Germany–U.S. · Business & Remote Work
Permanent Establishment Through Employees or Home Office in Germany
Can a U.S. company become taxable in Germany merely because an employee works permanently from a German home office? Under German administrative practice, ordinary employee home office generally does not create a permanent establishment. The result can differ where the company has power of disposal over the premises, where management functions are exercised, or where an employee concludes contracts or creates a dependent-agent permanent establishment.
Permanent Establishment Analysis
An Employee in Germany Does Not Automatically Create a German Permanent Establishment
A fixed-place permanent establishment generally requires a fixed place of business through which the business of the enterprise is carried on. In the case of an employee's private home office, the employer typically lacks sufficient power of disposal over the premises.
For this reason, ordinary employee activity from a private home office generally does not create a permanent establishment of the foreign employer under German administrative practice. This can remain the case even if the employer reimburses costs, provides equipment or does not provide another workplace.
The analysis does not end there, however. Senior employees, sales personnel, individuals with contract authority or situations where the company has actual rights over the premises can raise separate permanent-establishment issues.
Three Risk Areas
Fixed-Place PE, Dependent-Agent PE and Place of Management Must Be Analyzed Separately
Fixed-Place PE
If the company has actual power of disposal over premises in Germany that are used on a lasting basis, a fixed place of business can arise.
Dependent-Agent PE
An employee who regularly concludes contracts or plays the principal role leading to their conclusion can create a separate permanent-establishment risk.
Place of Management
If key ongoing business decisions are made permanently from Germany, a place-of-management PE or even German corporate tax residence can arise.
Ordinary Home Office
German Administrative Practice Generally Requires Power of Disposal by the Enterprise
Under the German administrative guidance on Section 12 of the Fiscal Code, an employee's private home office generally does not create a permanent establishment of the employer. A key reason is that the enterprise typically does not have sufficient power of disposal over the private premises.
Individual measures taken by the employer do not automatically change that result.
- reimbursement of home-office costs alone is generally insufficient
- providing computers, furniture or equipment alone is generally insufficient
- the absence of another employer-provided workplace alone is generally insufficient
- even a lease can be insufficient if the company has no meaningful independent use rights
- actual power of disposal and use is decisive
- management and agency functions must still be reviewed separately
When Power of Disposal Can Arise
Not Every Lease Arrangement Is Harmless
Cost Reimbursement Only
Reimbursement of internet, electricity or office furniture generally does not give the employer power of disposal over the employee's private home.
Lease Without Genuine Use Rights
Even a formal lease of a room does not necessarily create a permanent establishment if the employer has no meaningful right to use the premises independently.
Independent Access or Use Rights
If the company can itself access the premises, use them for other staff or otherwise control their business use, the risk of a fixed-place PE increases significantly.
Customer or Business Premises
If the premises are used on a lasting basis as an expected location for customer meetings, contract negotiations or other material business activity, a more detailed PE analysis is required.
OECD Commentary 2025 / German Draft Guidance 2026
Less Than 50% Home-Office Use Generally Does Not Create a Treaty Fixed-Place PE by Itself
The OECD Commentary updated in November 2025 introduced a quantitative starting point for cross-border home office: where the home office is used for less than 50% of the employee's total working time for the relevant employer, that use generally does not by itself create a fixed place of business of the enterprise.
The German Ministry of Finance draft guidance on permanent establishments dated February 13, 2026 reflects this approach for treaty analysis.
Conversely, home-office use of at least 50% does not automatically create a permanent establishment. It is also necessary to consider whether there is a business or commercial reason for the activity to be carried out from the relevant country and whether the other treaty requirements are met.
Dependent-Agent PE
Contract Functions Can Matter More Than the Home Office Itself
Even if the employee's home does not constitute a fixed-place permanent establishment, an employee in Germany can create a dependent-agent PE for the U.S. enterprise.
This is particularly relevant where the employee habitually concludes contracts or plays the principal role leading to contracts that are routinely concluded without material modification by the foreign enterprise.
- habitual conclusion of contracts for the enterprise
- principal role in bringing about contract conclusions
- sales directors, business-development personnel and country managers require particular review
- formal signature authority is not always the only relevant factor
- preparatory or auxiliary activities may be treated differently
- the specific Germany–U.S. tax treaty must be applied
Sales and Customer Contact
For Sales Personnel, the Question Is Not Merely “Where Is the Desk?”
Purely Internal Function
An employee without external representation, contract negotiations or management responsibilities generally presents a substantially lower dependent-agent PE risk.
Contract Negotiations
An employee who negotiates material contract terms with customers can raise dependent-agent PE issues even without formal signing authority.
Habitual Contract Conclusion
If an employee in Germany regularly concludes contracts on behalf of the foreign enterprise, dependent-agent PE analysis becomes central.
Independent Agent
A legally and economically independent agent acting in the ordinary course of its business can be treated differently under treaty rules from a dependent employee.
Senior Management
Management From a Home Office Can Have Much Broader Consequences Than an Ordinary PE
If key ongoing management decisions are made permanently from a German home office, a place-of-management permanent establishment can arise. Under German law, this does not necessarily require separate business premises over which the company has independent power of disposal.
For managing directors, CEOs and other persons who actually direct day-to-day business from Germany, it is therefore necessary to review not only permanent-establishment exposure but also the place of management and potentially the tax residence of the company itself.
The risk is qualitatively greater than for an ordinary employee who merely performs their own operational work from Germany.
Consequences of a Permanent Establishment
What a German PE Can Mean for a U.S. Enterprise
German Business Taxation
An arm's-length profit must be attributed to the permanent establishment. That profit can be subject to German corporate or income tax and, where applicable, trade tax.
Registration and Tax Returns
A German permanent establishment can trigger registration, bookkeeping, tax-return and documentation obligations for the foreign enterprise.
Payroll
A German permanent establishment can also cause the foreign employer to be treated as a domestic employer for German wage-tax withholding purposes.
Transfer Pricing
For cross-border enterprises, profit attribution between the head office and the permanent establishment must follow arm's-length principles.
Typical Situations
Employees and Home Office in Practice
Software Developer Permanently Working From Germany
Ordinary home-office work without employer power of disposal, customer-facing contract functions or management responsibilities generally does not create a fixed-place PE from the German perspective.
U.S. Sales Director Working From Germany
Even without a fixed home-office PE, contract negotiations or a principal role in closing business can create dependent-agent PE exposure.
CEO Runs Day-to-Day Business From Germany
In addition to a permanent establishment, the place of management and therefore potentially the company's tax residence must be reviewed.
Employer Leases a Room in the Employee's Home
A lease alone is not necessarily sufficient. If the company has genuine independent use rights over the premises, however, the fixed-place PE risk increases.
40% Home Office in Germany
Under the updated OECD approach, use below 50% generally does not by itself create a treaty fixed-place home-office PE.
80% Home Office With German Market Responsibility
Use above 50% does not automatically create a PE, but it increases the importance of analyzing permanence, business reason and the employee's actual function.
Related Guidance
Related Topics
Frequently Asked Questions
Permanent Establishment Through Employees or Home Office
Does an employee working from a German home office automatically create a permanent establishment for a U.S. employer?
Does reimbursement of home-office costs change the result?
What does the 50% threshold mean?
Can a sales employee create a permanent establishment?
What if a managing director or CEO works from a German home office?
Does a German permanent establishment make the entire corporate profit taxable in Germany?
Germany–U.S. Tax Advice
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