When is a home office considered to be a permanent establishment?
On March 7, 2025, an article, written by our tax advisors Robbin Kühl and Lieke Jacobs, was published in the Dutch monthly tax magazine ‘Maandblad Belasting Beschouwingen’. The article discusses the concept of a ‘permanent establishment’ for Dutch (international) tax law, and whether and how an employee’s home office can qualify as a permanent establishment. In this post, we will take you through the key points of their publication.
The tax impact of working from home
Due to the digitalization of the global economy, more and more people are working remotely, for example from home, but also increasingly across national borders. This raises the question: when is a home office considered to be a permanent establishment, with all the tax consequences that it entails? For foreign employers, this could trigger tax liability in the Netherlands. Conversely, for domestic Dutch employers, this could trigger a foreign tax liability.
What is a permanent establishment
In short, a permanent establishment entails a company having a certain physical presence in another country, from which (part of) its activities are carried out. This, for example, could be an office, factory, or store in another country, but under certain circumstances could also include a home office of a foreign employee.
A permanent establishment must meet four criteria:
- A place (establishment) - there is a specific location in another country.
- Some degree of permanence - the location is fixed enough both physically and in time. Usually this should involve, for example, (part of) a building which is used for an extended period of time.
- Available to the company - the foreign company can make use of the location. This would not only include ownership, lease, or other right of use, but also an "effective control" that the company can exercise over a location in other ways.
- Through which the activities of the company are conducted.
So, it is not the case that every home office is automatically considered to be a permanent establishment. First, of course, there should be a cross-border situation. It also depends on the facts and circumstances of each case at hand. Relevant are, for example, the agreements made between the employer and the employee, the extent to which the employee is obliged to work from home and whether an alternative office space is available in the employer’s country. In addition, the international agreements that apply between the Netherlands and the other country concerned (international tax treaty law) and how the other country interprets the permanent establishment concept must be considered. The latter may differ from how this concept is viewed from the Netherlands.
Tax implications of a permanent establishment
If a home office qualifies as a permanent establishment, this has tax implications for:
- Corporate income tax
Part of the company’s profits may be taxed in the country where the permanent establishment is located. This so-called ‘profit allocation’ is based on relatively complex (tax) calculations and may result in additional administrative obligations, such as a registration with the (foreign or Dutch) tax authorities and the filing of corporate income tax returns. In this context, the prevention of double taxation on the same part of the profits will also be relevant
- Wage tax
If a permanent establishment exists, the employer may also have to maintain a (foreign or Dutch) payroll administration for wage tax purposes. This depends on the specific situation and the extent to which the employee works in the Netherlands.
Having doubts about the qualifications?
A home office as a permanent establishment can have major consequences. It is therefore important to conduct a thorough analysis on a case-by-case basis. In addition to the home office as a 'physical' permanent establishment, a foreign employee may also qualify as a so-called ‘dependent agent’. This is another form of a 'permanent establishment' which is related to the preparation/conclusion of agreements abroad.
In addition, a regular 'physical' permanent establishment can also exist based on other 'presence' abroad. Moreover, further specific requirements apply to construction or installation projects abroad.
If you have any doubts as to whether one of the forms of a permanent establishment applies, please contact one of our advisors.
Our advisors will be happy to help! For more information, feel free to contact Robbin Kühl at robbin.kuhl@wesselman-info.nl.
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