Permanent establishments in tax law: New rules on working from home and related matters

The Federal Ministry of Finance (BMF) letter on the concept and definition of a permanent establishment, published on 18 June 2026, marks the first comprehensive revision of the administrative position in more than 25 years. The new permanent establishment decree brings together the extensive case law of the German Federal Fiscal Court (BFH) from recent years (such as the "locker ruling") and contains numerous clarifications regarding modern ways of working, such as working from home, desk sharing and influencer activities. 

What counts as a permanent establishment under national tax law?

According to the Federal Ministry of Finance's letter, a permanent establishment within the meaning of section 12, sentence 1 German Tax Code (AO) requires a fixed place of business or facility directly serving the business of the enterprise and over which the taxpayer has more than just temporary power of disposal. It does not require staff to be employed. However, mere registered addresses or addresses for service that are not actually used by the business itself do not count as permanent establishments.

Geographical and temporal roots as key criteria

The concepts of geographical and temporal roots are now being emphasised. They set out in concrete terms the requirement that the place of business must be used directly for the enterprise's business.

An enterprise may be considered to have geographical roots in particular if it is granted a right to use facilities that is restricted to specific individuals. The Federal Ministry of Finance specifically cites lockers or deposit boxes as examples. Communal areas that are not specifically allocated to the enterprise, however, are not sufficient.

Temporal roots relate to the connection between the business activity carried out and the place of business. In any case, they are deemed to exist if the link between the work carried out and the place where it is carried out is intended to last for at least six months.

Power of disposal as a prerequisite for a permanent establishment for tax purposes

One key criterion that remains is whether the enterprise actually has access to the place of business. This generally requires an independent right of use. However, according to the case law of the German Federal Fiscal Court, the lack of power of disposal may, under certain conditions, be replaced by the enterprise's own business activities on site, for example where the management bodies are the same or where there is ongoing supervision on the contractor's premises.

Desk-sharing and "no floating income"

In the case of desk-sharing models, the Federal Ministry of Finance takes into account whether there is a reasonable prospect of a workstation being used on a regular basis. This may be the case in particular where the number of workstations is determined on the basis of typical office usage and users have sufficient workstations available at all times.

Furthermore, the letter reaffirms the principle that no income that is not attributable to a permanent establishment ("floating income") should arise. There is therefore always a permanent establishment where the management is located.

Permanent establishment under treaty law

The Federal Ministry of Finance highlights several differences between the concept of a permanent establishment domestically and the concept under treaty law. These relate in particular to the exceptions for preparatory and ancillary activities, as well as the requirement that the business activity must be carried out in whole or in part through the permanent establishment.

It is also worth noting that the German position differs from the OECD's interpretation regarding the example of a self-employed service provider as set out in the OECD Model Commentary ("painter example"). In Germany's view, a permanent establishment requires that the trader carries out their own business activities with a fixed local connection at the place of business in question. Accordingly, merely carrying out activities on the premises of a contractual partner is not sufficient. This is illustrated by the example of a cleaning company. Even regularly cleaning customers' premises over a period of several years does not qualify those premises as a permanent establishment if the premises do not serve as the company's own business premises. 

Building sites, constructions and installation projects as permanent establishments: New clarifications regarding the six-month limit

With regard to building sites, constructions and installation projects, the Federal Ministry of Finance sets out the details of how to calculate the six-month limit referred to in section 12, sentence 2, no. 8 German Tax Code (AO). Building or construction begins with preparatory work at the building site. Interruptions lasting more than two weeks may delay the time limit if they are not due to operational reasons and the staff assigned to the project are withdrawn.

At the same time, the letter makes it clear that the mere and exclusive supervision of building sites, constructions or installation projects generally does not constitute a permanent establishment within the meaning of section 12, sentence 2, no. 8 German Tax Code (AO). With regard to the grouping of several projects under treaty law, the Federal Ministry of Finance cites in particular technical and organisational links, as well as the economic unity of the projects, as the decisive criteria.

Representative establishment: Requirements for a permanent representative 

The letter sets out the requirements for a permanent representative under section 13 German Tax Code (AO) and for a representative establishment under treaty law.

Under treaty law, a representative establishment exists where a person habitually enters into agreements or plays a leading role in entering into agreements which are typically adopted without any substantial modification by the enterprise. The Federal Ministry of Finance also points out that numerous German double taxation agreements are still based on the older version of Article 5 (5) OECD Model Convention and continue to require power of attorney to enter into such agreements. Under national law, power of attorney to enter into agreements is interpreted broadly and covers all cases in which a person is authorised to negotiate all the terms of an agreement with binding effect.

Working from home: Typically not a permanent establishment

In the view of the Federal Ministry of Finance, an employee's work from home generally does not give rise to a permanent establishment for the employer. The particular key factor is that the employer generally lacks the power of disposal over private premises. Neither the reimbursement of costs nor the hiring of staff, nor the lack of an alternative workplace, is generally sufficient grounds for a permanent establishment.

The situation may be assessed differently if the employer is actually permitted to use the premises, for example on the basis of a right of access or the option to post other employees there.

A new provision explicitly clarifies that an employee exercising their right to work from home for less than 50 % of their total working hours generally does not constitute a permanent establishment under treaty law. This threshold also applies explicitly to employees in managerial roles.

Influencers and permanent establishments: First provisions of their kind in the Federal Ministry of Finance letter

The Federal Ministry of Finance letter contains its first explicit statements on influencers. These indicate that an influencer who derives income from profits is deemed to have at least one permanent establishment at the location of their management. This will normally be where management is actually carried out.

Premises where audio, visual or audiovisual content is conceived, created, edited or uploaded may count as fixed places of business and, as such, permanent establishments. By contrast, places that are used merely on a temporary basis and not regularly as a set generally do not meet the requirements regarding temporal roots.

Practical implications of the new permanent establishment decree

In this letter, the tax authorities have comprehensively summarised their view on the concept of a permanent establishment in national and international tax law and have further developed this in the light of the latest case law of the German Federal Fiscal Court. In addition to the provisions on geographical and temporal roots, the decree contains the first discrete sections to be issued on working from home and influencers, as well as further details on desk-sharing, building sites, constructions and installation projects as permanent establishments and representative establishments.

For enterprises and their advisers, the letter thus provides an important framework to inform how to assess existing structures. This applies in particular to cross-border activities, arrangements for working from home, sales structures and the use of places of business belonging to third parties. As the tax authorities have now fully documented their position, it is worthwhile to review existing circumstances and processes in light of this and, where necessary, reassess how they fit into the tax regime.