# Permanent establishment (PE) risk > Permanent establishment (PE) risk is the danger that a company's activity in a foreign country creates a taxable presence there, exposing it to local corporate tax obligations it did not plan for. Permanent establishment (PE) risk is the possibility that your company's activities in another country meet the legal threshold for a taxable presence, pulling your business profits into that country's corporate tax net. Under Article 5 of the OECD Model Tax Convention, a PE typically arises when a company has a fixed place of business through which it wholly or partly carries out its trade. That can mean a branch, an office, a factory, or, increasingly, a home office used by a remote employee. A PE can also arise through a dependent agent: someone in another country who regularly concludes contracts on your behalf, even without a physical office, may create the same exposure. Once a PE is established, the country can tax the profits attributable to that presence. Getting this wrong means back-taxes, interest, and penalties across potentially two jurisdictions at once. Employing workers through a local employer of record (EOR) is one of the most straightforward ways to reduce PE risk, because the EOR, not your company, is the legal employer in that country. ## What triggers a permanent establishment? A PE is most commonly triggered by a fixed place of business, such as an office or a home office used regularly for company work, or by a dependent agent who habitually concludes contracts on your behalf in that country. Under the OECD's November 2025 update to its Model Tax Convention commentary, an employee working more than 50% of their time from a foreign location over a 12-month period is a key indicator that the home office may constitute a fixed place of business. ## How does an EOR reduce PE risk? When you hire through an EOR, the EOR is the legal employer in that country. Your company does not have a branch, office, or dependent agent acting on its behalf, which removes the most common triggers for a PE finding. This does not eliminate all risk, as other factors such as decision-making authority or revenue generation in the country may still be relevant. However, routing employment through an EOR removes the employment relationship as a PE trigger. ## What happens if a PE is found? The host country can levy corporate tax on the profits it considers attributable to your presence there. You may also face penalties and interest for late registration, and your home country may apply its own rules, creating a risk of double taxation. Tax treaties between countries often provide relief, but the process of resolving a disputed PE can be lengthy and costly, making early prevention far more practical than a retrospective fix. ## Key facts - **OECD 50% working-time safe harbour:** Less than 50% of working time in a foreign country over 12 months generally does not create a PE (Source: OECD 2025 Update to the Model Tax Convention, verified 2026-06-24) ## Frequently asked questions ### Does hiring one remote employee in another country automatically create a PE? Not automatically. The risk depends on what that employee does, how much time they spend there, and whether they can bind your company commercially. A single employee doing operational work is lower risk than one signing contracts or making strategic decisions on your behalf. ### Is PE risk the same as payroll tax risk? No. Payroll tax obligations arise as soon as you pay someone in another country. PE risk is specifically about corporate income tax: whether that country can tax your company's profits. Both risks often appear together, but they are governed by different rules and thresholds. ### Can a home office create a permanent establishment? Yes, it can. If an employee regularly works from home in another country, and that arrangement serves a commercial purpose for your business rather than being purely for personal convenience, tax authorities may treat the home office as a fixed place of business, triggering a PE. ### Does using an EOR guarantee no PE risk? An EOR removes the employment relationship as a PE trigger, which is the most common cause of PE exposure. However, if your company's own directors or senior decision-makers regularly conduct binding business in that country, other PE rules may still apply. An EOR is a strong mitigant, not an absolute shield. ## Sources - [The 2025 Update to the OECD Model Tax Convention: Key Changes](https://www.oecd.org/content/dam/oecd/en/publications/support-materials/2025/11/the-2025-update-to-the-oecd-model-tax-convention_c7031e1b/oecd-model-tax-convention-2025-update-key-changes.pdf), OECD - [OECD 2025 Update: New Rules on Permanent Establishment for Remote Work](https://www.ey.com/en_ch/technical/tax-alerts/oecd-2025-update-new-rules-on-permanent-establishment-for-remote-work), EY Switzerland - [Navigating permanent establishment risk in a remote work era](https://kpmg.com/xx/en/our-insights/eu-tax/navigating-permanent-establishment-risk-in-a-remote-work-era-2.html), KPMG - [Permanent Establishment Risk for Remote Workers: 2026 Guide](https://tax.thomsonreuters.com/blog/payroll-pulse-navigating-permanent-establishment-risk-with-remote-workers-in-2026/), Thomson Reuters _Last updated 2026-06-24. Reviewed by Teamed's in-house employment-law team. Source: https://www.teamed.global/glossary/permanent-establishment_