The OECD Commentary on the Model Tax Convention (Commentary) November 2025 guidance on home office permanent establishment (PE) clarifies when a home or remote location may constitute a fixed place of business PE under Article 5(1).
The scope of the 2025 update
The 2025 update revises the Commentary on Article 5(1) to address remote working from a home or other relevant place, while making clear that other Article 5 provisions, including dependent agent PE under Article 5(5), must still be analysed under existing principles.
This distinction is critical. In many remote working arrangements involving sales or business development, the dependent agent analysis may present greater risk than the fixed place of business analysis.
The two-stage inquiry for fixed place of business
Where the update provides clarity is in structuring the fixed place of business analysis for home offices.
The first stage introduces a time-based indicator. Where an individual works from a home or other relevant place for less than 50% of their total working time over a twelve-month period, a place of business will generally not exist. This threshold is an indicator, not a statutory safe harbour.
Where the 50% threshold is met or exceeded, the inquiry moves to the second stage. Exceeding the time indicator does not, by itself, result in a PE. The conclusion depends on whether there is a commercial reason for the individual to carry on activities in that State.
A commercial reason exists where the individual’s physical presence facilitates the enterprise’s business. The Commentary gives a non-exhaustive list of examples, including direct engagement with customers or suppliers, cultivation of a local customer base, identification of new suppliers, services that require physical presence (such as training or repairs), and real-time interaction that benefits from proximity or time-zone alignment. The operative concept is facilitation. The location must genuinely enable business activities that benefit from being carried out there.
Conversely, no commercial reason exists where an enterprise permits home working solely to obtain or retain the services of the individual, or solely to reduce costs such as office space. The mere presence of customers in a jurisdiction is insufficient. An employee working remotely while serving clients globally, with only intermittent or incidental contact with local customers, will generally lack the necessary commercial rationale, even if the individual works from home more than 50% of the time.
The “enterprise as person” distinction
The Commentary draws an important distinction between different factual configurations. The precise analytical question is whether the individual is effectively carrying on the enterprise’s business in that State.
For individuals conducting work of a foreign enterprise, a home office will constitute a fixed place of business PE only where both the time indicator and the commercial reason test are satisfied. An individual working from home in another State will not create a PE where the arrangement reflects personal preference and there is no commercial nexus between the enterprise’s business and that location.
Different considerations apply where the individual is the only person, or the primary person conducting the business of an enterprise in a particular State. A non-resident consultant whose consulting enterprise is carried on predominantly from a home office in another jurisdiction would generally create a fixed place of business PE, because the individual is, in substance, the enterprise itself.
This distinction has practical consequences. For example, an employee may not create a PE because there is no commercial reason for the employer’s presence in that State, while an individual carrying on their own enterprise from the same location may create a PE.
The South African context
South Africa is not an OECD member, although it participates in the OECD Inclusive Framework. South African courts have had regard to the Commentary when interpreting double tax agreements, but the Commentary does not have the force of law. The application of the 2025 guidance to treaties concluded before its publication may be subject to debate.
For foreign multinationals with employees or consultants working remotely from South Africa, where an individual is the primary person conducting an enterprise’s business from a South African home office over an extended period, the 2025 guidance points to increased fixed place of business PE risk.
Practitioners should also look beyond Article 5(1). Some South African tax treaties contain services PE provisions that deem a PE to exist where services are performed in South Africa for more than a specified number of days. These rules operate independently of the home office analysis.
The OECD’s 2025 framework represents a pragmatic response to cross-border remote work. The two-stage inquiry, a time-based indicator followed by an assessment of commercial reason, brings structure to the fixed place of business analysis.
However, the guidance addresses only part of the PE question. Dependent agent and services PE risks remain untouched and may be the more significant exposure.
A defensible tax analysis of remote working arrangements requires a holistic review of all PE provisions in Article 5 of the relevant double tax agreement, informed by OECD Commentary and how tax authorities such as SARS are likely to test the facts in practice.
