Please note: This article provides general information only and does not constitute legal, tax, or immigration advice. Rules vary by country and individual circumstances. Always consult a qualified professional before making decisions based on the information in this guide.
You found the perfect plan. Work from your laptop in Lisbon for three months, keep doing the same job, same hours, same output – just with better weather and cheaper coffee. You pitched it to your manager. They said they would check with HR. And HR said no.
Not “maybe.” Not “let us look into it.” Just no.
If this has happened to you, you are not alone. It is one of the most common frustrations among remote workers in Europe, and it is growing. Companies that were perfectly happy to let people work from home during the pandemic are now drawing hard lines at the border. The reason they give – if they give one at all – usually boils down to two words: permanent establishment.
This guide explains what that actually means, why your employer is scared of it, what the current international guidance says, and – most importantly – what options you still have.
What is permanent establishment?
Permanent establishment – PE for short – is a concept in international tax law. It refers to the point at which a company’s activities in a foreign country become significant enough that the country can tax the company there.
Think of it this way. Your company is incorporated in Germany. It pays German corporate tax. It files German returns. Everything is neat and contained within one jurisdiction.
Now imagine you, an employee of that German company, move to Spain and start working from there full-time. From the Spanish tax authority’s perspective, your company now has someone conducting its business on Spanish soil. If that activity crosses certain thresholds, Spain can argue that the company has a permanent establishment there – and can demand corporate tax on the profits attributable to your work.
This is not about your personal income tax (though that is a separate headache). This is about your employer suddenly owing corporate tax in a country where it has no office, no entity, no accountant, and no idea how the system works.
That is why they said no.
Why employers are so cautious
It is easy to feel that your company is being unreasonable. After all, you are just one person with a laptop. You are not opening a branch office. You are not signing contracts on behalf of the company in Spain. You are just doing your normal work from a different location.
But employers have legitimate reasons to be nervous, and understanding those reasons is the first step toward finding a solution.
The financial exposure is real
If a tax authority determines that your employer has a PE in a foreign country, the consequences are significant:
- Corporate tax liability in the new country, potentially retroactive
- Social security obligations for your employment in that country
- Payroll registration and withholding requirements
- VAT/GST registration in some cases
- Penalties and interest for non-compliance during the period before the PE was identified
For a large multinational, this is expensive and embarrassing. For a small or medium-sized business, it can be genuinely threatening. A company with 50 employees and one person working from Portugal does not have the infrastructure to manage Portuguese corporate tax compliance.
The rules are unclear
There is no single, universal definition of when a PE is created. Different countries have different thresholds, different treaty interpretations, and different enforcement approaches. What is safe in one country might trigger PE risk in another.
This ambiguity is the real problem. Companies cannot get a simple yes-or-no answer, so they default to no. It is a rational response to uncertainty, even if it is frustrating for employees.
The precedent problem
If your company lets you work from Spain, it sets a precedent. What about the colleague who wants to work from France? Or the one who wants to split time between Italy and Croatia? Each additional country multiplies the compliance burden. Many companies have decided that the simplest approach is to allow remote work only within the country where the employee is contracted.
What the OECD guidance actually says
The Organisation for Economic Co-operation and Development (OECD) is the body that sets the framework for international tax treaties, including the definition of permanent establishment. Understanding their guidance helps you assess how real the risk actually is.
Under the OECD Model Tax Convention (Article 5), a PE generally requires a “fixed place of business through which the business of an enterprise is wholly or partly carried on.” Key elements include:
- A fixed place – this means a specific location, not just travelling through
- At the disposal of the enterprise – the company needs some right to use the space
- Through which business is carried on – actual business activities must occur there
- Some degree of permanence – temporary presence generally does not qualify
During the pandemic, the OECD issued updated guidance acknowledging that employees working from home in a foreign country due to COVID restrictions should not, by itself, create a PE. The reasoning was that the arrangement was not a choice of the enterprise but a response to an extraordinary situation.
Post-pandemic, the guidance is less protective. If an employee voluntarily chooses to work from a foreign country, and the employer agrees or acquiesces, the analysis is different. However, the OECD still emphasises that a PE requires a degree of permanence and that the fixed place must be “at the disposal of” the enterprise – meaning the company must have some control over or right to the location.
Your home office in Lisbon, which you chose and which your company has no control over, is generally less likely to create a PE than if the company rented you an office there. But “less likely” is not the same as “impossible,” and that distinction is what keeps corporate lawyers awake at night.
The agent PE risk
There is a second type of PE risk that is even more relevant for remote workers. Under Article 5(5) of the OECD Model, a PE can be created if a person “habitually concludes contracts” on behalf of the enterprise in a foreign country.
This means that if your role involves signing contracts, binding the company to agreements, or making decisions that commit the company – and you do this regularly from Spain – the PE risk increases significantly. Support roles, technical work, and back-office functions carry much less risk than sales, procurement, or executive decision-making.
How much risk are we actually talking about?
Let us put some perspective on this. The risk of PE creation depends on several factors:
| Factor | Lower risk | Higher risk |
|---|---|---|
| Duration of stay | Short-term (weeks) | Long-term (months/years) |
| Regularity | One-off or occasional | Regular pattern |
| Your role | Support, technical, creative | Sales, executive, contract-signing |
| Tax treaty | Exists between countries | No treaty in place |
| Company size | Large multinational with tax team | SME with no international setup |
| Country enforcement | Low-enforcement jurisdiction | Aggressive tax authority (France, Spain) |
A developer working from Portugal for two months while their employer is in the Netherlands is at the low end of the risk spectrum. A sales director who relocates to France permanently and continues to close deals for a UK company is at the high end.
Most remote workers fall somewhere in between – and that is where the uncertainty lies.
What you can do about it
Getting a “no” does not have to be the end of the conversation. Here are practical approaches, from least to most disruptive to your current situation.
1. Negotiate a time-limited arrangement
Many companies will agree to a shorter period abroad – say, 30 or 60 days – even if they refuse an indefinite arrangement. Some have formal “work from anywhere” policies that allow a set number of days per year outside the home country.
Frame your request in terms of what is already allowed. If your company has any international travel policy, that is your starting point. Point out that a business trip to a client’s office abroad is functionally the same as working from your apartment abroad, as far as PE risk is concerned – and most companies allow business travel without a second thought.
2. Propose a specific risk assessment
Rather than asking for blanket permission, offer to fund or facilitate a professional assessment of the PE risk for your specific situation. This means engaging a tax advisor who specialises in cross-border employment to produce a written opinion.
This shifts the conversation from abstract fear to concrete analysis. A professional opinion might conclude that the risk is negligible for your role, your chosen country, and the relevant tax treaty – giving your employer the confidence to say yes.
3. Suggest an Employer of Record (EOR)
If your company’s concern is the administrative burden of foreign compliance, an Employer of Record (EOR) can solve the problem entirely. An EOR is a third-party company that legally employs you in the foreign country on behalf of your actual employer. It handles payroll, tax withholding, social security contributions, and regulatory compliance.
Your employer avoids PE risk because, legally, you are employed by the EOR entity in Spain or Portugal – not by the German parent company. Your day-to-day work, manager, and responsibilities stay the same.
The cost is typically EUR 300–600 per month per employee, which is not trivial – but for companies that want to retain talent, it is often cheaper than replacing someone who leaves. Some remote workers have successfully negotiated to split the EOR cost with their employer.
4. Go freelance or contract
If your employer absolutely will not budge – and you are determined to live abroad – the nuclear option is to leave employment and work as a freelancer or contractor for the same company (and others).
This eliminates PE risk entirely from your employer’s perspective. You are no longer their employee in a foreign country; you are an independent supplier billing them for services. The tax and compliance obligations shift entirely to you.
This is a significant step. You lose employment protections, benefits, paid leave, and social security contributions. You gain autonomy, flexibility, and the ability to work from wherever you want. For some people, it is the best decision they ever make. For others, it is a leap too far.
If you go this route, make sure the transition is genuine. A freelance relationship that looks exactly like employment – same hours, same manager, same single client – can be reclassified as “bogus self-employment” by tax authorities, which creates a different set of problems entirely.
5. Find a remote-first employer
The most lasting solution might be the simplest: work for a company that has already solved these problems. Remote-first companies – those built around distributed teams rather than retrofitted for remote work – have typically invested in the legal, tax, and compliance infrastructure to employ people across borders.
Companies using EOR services, those with entities in multiple countries, or those with explicit “work from anywhere” policies are your best bet. The remote job market in Europe is more mature than it was even two years ago, and the options keep expanding.
The empathy angle – understanding both sides
It is worth taking a breath here and acknowledging something. Your employer is not trying to make your life worse. In most cases, the people saying no are HR professionals and finance teams who are doing their jobs – managing risk for the organisation.
The problem is structural, not personal. International tax law was designed for a world where companies had offices and employees went to them. That world is changing faster than the rules can keep up. Until the regulatory framework catches up with the reality of how people work – and there are moves in this direction, including EU-level discussions about a cross-border teleworking framework – employers and employees are stuck navigating uncertainty together.
The best outcomes happen when both sides approach the conversation with good faith. Bring solutions, not just requests. Show that you understand the risk, that you have done your research, and that you are willing to help make it work. You might be surprised how many doors that opens.
What the future looks like
Several developments are moving in the right direction:
- EU teleworking framework negotiations are ongoing, aiming to create clearer rules for cross-border remote work within the EU
- More bilateral social security agreements are being signed, reducing the compliance burden for employers
- Digital nomad visas across Europe are creating legal pathways that did not exist three years ago
- EOR providers are becoming cheaper and more accessible, lowering the barrier for companies of all sizes
The gap between what technology enables and what regulation permits is narrowing. It is not closing fast enough for most remote workers – but it is closing.
In the meantime, do not take no as the final answer. Take it as the start of a more informed conversation.
Further reading: Using an Employer of Record in Europe | Spain digital nomad visa guide | Portugal D8 visa guide
