30 Permanent Establishment Risk Statistics to Know

Key Takeaways

One remote employee in another country can expose an employer to corporate tax in that country. That is permanent establishment, or PE, and the rules for triggering it just changed.

The OECD's November update to the Model Tax Convention replaced its older facts-and-circumstances test with a single number: 50% of working time over any rolling 12-month period.¹

Cross that line at a home office abroad and the foreign employer can be on the hook for back corporate tax, penalties, and a tax filing obligation in a country it never planned to enter.

40% of HR professionals have already found employees working from somewhere they were not authorized to be.⁴ For most multinationals, PE risk is no longer hypothetical. It is already sitting inside a hybrid workforce that their organization has not fully mapped.

Below, we analyze the critical permanent establishment risk statistics defining global expansion: the new OECD threshold, the country-level triggers, the cost of getting it wrong, and the path most multinationals are using to stay out of the audit exposure.

What Permanent Establishment Risk Is

Permanent establishment is the threshold at which a foreign company becomes liable to corporate tax in a country where it has no legal entity. Three forms matter in cross-border remote work:

1. Fixed place PE. A home office, serviced apartment, or other recurring work location may become relevant if it is used continuously for the employer’s business and the facts show that it is a place of business of the enterprise.
   
   
2. Dependent agent PE. An individual who habitually negotiates or concludes contracts on behalf of the foreign employer.
   
   
3. Service PE. Service activities provided in the country for a defined number of days, typically tied to a tax treaty.

The 2025 OECD update primarily reshapes the first category. The fixed-place test is now structured around a 50% working-time threshold over any 12-month period.¹

What the OECD 2025 Update Changed

The OECD released the 2025 update to the Model Tax Convention in November 2025, with a stakeholder consultation deadline of December 22, 2025 and a public meeting scheduled for January 2026.¹

The change is a move from a judgment-based test to a fixed number:

• Working from home for less than 50% of total working time over any 12-month period is generally not considered a place of business under the new framework.¹
• The 50% threshold is paired with a commercial-reason test. A home office driven by employee preference rather than employer requirement is now harder to characterize as a PE.¹
• The European social security framework already permits up to 49.9% cross-border telework without changing the worker's social security affiliation, which aligns closely with the OECD's new tax benchmark.⁵

50% the new OECD threshold for working time spent at a home office in another country before PE risk attaches under the 2025 Model Tax Convention update.¹

Genuinely hybrid workers now have more room to operate without creating a foreign PE. Full-time remote employees abroad have less. Where an employee sits inside that line should be a known number for every cross-border role, not an annual surprise. The detail on how this interacts with country-level payroll tax is in our payroll tax compliance guide.

The Scale of the Cross-Border Remote Work Problem

The framework was updated because the workforce moved first. A few markers of how far it has shifted:

• HR confidence in knowing where employees are physically located dropped 14 percentage points in a single year, from 60% in 2021 to 46% in 2022.⁴
  
  
• 40% of HR professionals reported discovering employees working from outside their home state or country in the same survey.⁴
  
  
• 41% of approximately 1,500 office workers cited work-from-home flexibility as a factor in changing jobs.⁴
  
  
• The UK Office of Tax Simplification (OTS) found that 2 to 5% of eligible employees at most multinationals had worked in a different country on a short-term basis, with several large employers reporting up to 10%.⁷

At face value, 5% sounds manageable. At a 10,000-person multinational it is 500 people who could each be a PE trigger in any given year, and the foreign employer is unlikely to know about most of them before the assessment lands.

The Multi-Country Payroll Blind Spot

37% of organizations operating across multiple jurisdictions have no plan in place for hybrid or flexible-work employees working from a different country.³ That is the largest unplanned PE exposure we see in global teams. Local employment law, payroll tax, and termination rules cannot be researched from a head office on the fly, which is the gap an Employer of Record is built to close. A category-level breakdown is in our global payroll vs employer of record comparison.

"Most PE situations we see start with someone moving to another country for personal reasons and nobody on the HR side hearing about it for months. By the time finance asks, the rolling 12-month window has already started ticking, and the cleaner path is usually to move the worker onto a local employer structure before the exposure compounds." - Slasify Account Manager

Country PE Thresholds That Matter Most

PE thresholds vary across major hiring markets. The numbers below should be read alongside the relevant bilateral tax treaty and the OECD 2025 update.

Japan

Japan's National Tax Agency (NTA) applies a 183-day rule for non-resident individual tax exposure. The threshold runs across any calendar year, fiscal year, or 12-month period, whichever is most favorable to the tax authority under the treaty.² A non-resident is exempt from Japanese income tax on employment income only when all three conditions apply: 183 days or less in Japan, salary not paid by an employer in Japan, and salary not borne by an employer's PE in Japan.²

The full detail on Japan employer obligations sits in our employer contribution in Japan breakdown.

Singapore

The Inland Revenue Authority of Singapore (IRAS) applies a fact-based PE test under the Singapore Income Tax Act and the relevant tax treaties.⁸ Singapore's COVID-era guidance treated unintentional remote presence as PE-neutral. With those temporary measures gone, employees working from Singapore now revert to the standard fixed-place test.

The detail on Singapore employer cost stacks is in our employer contribution in Singapore guide.

India

India's PE analysis under bilateral treaties such as the India-Singapore tax treaty requires physical presence of the service provider in India to trigger service PE. In 2025, the Delhi High Court.⁹

This matters because India's domestic service PE threshold is one of the lowest among major APAC jurisdictions. In one widely-cited Deloitte case, a taxpayer providing services in India was assessed on the basis of just 44 days of in-country presence after excluding vacations and common days.¹⁰

The PE Threshold Snapshot

Each cell above should be read alongside the bilateral treaty in force between the home country of the employer and the host country of the employee. PE rules sit at the treaty level, not the domestic level.

The Cost of Getting PE Wrong

Cross-border tax exposure is now measurable at scale, even where countries do not publish PE-specific enforcement data. The cleanest available proxies:

• The US IRS collected USD 120.2 billion in unpaid assessments in fiscal year 2024, netting USD 77.6 billion after credits.⁶
  
  
• The IRS closed 505,514 tax return audits in the same year, generating USD 29 billion in recommended additional tax.⁶
  
  
• Civil penalties on individual, estate, and trust income tax returns totaled USD 84.1 billion in fiscal year 2024.¹¹
  
  
• The UK HMRC penalty regime for late PAYE escalates to 5% of unpaid amounts at six months overdue and a further 5% at 12 months.¹²

A PE assessment usually arrives as three bills at once: back corporate tax in the host country, late-payment penalties on the corporate filing, and individual income tax reassessment for the employees concerned. Interest accrues across all three from the date of the original trigger, not the date of discovery.

The full cost picture on the payroll side is in our non-compliance and EOR business expansion breakdown.

How an Employer of Record Removes PE Risk

A PE attaches to the foreign employer because the foreign employer is the entity employing the worker in the host country. An Employer of Record is the local legal employer of record, with the foreign company contracting the EOR for the worker's services.

The substitution breaks the chain at the contractual level:

1. The worker is employed locally by an entity that already has a permanent presence in the country.
2. The foreign company has no fixed place of business, no dependent agent acting on its behalf, and no in-country service activity.
3. Payroll tax, social contributions, and statutory benefits are processed under the EOR's local entity, not the foreign employer's.

Slasify holds ISO/IEC 27001 certification, covering data protection, incident response, and compliance audits, which sits underneath every payroll record processed through our Global Payroll platform.

When an EOR Is the Right Answer

Multinational employers facing a remote APAC or EMEA hire have one of four choices: direct hire from the foreign HQ, set up a local entity, engage as a contractor, or hire via an EOR. The PE exposure across the four is structurally different:

The economics of the local entity versus the EOR are covered in detail in this guide of what business owners should know before setting up a foreign entity.

Contractor Risk Is Not PE Risk Avoidance

Engaging a contractor instead of an employee does not eliminate PE exposure. If the contractor acts on behalf of the foreign company in a way that meets the dependent-agent test, a PE can still arise. The classification mechanics are covered in our contract of service vs contract for service breakdown.

Where PE Risk Goes Next

Three things multinational employers should plan for next:

• The 50% threshold is likely to work its way into bilateral treaty negotiations over the next 24 to 36 months. More treaties will adopt the rule, not fewer.¹
• Tax authorities in high-inbound markets (Singapore, Japan, the United Kingdom, Germany, the Netherlands) are most likely to be the first movers on enforcement aligned to the new framework. Hiring into any of these markets without a local employer is now a more expensive bet than it was last year.
• The 37% of organizations with no plan for cross-jurisdiction remote workers is the population most exposed to retrospective assessment, because the framework looks at rolling 12-month windows rather than tax years.¹ ³

The rolling window is the part most employers miss. An employee who crosses the threshold somewhere between two tax years still triggers PE, and the assessment will reach back to the date of first contact, not the date the head office found out.

Frequently Asked Questions

What is permanent establishment risk in 2026?

It is the exposure a foreign employer carries when its activities in another country meet the threshold for taxable corporate presence. The OECD’s 2025 update adds a 50% home-office working-time benchmark, but PE still depends on treaty language, facts and circumstances, and whether the worker’s presence serves a commercial reason in that country.

Can a single remote employee trigger permanent establishment?

Yes. A single employee working from a home office abroad for more than 50% of working time over any 12-month period can meet the OECD fixed-place test. Whether actual tax exposure follows depends on the bilateral tax treaty between the two countries.

How many days can an employee work in Japan before triggering tax exposure?

Japan applies a 183-day rule in any calendar year, fiscal year, or 12-month period. A non-resident is exempt from Japanese income tax only when all three apply: 183 days or less in Japan, salary not paid by a Japanese employer, and salary not borne by an employer's PE in Japan.

Does hiring a remote contractor in Asia avoid permanent establishment risk?

Not automatically. If the contractor habitually concludes contracts on behalf of the foreign company, or meets the local service-PE test, a PE can still arise. Misclassification adds a second layer of exposure on top.

How does an Employer of Record remove permanent establishment risk?

An EOR legally employs workers within the host country, decoupling their daily operations from your corporate tax footprint. By routing payroll, benefits, and local compliance through the EOR's legal entity, your organization avoids triggering direct fixed-place, dependent agent, or service PE liabilities.

What did the OECD's November 2025 update change?

It introduced a 50% working-time threshold over any 12-month period as the test for whether a home office creates a permanent establishment. The older framework relied on facts-and-circumstances analysis. A commercial-reason test was added too, separating employer-required arrangements from employee-preference ones.

Which APAC country has the lowest permanent establishment threshold?

India sits at the lower end, with cases turning on physical presence rather than a fixed day-count. A recent Indian Supreme Court ruling confirmed that personnel must be physically present in the contracting state for service PE to exist under treaties such as the India-Singapore tax treaty.

How does Slasify handle permanent establishment risk for cross-border employers?

We act as the legal employer of record in over 150 countries, holding the local registrations, payroll tax accounts, and statutory benefit obligations directly. The foreign company contracts us for the worker's services, which removes the fixed-place, dependent-agent, and service-PE triggers that come with direct foreign hiring.

Most permanent establishment exposure starts with a remote employee the head office did not realize had moved countries. If the team has hybrid or fully remote workers in any jurisdiction outside the headquarters country, book a 30-minute call with a Slasify expert and we will map current cross-border headcount against PE triggers in each market.

Sources

1. EY. (2025). OECD 2025 Update: New Rules on Permanent Establishment for Remote Work. ey.com
2. National Tax Agency, Japan. (2026). No.12006 Tax on the Income of an Individual as a Non-Resident in Japan. nta.go.jp
3. EY. (2021). EY Global Payroll Survey: How can payroll drive value in organizations with flexibility? ey.com
4. Topia, via HRD America. (2022). International Payroll Management Remains Top Concern for Remote and Hybrid Firms. hcamag.com
5. Ogletree Deakins. (2026). Cross-Border Remote Work and Permanent Establishment: Mitigating Risk for Multinational Employers. ogletree.com
6. Internal Revenue Service. (2025). IRS Releases Fiscal Year 2024 Data Book Describing Agency's Activities. irs.gov
7. UK Office of Tax Simplification. (2023). Hybrid and Distance Working Report: Exploring the Tax Implications of Changing Working Practices. gov.uk
8. Inland Revenue Authority of Singapore. (2026). Tax Residence Status of a Company and Permanent Establishment. iras.gov.sg
9. KPMG. (2025). Physical Presence Required for Service PE Under India-Singapore Treaty. kpmg.com
10. Deloitte tax@hand. (2024). Presence of Personnel in Contracting State Is Required for Existence of Service PE. taxathand.com
11. Internal Revenue Service. (2025). Collections, Activities, Penalties, and Appeals. irs.gov
12. HM Revenue and Customs. (2026). What Happens if You Do Not Report Payroll Information on Time. gov.uk