Remote work from Spain: when does a home office create a permanent establishment?
The OECD’s November 2025 update to the Commentary on Article 5 sets out, for the first time in nearly a decade, when cross-border remote work creates a permanent establishment. A note on the new framework and how it meets Spain’s traditionally assertive approach.
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- Lullius
For a foreign company with an employee working from Spain, one question now recurs ahead of almost every hiring or relocation decision: can that remote employee create a permanent establishment (PE) of the company in Spain? Until late 2025 the answer rested on two thin paragraphs of commentary and a patchwork of local practice. That has changed.
On 19 November 2025 the OECD published the 2025 Update to the Model Tax Convention, its first comprehensive revision since 2017. The Update rewrites the Commentary to Article 5 on the home office and remote work, replacing the brief guidance that had stood since 2012 with a structured analytical framework. It is important to be precise about what changed: these are revisions to the Commentary, the principal aid to interpreting the PE article of a tax treaty, not to the text of the treaties themselves.
The starting point: remote work is not, by itself, a permanent establishment
A PE under Article 5 requires a fixed place of business through which the business of the enterprise is wholly or partly carried on. The Commentary’s starting point is that remote work does not automatically create one. The mere fact that an employee works from home, or from another location not owned or leased by the company, is not by itself sufficient. Where the activity carried on from that place is merely preparatory or auxiliary, there is no PE.
The two cumulative elements
Beyond that starting point, the revised Commentary turns on two elements, both of which must be present.
The first is time and permanence. Remote work must be carried out with sufficient regularity and continuity. As an indicative benchmark, the Commentary points to a location used for the enterprise for at least 50% of the employee’s total working time over any twelve-month period, assessed by reference to permanence over time rather than isolated stretches. Below that threshold, the place will generally not be regarded as a fixed place of business of the enterprise.
The second, and the more decisive, is the commercial reason. Even where the time threshold is met, the location is treated as a PE only where there is a genuine business reason for the activity to be performed from that particular place, for example proximity to clients or to key business resources. Reasons that are purely personal to the employee, together with flexibility policies, talent retention and cost-saving considerations, are not, on their own, sufficient. The Update also moves away from the earlier test of whether the employer expressly or implicitly required home working, which had produced divergent readings.
How this lands in Spain
Spain is an OECD member, and its tax authority and courts apply the OECD Commentary as the primary aid to interpreting the PE article of Spanish treaties. The domestic concept of a permanent establishment sits in the Non-Resident Income Tax Law (Real Decreto Legislativo 5/2004) and is read consistently with the treaty definition.
The Commentary is guidance, however, not a domestic safe harbour. Spain has historically been among the more assertive jurisdictions on permanent establishment, and the current enforcement posture of the Spanish Tax Agency is firmly substance-driven. In a Spanish audit, the 50% figure will operate as the beginning of the analysis rather than as a bright line; the questions that decide exposure are the commercial reason for the work being performed from Spain and the substance of what is done there. Where a PE is found, the consequences fall on the company: it becomes taxable in Spain on the profits attributable to the PE under the Non-Resident Income Tax, with registration, VAT, withholding and accounting obligations, and the attendant exposure to audit and penalties.
The overlap with the impatriate regime
The same facts can produce two distinct problems at once. A founder or senior employee working habitually from Spain may create a permanent establishment of the foreign company; and, separately, may lose the special regime for inbound workers, which is conditioned on the absence of income obtained through a permanent establishment in Spain (article 93 LIRPF). One set of facts, two assessments: one corporate, one personal. The two should never be analysed in isolation.
What to do before, not after
The practical posture follows from the framework. Map where the work is genuinely performed and why; identify and document the commercial rationale, or its absence, for the work being done from Spain; evidence the home-office share and its purpose contemporaneously, across the relevant twelve-month periods; and align the position with the applicable treaty and with the company’s home jurisdiction. The OECD Update is, on balance, a welcome and relatively taxpayer-friendly clarification. But for work performed from Spain, the clarity it brings at treaty level meets an authority that reads substance closely, and the companies that come through well treat the benchmark as the start of the enquiry, not the end of it.
Lullius is a tax boutique in Palma de Mallorca advising international private clients on Spanish tax, private wealth and tax controversy. The authors contributed the Spain chapter to the tax litigation guides of both Chambers and Partners (Tax Controversy 2026) and The Legal 500 (Tax Disputes Comparative Guide 2026). This note is general commentary, current to June 2026, and is not advice on any particular matter.