What Is a Permanent Establishment?

Under international tax principles, a permanent establishment generally arises when a company has a fixed place of business through which it carries out its activities in another country.
Traditionally, this meant:

• Offices
• Factories
• Branches
• Warehouses

However, the rise of remote working has raised a new question:
Can an employee’s home office become a permanent establishment?
The answer is: sometimes.

When Does Remote Working Create a Permanent Establishment?

The key question is whether the home office can be considered to be at the disposal of the employer.
Tax authorities generally analyse:

How often the employee works from home

• Whether home working is voluntary or required
• Whether the company provides an office in the country
• Whether the employee performs core business activities
• Whether the employee can conclude contracts on behalf of the company

Each case requires a factual analysis.

Scenario 1: Occasional Home Working

Where an employee occasionally works from home, the risk is generally low.
Examples include:

• One or two days per week of home working
• Occasional remote work for convenience
• Hybrid working arrangements with regular office attendance

In most situations, tax authorities will not consider the employee’s home office to be a permanent establishment.

Scenario 2: Structural Home Working but Office Access Exists

A more interesting situation arises when an employee regularly works from home but still has access to an office provided by the employer.
For example:

• The employee chooses to work from home three days per week.
• The employer maintains office facilities that the employee could use.

In such cases, it is often difficult to argue that the home office is at the disposal of the employer.
As a result, the PE risk may remain limited.

Scenario 3: Mandatory Home Working

The risk increases significantly when the employer effectively requires the employee to work from home.
Tax authorities may consider the home office to be a location used by the company itself.

Indicators may include:

• No office available in the employee’s country
• Employment contracts requiring home working
• Home office expenses reimbursed by the employer
• Home address used in company communications
• Core business functions performed from the home office

In these situations, the home office may constitute a permanent establishment.

The 50% Rule: A Practical Benchmark

The Belgium-Netherlands agreement on home-working employees introduced useful practical guidance.
As a general rule, where an employee works 50% or less of their working time from home during a 12-month period, the risk of creating a permanent establishment is typically lower.
Although each situation remains fact-dependent, this threshold provides employers with a useful compliance benchmark.

Why Permanent Establishment Risk Matters

Many employers assume remote working only creates payroll or social security considerations.
In reality, the consequences can be much broader.
A permanent establishment may trigger:

Corporate Tax Exposure
Part of the company’s profits may become taxable in Belgium.

Additional Compliance Obligations
Companies may need to:

• Register with the Belgian authorities
• File Belgian tax returns
• Maintain supporting documentation

Profit Attribution Requirements
Profits may need to be allocated to the Belgian activities under transfer pricing principles.
This can become particularly relevant when senior employees, managers or business developers work from Belgium.

Increased Scrutiny From Tax Authorities

In practice, tax authorities are paying much closer attention to international remote working arrangements.
Employment contracts, home-working policies and the employee’s actual activities are increasingly reviewed.
As a result, companies should not assume that hybrid working arrangements automatically eliminate permanent establishment risk.
Proper documentation has become essential.

How Foreign Employers Can Reduce Their Risk

Foreign companies employing staff in Belgium should consider:
✅ Reviewing employment contracts
✅ Reviewing remote working policies
✅ Monitoring home-working percentages
✅ Evaluating the employee’s functions and decision-making authority
✅ Assessing corporate tax exposure before hiring
✅ Performing a permanent establishment risk assessment

A proactive review is often far less expensive than dealing with a tax audit afterwards.

Key Takeaway

Remote working in Belgium does not automatically create a permanent establishment.
However, the risk increases where:

• Home working is mandatory
• The employee performs key business functions
• The company has no alternative office available
• The home office effectively operates as part of the business

As cross-border remote working becomes increasingly common, foreign employers should carefully assess their Belgian tax position before hiring or relocating employees.

Need guidance on employing staff in Belgium?

B-Mobility helps foreign employers manage Belgian tax, payroll, employment law and permanent establishment risks.
Get in touch with our international mobility specialists for a tailored Belgian compliance assessment.