Permanent Establishment: Why Your Employer Cares Where You Work (2026)

Ask an employer whether you can work from Lisbon for three months and the answer is often a flat no, delivered without much explanation. The reason is rarely your visa, which is your problem to solve. It is that your laptop in a Lisbon flat might make the company taxable in Portugal.

That risk has a name, a definition in almost every tax treaty, and — as of 2025 — new OECD guidance aimed squarely at remote work.

What a permanent establishment is

Article 5 of the OECD Model, the template behind most of the world’s tax treaties, defines it in one sentence: a permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on.

The article then lists what especially counts: a place of management, a branch, an office, a factory, a workshop, and extraction sites such as a mine or an oil or gas well.

If a company has one of those in a country, that country may tax the profits attributable to it. That is the whole mechanism, and it is why the question matters to a finance department far more than it matters to you: a PE means registration, a corporate tax return, and an allocation exercise to work out how much profit belongs there.

What does and does not create one

Situation	Permanent establishment?
A fixed place of business through which the business is carried on	Yes — art. 5(1)
An office, branch or place of management	Yes, expressly listed — art. 5(2)
A building site or installation project lasting 12 months or less	No — art. 5(3)
Facilities used solely for storage, display or delivery of goods	No, if preparatory or auxiliary — art. 5(4)
A fixed place kept solely for purchasing goods or collecting information	No, if preparatory or auxiliary — art. 5(4)
A person habitually concluding contracts for the enterprise	Yes — dependent agent, art. 5(5)

Two of those rows do most of the work in practice.

The preparatory or auxiliary exception is the one that saves ordinary remote work. Article 5(4) removes from the definition a fixed place of business maintained solely for activities of a preparatory or auxiliary character. Whether your work qualifies depends on what you actually do, not on your job title — and the test is whether the activity is peripheral to the enterprise’s business or part of its core.

There is an anti-fragmentation rule attached, at 5(4.1). You cannot escape by splitting one operation into several individually harmless pieces across related companies or several places in the same country. If the combined activity is not preparatory or auxiliary, the exception falls away.

The dependent agent rule at 5(5) is the one that catches salespeople. A person who habitually concludes contracts in the name of the enterprise — or habitually plays the principal role leading to the conclusion of contracts that the enterprise then routinely concludes without material modification — creates a permanent establishment, whether or not there is any office at all.

That is why a company will often be relaxed about an engineer working from abroad and immediately nervous about an account executive doing the same thing. The engineer is not signing anything.

What the OECD changed in 2025

Until recently the Commentary on Article 5 dealt with home offices in terms designed for an era when working from home was occasional. The 2025 Update revisits that directly.

The OECD describes the change as clarifying the circumstances in which an individual’s home may constitute a place of business of the enterprise they work for, and states that the revisions are an evolution of existing principles intended to ensure the Commentary reflects modern working arrangements — providing additional certainty as to when a fixed place of business permanent establishment will, and will not, be created by an individual working from a home or other relevant place.

Two things to take from that. It is a clarification of how existing principles apply, not a new rule that changes the answer wholesale. And it cuts both ways: the update is as much about establishing when a home office does not create a PE as when it does, which is useful to anyone who has been told no on the basis of an unexamined worry.

If your employer’s policy predates the update, it was written against older guidance.

What this means in practice

The distinction that recurs in this area is whether the arrangement is at the enterprise’s disposal or at yours. A company that requires you to work from a particular country, pays for the space, or holds it out as its location is in a different position from one whose employee simply chose to spend the winter somewhere and could equally have been in the office.

It also helps to know which part of the article a given situation actually engages, because “PE risk” is used loosely to mean several unrelated tests:

Your situation abroad	Which part of Article 5 it engages
Working from your own flat on internal deliverables	5(1) fixed place, with the 5(4) preparatory or auxiliary exception in play
Signing client contracts on the company’s behalf	5(5) dependent agent — no premises needed
Negotiating terms the company then accepts unchanged	5(5), the principal-role limb
Heading up the company’s activity in that country	5(2), which lists a place of management expressly
On a client construction or installation project	5(3), where the threshold is more than twelve months

The rows are not degrees of the same thing. A person with contract authority creates the exposure through 5(5) whether they work from an office, a flat or a café, and no amount of care about premises addresses it. Conversely, someone doing internal work is arguing about 5(1) and 5(4), where the facts about the space genuinely matter.

The practical implications follow from that:

Short and genuinely temporary is safer than long and settled. Duration is not the only factor but permanence is in the name of the concept.

What you do matters more than where you sit. Core revenue-generating activity carries more risk than support work, and contract-signing authority is the sharpest edge of all.

Ask rather than assume. The decision belongs to the employer, because it is the employer who bears the consequence — and their answer will be shaped by which countries they already have a presence in. A company already registered in Portugal has far less to worry about than one that is not.

If you are self-employed, the question turns on you rather than on an employer, and it sits next to the company-residence question covered in our Estonia guide: where a company is taxed depends on where it operates and is managed, not on where it was registered.

What this guide does not cover

The OECD Model is a template. Every real treaty is negotiated, and Article 5 is among the most frequently modified — some treaties use shorter construction thresholds, some use a services PE clause with a day count, and the Multilateral Instrument has amended the article in a large number of existing treaties. What your treaty says is a separate question from what the Model says.

Nor does this cover profit attribution: whether a PE exists and how much profit is taxable there are distinct exercises, the second considerably more involved than the first.

And a permanent establishment is a question about your employer’s tax position, not your own. Your personal liability turns on residence and on where the work is performed, which the double taxation treaties guide sets out. It is entirely possible for you to owe nothing anywhere new while your employer acquires a filing obligation — which is exactly why the person who says no to the request is usually not in HR.