On 19th November 2025, the OECD (Organisation for Economic Co-operation and Development) announced several updates to the Model Tax Convention. The Model Tax Convention is used by a large number of countries (including the UK) to guide how individuals and businesses are taxed internationally, and which countries have taxing rights over income and profits.

One of the main updates to the Model Tax Convention centred around employees working remotely in countries outside of the employer’s home country.

What is the issue?

Since the COVID pandemic, some aspect of remote working has become the norm across most industries and sectors, and quite often this can include employees working from outside of the UK. This could range from UK businesses specifically hiring a remote employee in another country, to an employee travelling to another country and working from there temporarily to look after an ill family member. It is usually very easy logistically – all that is needed is a laptop and a Wi-Fi connection.

However, this change in remote working practices has created a lot of uncertainty from a tax perspective. UK business have to pay Corporation Tax in the UK as usual, but the overseas tax authorities can also try to argue that the employee working overseas creates a fixed place of business or “permanent establishment” in that country and therefore some Corporation Tax should also be payable there. This can lead businesses to pay tax twice on the same profits.

Whilst business offices and factories are clearly fixed places of business, would an employee’s second home that they work from whilst on holiday create a fixed place of business?

What’s changed?

Thankfully, the OECD has released additional guidance to help clarify when overseas remote employees create a permanent establishment for tax purposes.

Specifically, the update looks at scenarios where employees are working from non-business premises, such as a home office or AirBnB, and aims to clarify if this will be treated as a permanent establishment for the company.

Some of the factors that need to be reviewed include the activities being carried out at the employee’s location, the amount of time spent working at that location, and the reasons behind the location of the employee. For example, the OECD update suggests that, at a high level, if an employee spends less than 50% of their working time at the overseas location, this would usually not be considered a permanent establishment of the business (although the activities being carried out by the employee will need to be considered).

Another example is whether there is a commercial reason for the employee to work from that particular country, such as to facilitate relationships with customers within that region, or to provide virtual IT support for a particular time zone. If a commercial reason exists, then this would point to there being an overseas permanent establishment.

Extra care should be taken when decision makers of the business are working overseas, and employees involved with contract drafting and signing on behalf of the business, such as sales staff. There is additional guidance that needs to be considered where these activities are taking place.

Action points

To make sure no surprise tax liabilities arise, businesses should review where their employees are working from, particularly remote employees, and any employees working outside of the UK should be flagged for additional tax reviews. This review should consider not only whether a permanent establishment is created, as discussed above, but also whether any payroll taxes are due overseas.

It is also good practice to have a policy in place that ensures employees need to request permission to work from an overseas location, and these requests should include the length of time they will be overseas and the reason for going.

If you would like some help and tax advice regarding overseas working within your business, please contact the tax team.