business deployment. But the voluntary case is still defensible on ordinary Article 5 principles.

25. In other words, a voluntary foreign remote work is not always harmless. Absent a commercial reason for the enterprise to have the work performed in a foreign State, personal geography should not by itself be transformed into corporate nexus.

[1] OECD (2025), The 2025 Update to the OECD Model Tax Convention, OECD Publishing, Paris, https://doi.org/10.1787/5798080fen.

[2] Para 44.8.

[3] Para 44.10.

[4] Paras. 44.11–44.12 and 44.19.

[5] Para 44.13.

[6] Para 44.15.

[7] Para 44.19.

[8] Para 44.17.

[9] Para 44.20.

Acknowledgement

The author thanks Vera Averyanova for her insightful comment regarding India’s position on the newly introduced tests in the 2025 OECD Commentary on Article 5. Her observation prompted a revision of the jurisdictional example used in this case study and helped refine the analysis.

The disclaimer

Pursuant to the MoF’s press-release issued on 19 May 2023 “a number of posts circulating on social media and other platforms that are issued by private parties, contain inaccurate and unreliable interpretations and analyses of Corporate Tax”.

The Ministry issued a reminder that official sources of information on Federal Taxes in the UAE are the MoF and FTA only. Therefore, analyses that are not based on official publications by the MoF and FTA, or have not been commissioned by them, are unreliable and may contain misleading interpretations of the law. See the full press release here.

You should factor this in when dealing with this article as well. It is not commissioned by the MoF or FTA. The interpretation, conclusions, proposals, surmises, guesswork, etc., it comprises have the status of the author’s opinion only. Furthermore, it is not legal or tax advice. Like any human job, it may contain inaccuracies and mistakes that we have tried my best to avoid. If you find any inaccuracies or errors, please let us know so that we can make corrections.