Employees working abroad – what are the tax issues?

Growing flexibility from IT and technology advancements over the last decade means many desk-based roles can be undertaken from almost anywhere, coining the phrase ‘digital nomads’. But can doesn’t necessarily mean should. Employees working abroad bring serious tax and compliance risks. If mishandled, you could inadvertently trigger a Permanent Establishment in another country, or you could become liable for overseas payroll taxes.  

What is a Permanent Establishment?  

Permanent Establishment (PE) rules differ in different countries but many broadly follow the Organisation for Economic Co-operation and Development (OECD) model treaty wording, and the UK is one of them.  

A PE is when a business has: 

• A ‘fixed place of business’ in another country, or  
• A ‘dependent agent’ working ‘habitually’ on the business’ behalf in that country. 

A fixed place of business needs to be fixed in place and time and have a degree of permanence. It can be: 

• a place of management 
• a branch 
• an office, factory or workshop 
• any project for construction, installation or building site 
• an installation for the exploration of natural resources 
• a mine, quarry, oil or gas well 

A PE creates local tax obligations for that business, which could create situations where your business faces UK and overseas taxes on the same profits or payroll obligations. 

How can employees working from abroad trigger a PE?  

While setting up an office or factory overseas would be an obvious PE trigger, an employee working abroad could also be deemed a PE if, for instance they:  

• work from home, and their home becomes their main workplace 
• perform core business activities 
• negotiate or sign contracts, or 
• are senior decision-makers for your business. 

If the employee’s home is seen as ‘at the disposal’ of your business, it could create a ‘fixed place of business’ and this means a PE in that country could be triggered. 

The OECD issued updated guidance on 18th November 2025 to give more details on when employees working from home overseas could and could not trigger a PE for a business. For instance, an employee working from home overseas for less than half of their working hours will not, on its own, create a PE for the business.  

What about a non-employee working for my business overseas – could they create a PE? 

If a non-employee regularly negotiates or concludes contracts from abroad on your business’ behalf, a PE may be triggered under the ‘dependent agent’ rules. Under case law, the place where contracts are signed is deemed to be a location of a trade. 

Are there any overseas payroll and tax obligations to consider? 

It very much depends on the laws and legislations of the specific country or jurisdiction, but as our Q&A touched on but if an employee works from overseas you may need to: 

• Register a payroll for the employee in the country where they are working from (also called their ‘host country’). 
• Withhold income tax and/or social security (like UK national insurance contributions) from their wages.
• Meet the reporting requirements for short-term business visitors for that country.

There are double tax treaties to consider which can cancel out tax charges on the same employee from occurring in two countries at once, but they are complex, require specialist professional advice and the rules are not always symmetrical in every country. They are best avoided, if at all possible, by putting clear policies in place. 

You should also remind the employee that if they stay in another country for a certain period of time (or sometimes immediately if they intend to stay for a long time when they leave the UK) that they may become tax resident in that country and trigger personal tax, tax reporting or visa and immigration requirements.  

For many countries spending 183 days in a tax year there will trigger tax residency. 

Directors vs employees: are the risks for my business different? 

Companies should be especially cautious about directors working from overseas as directors working overseas can pose a higher risk for your business than employees. When thinking about triggering a PE, a director is more likely to do so because: 

• they are considered key decision-makers. 
• their actions are more likely to represent the will of the business 
• they often engage in strategic activities (like negotiating or signing contracts) 

How you I protect by business from these tax risks?  

There are plenty of things you can put in place to protect your business from the risks of employees working abroad.  

1. Establish formal remote working policies so that employees are aware they  cannot work from abroad without authorisation to do so. 
2. Seek professional advice and implement procedures to document any employees or directors working overseas carefully. There are software solutions  specifically designed to monitor work trips for this purpose and to warn if  employees may become tax resident in another country if their work overseas is  frequent.  
3. Document that overseas work is employee-initiated, not employer-directed (as  this fact pattern is protective against the argument that a PE is triggered). 
4.  Avoid allowing overseas staff or those negotiating on the business’ behalf to sign  or negotiate contracts. 
5. Consult local experts to understand specific country risks. 

Some countries e.g. Germany have issued guidance that a home office alone may not create a PE if the company doesn’t control the workspace. However, this doesn’t protect against all risks. 

Do you have more questions about employees or directors working abroad? 

Contact us on 01753 971 440 or drop us a message via our online contact form for expert, tailored support. 

First published 9 Feb 2026

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This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.

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