Corporate tax residence

Corporate tax residence and remote working

The rise of remote work and its tax implications

Remote working is no longer limited to more junior employees - it extends to senior management and directors, often spread across multiple jurisdictions. This decentralisation of decision-making and business activity raises critical questions about where a company is truly undertaking its day to day activities and strategic management. This introduces complex tax risks around corporate tax residence and permanent establishment (PE).

In the UK, corporate tax residence is often ultimately determined by the location of central management and control, typically where strategic decisions are made by the board, not just by the place of incorporation. If this management and control is exercised in the UK, a non-UK incorporated company may be deemed UK tax resident, unless a double tax treaty overrides this. Many other territories operate similar rules.

Permanent establishment risks from home offices

The issue becomes more complex when employees work from home in jurisdictions different from their employer’s location of incorporation. Under international tax principles, a permanent establishment may arise if a company has a fixed place of business in another country through which its operations are carried out.

A home office can, under certain conditions, be considered ‘at the disposal’ of the employer – potentially triggering a taxable presence for the employer in the territory of that home office. While OECD guidance suggests that not all home offices create a PE, in its recently updated commentary to the Model Tax Convention, it also acknowledges that specific facts and circumstances could lead to one. Key considerations include:

The time spent working from home (if, specifically, time spent working from home exceeds 50% of the time in a 12-month period), and
The nature of the employee’s activities (eg, whether there is a commercial reason for the individual’s presence in a particular state)

The challenge of monitoring and managing this risk scales as the number of works within a jurisdiction, and the number of jurisdictions where workers operate through home offices, increases.

HMRC and OECD Guidance on corporate tax residence and PE

During the COVID-19 pandemic, HMRC and the OECD provided some guidance, stating that travel restrictions were unlikely to affect a company’s tax residence (though permanent establishment risk was not addressed in a comprehensive manner). Since then, many businesses have continued working patterns established during the pandemic or even built their operating model around such flexible working practices. Businesses using such models should regularly review how they work in practice to ensure residence and PE rules are not breached.

Although some guidance has been provided through the 2025 update to the commentary on the OECD’s Model Tax Convention, following a public consultation in late 2025, the OECD is expected to provide further guidance in early 2026 on both corporate and personal income tax issues.

Employment tax considerations

International remote working arrangements also raise significant employment tax issues for both individuals and employers:

Income Tax and Social Security

Employees working abroad may trigger overseas income tax or social security liabilities. Employers may face additional costs if required to contribute to foreign social security schemes.

Payroll Compliance

Operating a foreign payroll or managing dual withholding obligations can be administratively burdensome and costly. Employers may need to consider offering financial support to employees to manage cash flow.

Corporate Criminal Offence (CCO)

UK businesses must ensure overseas tax liabilities are met. Failure to take reasonable steps could result in criminal liability under the CCO regime.

Immigration and Legal Compliance

Employers must verify that employees have the legal right to work in their chosen location and ensure compliance with local labour laws and regulatory requirements.

Remuneration Strategy

Employers may need to reassess salary structures and benefit packages based on location, ensuring fairness and competitiveness while managing tax efficiency.

Domestic matters

It is not just international home working arrangements that require care – domestic homeworking arrangements may also present complexity in establishing whether the individual may be receiving taxable benefits if they are reimbursed for travel, for example, to a standard office of the business. Any home working policies should also consider these matters.

Mitigating tax residence and permanent establishment risks

To manage these risks, companies should:

Have a clear policy for home working arrangements, and mechanisms to monitor the application of that policy in practice
Document board meetings and decision-making locations
Ensure Directors travel appropriately to maintain intended tax residence
Regularly review employee remote working arrangements, especially cross-border activity
Consider restructuring boards to balance jurisdictional representation, if necessary
Assess whether home offices could be construed as fixed places of business

The flexibility of remote work brings undeniable benefits, but it also demands a proactive approach to tax governance. Companies must remain vigilant in managing corporate tax residence and PE risks, particularly as international tax authorities tighten their scrutiny.

If you would like to discuss the risks around of corporate tax residence or permanent establishment with an expert or find out more about how we can help you mitigate those risks, please complete the form.