Home office permanent establishment Germany: The new 2026 regulatory guidelines
The mere existence of a home office does not constitute a permanent establishment in Germany. Decisive factors are the company’s actual power of disposal over the premises and the functional integration of the home office into the company’s business activities. Ecovis tax advisors explain the details.
In a circular dated 18 June 2026, the German Federal Ministry of Finance released new administrative principles on the concept of a permanent establishment under national law and within the framework of Article 5 of the OECD Model Tax Convention (Article 5). In this context, the treaty-based definition of a permanent establishment takes precedence over the national definition set out in Section 12 of the German Tax Code.
Divergence between the German definition of a permanent establishment and the OECD definition
A key difference between the national definition of a permanent establishment and Article 5 is that, under national law, even purely auxiliary and preparatory activities carried out at a fixed place can constitute a permanent establishment. Under the OECD model, a permanent establishment is generally not established in such cases.
Until now, from a German tax perspective, an employee’s work from a home office in Germany for a foreign company could establish a permanent establishment only in exceptional cases. This was the case, for example, if the employer had comprehensive control over the employee’s home office or if the employee held a managerial position.
Get an assessment of whether employees working from home in Germany constitute a permanent establishment, as this has tax implications.
Marion Dechant, Steuerberaterin bei Ecovis, München, Deutschland
Alignment of the permanent establishment concept with OECD criteria
The German tax authorities have aligned their understanding of the concept of a permanent establishment under tax treaties with the OECD’s interpretation as set out in the update to the Model Commentary on Article 5 dated 18 November 2025.
The OECD has introduced criteria for establishing permanent establishments based on employees working from home, including a quantitative threshold of 50 % of working hours and the requirement of a commercial reason for doing so. Below this threshold, the question of whether a permanent establishment is established continues to be governed by the basic assumption that in such context a home office should not be considered a place of business of an enterprise unless special circumstances justify a different conclusion.
In practice, however, the OECD principles will apply in inbound cases only if a permanent establishment exists under German domestic law. This, in turn, requires that the employer has control over the home office premises.
Tax obligations for companies
A permanent establishment in Germany – whether in an employee’s home office (in exceptional cases), as part of a fixed business establishment or through a permanent representative – results in tax obligations for a foreign company in Germany. In addition to income tax or corporate income tax, obligations may also arise with respect to payroll tax and value-added tax.
