Tax risks in international remote working

Cross-border home office is strategically relevant – but also an underestimated risk area. Between permanent establishment risk and residency hurdles, companies are faced with the question: How can flexibility be achieved without losing control? Sabine Paul and Ilja Lapov-Mudrovcic from KPMG Law classify the central risks and highlight specific areas for action.

For German companies, cross-border remote working is now an integral part of the business and people strategy. From short-term work abroad to employees who work permanently for German companies from abroad – there is hardly an arrangement that does not exist today. The reasons for this are, on the one hand, the increasing internationalization of the markets. On the other hand, a lack of talent forces companies to find flexible solutions for situations in which employees do not (only) live and work in the employer’s country.

The increasing relevance of international remote working in German companies is already reflected in concrete figures. A survey by KPMG (KPMG Global Mobility Benchmarking Report) provides current results for 2025: Around 86 percent of the companies surveyed allow international remote working and have already implemented policies for this or are in the process of doing so.

Permanent remote working is already permitted by 31 percent of companies, for example by hiring employees abroad and working from there permanently, or in the form of global roles in which employees are employed in one country – such as Germany – but are also responsible for other countries or regions in their role and lead international teams.

25 percent of companies offer their workforce long-term international remote working for more than 90 days a year. This can also be done as part of so-called virtual assignments, in which employees work for a foreign employer or a project abroad for a certain period of time, but carry out this activity virtually from their home country.

Legal and tax issues and risks

With the increase in mobile working, corporate tax and residence law risks in connection with home office activities are increasingly becoming the focus of HR practice, which we will outline below using an example. From the employee’s perspective, possible consequences for personal income tax liability and social security must also be taken into account.

Practical example: Multilocal working in reality

A Turkish citizen has a long-term German residence permit, the so-called Blue Card of the European Union. He is “Head of HR” at the German company X-GmbH based in Munich. His family lives in Austria, where he is allowed to work from his home office once or twice a week. The remaining days he works in Munich. He also regularly undertakes business trips to other EU and non-EU countries.

Corporate tax risk: “Permanent establishment”

In the example case, the question arises as to whether the work of the “Head of HR” in the home office leads to X-GmbH establishing a permanent establishment in Austria. This would mean that X-GmbH would be subject to limited tax liability abroad, which would entail tax payment obligations and considerable administrative effort (registration, accounting, tax returns).

The answer is based on German and Austrian tax law as well as the bilateral double taxation agreement. The term permanent establishment can be interpreted differently. The guidelines of the Organization for Economic Cooperation and Development (OECD), updated in November 2025, provide possible relief in the interpretation of double taxation agreements: According to this, activities from a foreign home office generally do not constitute a permanent establishment if they occur occasionally or at short notice.

Threshold of 50 percent

The relevant threshold is 50 percent of the total working hours within a twelve-month period. If this threshold is not exceeded, a permanent place of business is generally denied. Only if the limit is exceeded is a more in-depth examination of the individual case necessary, particularly with regard to a business reason for working abroad.

For the first time, the new OECD guidelines offer a practical framework for evaluating home office constellations – even if their implementation varies internationally. While Austria has been applying the requirements bindingly since the beginning of January 2026, other countries are taking a more restrictive approach. The German tax authorities have not yet commented on how the new OECD commentary will affect the German understanding of a home office permanent establishment.

The solution to the example case: If the Head of HR only works 1-2 days per week, i.e. less than half of his total working time from the home office in Austria, no permanent establishment can be assumed according to the OECD guidelines. If this threshold is exceeded, it must be checked whether there is a business connection to Austria, for example through local personnel responsibility, cooperation with other group companies or responsibility for local recruiting.

This gives companies the opportunity to proactively address tax risks through close cooperation between HR and the tax department. Continuous monitoring of country-specific developments remains essential for the time being.

Right of residence: The underestimated hurdle when working remotely abroad

In addition to the tax aspects, residence law in particular presents an often overlooked complexity in international remote working. The question arises as to whether the employee in our example is allowed to work in Austria as a Turkish citizen. He cannot rely on freedom of movement rights. His German residence permit does not automatically entitle him to work in another country of the European Union or the European Economic Area – even temporarily or partially – as each EU country has its own legal requirements for residence and work permits. This represents a classic stumbling block in residency law.

Since this is a permanent home office construction, crucial questions arise: Does the employee’s German residence permit cover the entire work activity from Austria and is it sufficient, or is an Austrian residence permit also required? There is also the question of the possible influence on the German residence permit.

When it comes to occasional business trips, it is particularly important to take into account what rules the destination country has in place for short-term mobility: Are the activities fully planned or are they just limited to attending meetings, for example? This serves to assess whether residence permits, registrations, etc. are required or whether exceptions apply.

Such an exception applies, for example, to holders of the EU Blue Card. This makes it possible to work in other EU/EEA countries without a separate work permit. However, this varies from country to country – similar to tax regulations – and must be examined individually.

More than compliance: the cultural dimension

International remote working is not only influenced by regulations, but also by culture. Organizational culture and understanding of leadership determine how much location independence is possible. Some companies consciously strengthen their presence, for example to promote collaboration and innovation. Fairness considerations also play a role if not all functions can work remotely.
Clear positioning is crucial. Without transparent rules, informal practices with tax or legal risks quickly arise.

From individual cases to structure

Instead of individual decisions, a clear strategy is needed. The central question is: Why do we enable cross-border remote working?

Is this form of work primarily an employee benefit to increase employer attractiveness and retention or a strategic instrument in the competition for global talent? Especially given the shortage of skilled workers, it can open up access to international talent pools and enable new forms of collaboration.

The core questions of HR policy

Three questions are central to the design of the policy. The answer arises from the strategic goals and the consideration of regulatory risks.

• Wer: Does the policy apply to all employees or are there restrictions for certain groups, functions or nationalities?
• How long: Is remote working abroad limited in time (e.g. up to 30 days) or are longer or permanent stays also possible?
• Wo: In which countries is remote work allowed taking compliance and security aspects into account?

From policy to governance

Once the guard rails are defined, companies need clear processes and responsibilities. HR or Global Mobility often control operational implementation, while Tax, Legal and IT are involved depending on the situation. Given the risks, it is crucial to anchor documentation requirements in the process. At the same time, digital technologies enable transparency about who works where, help identify risks at an early stage and support the efficient design of processes.

International remote working requires coordination and HR as an orchestrator

International remote working requires more than guidelines. Coordinated cooperation between various departments is required: tax law, labor law and social security law meet data protection and IT security. Silo thinking quickly leads to blockages or risks.

HR takes on a key role as a connecting element between legal, tax and IT, as an orchestrator of different perspectives and as a designer of clear decision-making structures. Flexibility in the workplace does not mean a loss of control, but rather a conscious and proactive design of guidelines and their clear communication.

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