Home Office in Portugal and Permanent Establishment Risk: What Changed in the OECD 2025 Commentary?

As remote work becomes a permanent feature of global employment strategies, companies with staff based in Portugal increasingly ask whether a home office in the country can trigger permanent establishment (PE) exposure. Until recently, the OECD Model Tax Convention offered limited and sometimes ambiguous guidance, particularly in the context of widespread teleworking.In November 2025, the OECD released updated Commentary on Article 5(1) introducing a more structured and objective framework for assessing whether a home office in Portugal, or in any other jurisdiction,may constitute a fixed place of business. For foreign employers with remote workers in Portugal, these developments are highly relevant and should inform tax risk assessments, workforce design and corporate governance.

This article summarises the main changes and their implications for multinational groups.

1. Why the 2025 OECD Update Matters When it Comes to Home Office in Portugal

Before 2025, the OECD’s discussion of home-office-related PE issues relied heavily on the 2017 Commentary, particularly paragraphs 18 and 19. These passages were often criticised for being conceptually useful but operationally vague. The explosion of remote work between 2020 and 2024 made these limitations more acute.The 2025 update introduces objective indicators aimed at promoting greater legal certainty and uniform interpretation among tax authorities, including Portugal’s Autoridade Tributária. This represents the most significant clarification on remote-work PE issues since the post-BEPS revisions.

2. The Core Criterion: Does the Home Office Facilitate the Enterprise’s Business?

Under the new Commentary, the key question becomes whether the individual’s physical presence in Portugal materially facilitates the enterprise’s activity in the jurisdiction. A home office is not automatically a PE merely because an employee or contractor performs duties from home.However, a PE may exist where:

• The work performed from the home office is regular, continuous and essential to the core business of the enterprise;
• The enterprise benefits economically from the individual’s presence in Portugal;
• The organisation expects or requires the work to be carried out in Portugal, even in the absence of formal premises.

This marks a shift towards a substance-over-form analysis while retaining the legal structure of Article 5(1).

3. Objective Indicators Introduced in 2025

The updated Commentary includes a set of indicators designed to avoid the proliferation of “micro-permanent establishments” while still capturing cases where a foreign company effectively operates through a stable presence.Key elements now considered include:

1. Degree of Employer Involvement: whether the enterprise instructs, encourages or organises the work so that it is carried out from Portugal.
2. Functional Integration: whether the tasks performed in the home office are integral to the enterprise’s main activities, rather than incidental or auxiliary.
3. Stability and Continuity: whether the home office is used on a sustained basis for business purposes, as opposed to being a temporary or incidental arrangement.
4. Benefit Derived from the Host State: whether the company makes use of Portugal’s infrastructure, workforce, regulatory environment or other economic advantages through the presence of the remote worker.

These elements significantly expand the analytical framework available to taxpayers and authorities.

4. What Does Not Automatically Create a PE in Portugal

The OECD clearly intends to avoid an overly expansive approach. In line with this, the following situations generally do not amount to PE:

• The individual unilaterally chooses to work from home in Portugal for personal reasons;
• The enterprise has not requested or required work to be performed from Portugal;
• The home office does not provide a meaningful advantage to the enterprise’s business operations;
• The individual’s activities are of a preparatory or auxiliary nature.

This is consistent with existing PE doctrine but now more explicitly articulated.

5. Implications for Foreign Companies With Remote Workers in Portugal

The 2025 Commentary does not change the legal definition of PE under Article 5(1), but it changes how authorities will apply it. Companies with remote staff in Portugal should:

• Re-examine remote-work policies in light of the new indicators;
• Assess whether certain functions performed from Portugal could be considered core to the enterprise;
• Document the voluntary nature of the remote-work arrangement, where applicable;
• Review contractual structures, reporting lines and performance expectations;Implement internal guidelines to ensure consistency across jurisdictions.
• Groups with high-value functions performed in Portugal (management, R&D, product development, or client-facing operations) should undertake a more detailed risk assessment.

6. A More Predictable Framework, but New Risks on the Horizon

The OECD’s 2025 update signals an intention to provide certainty while accommodating the realities of remote work in Portugal and globally. At the same time, it underscores that remote presence can, in some cases, justify a departure from the residence-based taxation norm when economic substance in the host state is sufficiently strong.

Digitalisation and workforce mobility will continue shaping PE standards. Companies with employees or contractors regularly working from Portugal should anticipate increased scrutiny and ensure proactive compliance.

The information contained in this article is provided for general informational purposes only and does not constitute legal, tax, or professional advice. The analysis reflects the OECD Commentary and international tax principles in force at the time of publication and may not address all relevant facts, circumstances, or future legal developments.

Readers should not act or refrain from acting on the basis of the content presented herein without seeking appropriate professional advice tailored to their specific situation. MCS makes no representations or warranties regarding the accuracy, completeness, or applicability of the information, and shall not be liable for any losses or damages arising from reliance on this material.

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