Byline: By Anurag Panchal | Last reviewed 28 October 2026. Next review: April 2027.
Intro paragraph:
Freelancing Abroad? OECD 2025 guidance includes rules on working from a home abroad. This is a different question from the one in our post on dual tax residency, which asked which country can tax you as a person. This post asks: can your work, or your client’s business, become taxable in a country where you are not a resident? That is the permanent establishment (PE) question. On 18 November 2025 the OECD Council adopted new guidance on it, and India has formally recorded that it disagrees with part of that guidance.
- A PE is a fixed place of business through which an enterprise carries on its business, wholly or partly. The treaty between the two countries decides, using Article 5 of the OECD Model as the template.
- The OECD Council adopted its 2025 Update on 18 November 2025. The Commentary on Article 5 now has new paragraphs 44.1 to 44.21 on working from a home or other relevant place abroad, replacing the old paragraphs 18 and 19.
- If someone works from that place for less than 50% of their total working time for the enterprise in a 12-month period, it generally would not be a place of business. At 50% or more, facts and circumstances decide, and a commercial reason is a prominent consideration.
- One-person businesses are treated differently (paragraph 44.20). A non-resident consultant who runs most of her own business from a home office abroad for an extended period has a place of business there.
- India has recorded that it does not agree with the time threshold or the commercial reason test. Other countries, including Nigeria, Malaysia and Israel, have recorded their own positions.
What is a permanent establishment?
A PE is a fixed place of business through which an enterprise carries on its business, wholly or partly. Under tax treaties that follow the OECD Model, the business profits of an enterprise are generally taxable only in its home country, unless it carries on business in the other country through a PE there. No PE usually means no tax in the other country on business profits. A PE means that country can tax the profits linked to it.
What changed in November 2025
| Before (old paragraphs 18 and 19) | After (new paragraphs 44.1 to 44.21) | |
|---|---|---|
| Main question | Whether the home office was at the disposal of the enterprise, which depended on the facts. Continuous use plus the enterprise requiring it could mean yes | Is the place fixed, how much working time is spent there, and are there a commercial reason and other facts that make it a place of business |
| Time test | No percentage | 50% of total working time for the enterprise over a 12-month period as a benchmark |
| Examples | A consultant working from her home abroad, and a cross-frontier worker | Five examples (A to E). The consultant example becomes a separate rule for one-person businesses (44.20) |
| Status | Interpretation guide | Still an interpretation guide, not treaty text |
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The change is in the Commentary, the OECD’s interpretation guide, published in The 2025 Update to the OECD Model Tax Convention.The old paragraphs 18 and 19 on home offices were deleted and replaced by new paragraphs 44.1 to 44.21. The Commentary is not treaty text, and a treaty applies only as written and as each country interprets it.
The test as a workflow
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The OECD says the right answer always depends on the facts and circumstances of each case. Even where a place of business exists, paragraph 4 of Article 5 can still say there is no PE if the activities there are only preparatory or auxiliary.
How the 50% is measured
The OECD says the actual conduct of the individual decides how working time is calculated. Contracts and company policies can help only to the extent they match what the person actually does. The 12-month period is any twelve-month period starting or ending in the fiscal year concerned. The text says “working time” and does not say whether to count days or hours.
Hypothetical year of 250 working days. Above 50%, so the commercial reason and other facts decide (compare Example D).
The OECD’s five examples
| Example | Facts (employee of RCo, an enterprise of State R) | OECD result, absent other facts |
|---|---|---|
| A | Works from a rented place in State S for 3 consecutive months after a holiday | Place is not fixed (lacks permanence). Same if the reason was caring for a sick relative |
| B | Works from home in State S 1 or 2 days a week all year, 30% of working time | Home is fixed, but under 50%, so not a place of business and no PE |
| C | Works from home in State S 80% of the time and regularly visits RCo’s clients in State S | At least 50% and a commercial reason: place of business, PE of RCo |
| D | Works from home in State S 60% of the time, serves clients remotely, one-day client visit in State S each quarter | No commercial reason (client presence alone is not enough, visits are intermittent): no PE |
| E | Works almost exclusively from home in State S, serving customers in other time zones in real time, around the clock | At least 50% and a commercial reason: place of business, PE of RCo |
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Facts in real life differ, so treat these as patterns, not guarantees. Nigeria has recorded that it disagrees with the conclusion in Example D, and Israel has recorded that Example D’s facts could indicate a commercial reason.
What counts as a commercial reason
A commercial reason exists where the person’s physical presence in that country itself helps the business, for example because people or resources there are needed. It is enough that one of several reasons is commercial. Examples the OECD lists include meetings with customers, finding new customers, managing suppliers, real-time or near real-time interaction with customers or suppliers in different time zones, and services that need physical presence in that country.
What does not count: allowing work from home only to obtain or keep the person’s services, or only to save office costs. Intermittent or incidental engagement, such as short occasional client visits, is not enough. The mere presence of customers, or a different time zone, does not automatically create a commercial reason.
Freelancing Abroad? OECD Rule for One-Person Businesses (Paragraph 44.20)
Paragraph 44.20 says different considerations apply where an individual is the only person, or the primary person, conducting the business of an enterprise. Its example is a non-resident consultant who is present for an extended period in a State and carries on most of her own consulting business from an office set up in her home there. That home office is a place of business of her enterprise. (This consultant example was already in the old paragraph 19. The new text keeps it and makes it a separate rule.)
For freelancers this matters most if you live and work abroad for an extended period. The OECD does not give a number of days here, so the 50% benchmark is not a safe harbour for a one-person business. Whether you are also a tax resident of that country is a separate question, covered in our dual tax residency guide. Israel has also recorded that it may treat the home office of a founder, partner or relatively significant senior executive as a PE.
India and other countries do not all agree
India’s position is stricter than the OECD’s. If a foreign business has staff working from homes in India, do not assume the 50% benchmark protects it. If you are an Indian business with staff abroad, the other country’s position matters just as much.
| Country | Recorded position on paragraphs 44.1 to 44.21 |
|---|---|
| India | Does not agree with the time threshold or commercial reason. Considers the home at the disposal of the enterprise |
| Nigeria | Treats short occasional client visits, and also cost saving, as a commercial reason, in both cases where the activity lasts more than 6 months. Disagrees with the conclusion of Example D |
| Malaysia | May agree a different percentage in a bilateral treaty for the threshold in paragraph 44.8 |
| Israel | May measure the 50% using a day-count comparison, may find a commercial reason where a meaningful group of its employees is located there, may treat the home office of a founder, partner or relatively significant senior executive as a PE, and says Example D’s facts could indicate a commercial reason |
| Czech Republic | Reserves its position on the additional criteria in these paragraphs |
| Chile | Does not adhere to all the interpretations in paragraphs 44.6 to 44.21 |
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Who is exposed, and in which direction?
| Situation | Whose PE? | What the OECD text says |
|---|---|---|
| Freelancer or consultant living and working abroad for an extended period, running a one-person business | Own business’s possible PE in that country | Paragraph 44.20: the home office can be a place of business. No fixed number of days is given. Also check tax residency in our dual tax residency guide |
| Freelancer in India working for foreign clients | Client’s possible PE in India | The five examples all involve employees. They do not say how the test applies to independent contractors, and India’s position is stricter. Take advice |
| Indian agency with an employee ... (apna original text yahan rakho) | Agency’s possible PE in that country | At 50% or more with a commercial reason (Examples C and E), a PE is likely, subject to the treaty and that country’s position |
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A separate rule: the services clause in the India-US treaty
Article 5(2)(l) of the India-US treaty says the term permanent establishment includes the furnishing of services (other than included services as defined in Article 12) within a country by an enterprise through employees or other personnel, but only if one of two conditions is met: the activities of that nature continue within that country for a period or periods aggregating more than 90 days within any twelve-month period, or the services are performed in that country for a related enterprise (within the meaning of paragraph 1 of Article 9).
| Condition | Threshold |
|---|---|
| Services through employees or other personnel | More than 90 days (period or periods aggregating) in any twelve-month period |
| Services for a related enterprise | No separate day count: services performed in that country for a related enterprise qualify |
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The Protocol to the treaty adds a rule for cases where the time period runs across two taxable years: a PE is not deemed to exist in a year in which the activity continues for less than 30 days in that taxable year.
Separately, Article 15 (Independent Personal Services) covers an individual or firm of individuals (not a company) who is a resident of one country and performs professional services in the other. That income is generally taxable only in the home country, unless the person has a fixed base regularly available in the other country, or stays there for periods amounting to or exceeding 90 days in aggregate in the relevant taxable year. Check which Article applies to your situation and take advice.
Permanent establishment is also a different question from withholding tax on payments. If you invoice US clients from India, see our guide on 30% IRS withholding tax on inbound India invoices for the withholding side.
How days are counted has been argued before Indian tax tribunals, so keep exact records. Other treaties have different clauses and day counts, so always read the treaty that applies to you. Treaty text is taken from the India-US convention as published by the Income Tax Department of India.
Common mistakes
- “Under 50% means I’m safe.” The OECD says such a home would generally not be a place of business, and it does not expect exceptions in most situations (paragraph 44.8). But other facts can still matter in some cases, Malaysia can agree a different percentage in a treaty, and India does not accept the threshold.
- “Over 50% means a PE.” Not automatically. At 50% or more, facts and circumstances decide, and a commercial reason is a prominent consideration.
- “The OECD rule applies everywhere.” The Commentary is not binding, most treaties were written earlier, and several countries have recorded different positions.
- “My contract says remote work is optional, so I’m fine.” Contracts help only to the extent they match what you actually do.
- “This only concerns big companies.” Small agencies with remote staff, and one-person businesses working from abroad, can be exposed too.
What to do
- Log your working time by place and by client or employer for a rolling 12 months.
- Write down the business reason for any long-term work from a particular country.
- If you run a one-person business from abroad, treat the extended stay itself as a PE question, not only a residency question.
- Read the actual treaty between the two countries, including any services clause, and check each country’s recorded position.
- Take professional advice before changing your structure or sending staff abroad.
If you are an Indian freelancer with US clients, also check the payment side: GST, FEMA and Section 58 rules for payments from a US client in India.
Frequently Asked Questions
Does one trip or a few months abroad create a PE?
In Example A, three consecutive months at a rented place after a holiday was not fixed enough, so no PE from that place. Occasional or intermittent use is generally not enough.
Is the OECD Commentary law?
No. It is an interpretation guide. Treaties are what actually apply.
Will this change?
It may. The OECD updates its Model periodically, and countries can change their positions or treaties.
What to watch next
New OECD updates, changes to India’s position or treaties, bilateral percentages agreed by countries such as Malaysia, and court or tribunal decisions on home-office PEs. We will update this article at each review.
Sources: OECD (2025), The 2025 Update to the OECD Model Tax Convention, OECD Publishing, Paris, https://doi.org/10.1787/5798080f-en (Commentary on Article 5, paragraphs 44.1 to 44.21 and deleted paragraphs 18 and 19; Positions on Article 5,paragraphs 55 and 58 to 61; reservations of Israel, the Czech Republic and Chile).
Convention between the Government of the United States of America and the Government of the Republic of India for the avoidance of double taxation (signed at New Delhi on 12 September 1989; in force 18 December 1990; Notification GSR 992(E)), Article 5(2)(l), Article 15 and the Protocol (Ad Article 5), as published by the Income Tax Department of India
Disclaimer: This article is for education and is not tax or legal advice. Last reviewed 28 October 2026. Next review: April 2027.
Anurag Panchal
Founder & Editor at ServiceMoney.in & AllRoundUpdate.com.
I am an independent freelancer and researcher. I am not a chartered accountant, lawyer or tax professional. I wrote this guide by studying public sources: the OECD's 2025 Update to the Model Tax Convention and the India-US tax treaty as published by the Income Tax Department of India.
This article explains how permanent establishment rules work for remote professionals. It is for education only and is not tax or legal advice. Please consult a qualified professional before making decisions.
Found an error? Please let me know. I review this article regularly and correct mistakes. More explainers on my YouTube channel.
