New administrative principles issued by the Ministry of Finance clarify the determination of permanent establishments and permanent representatives, including rules for home offices, desk-sharing arrangements, construction projects and digital business activities.
Germany’s Ministry of Finance has published updated administrative principles on the concept and establishment of permanent establishments (PEs) under domestic and international tax law, providing detailed guidance for both resident and non-resident taxpayers engaged in cross-border activities.
The updated circular, issued by the Federal Ministry of Finance (BMF) on 18 June 2026, sets out the administrative framework for determining when a taxpayer has a taxable presence in Germany through a permanent establishment or permanent representative.
Two-step assessment for taxing rights
According to the guidance, the assessment generally follows a two-step process. Authorities must first determine whether a PE exists under German domestic law, particularly Sections 12 and 13 of the Fiscal Code (Abgabenordnung – AO). Where a Double Taxation Agreement (DTA) applies, a second assessment is required to establish whether treaty provisions limit Germany’s taxing rights.
The principles apply to taxpayers with both unlimited and limited tax liability and are intended primarily for cross-border tax situations.
Under Section 12 AO, a PE is generally defined as a fixed place of business or facility serving the activities of an enterprise. The BMF states that four conditions must be satisfied: the existence of a business facility, a fixed geographical connection, a sufficient duration of use and the enterprise’s power of disposal over the facility.
The guidance explains that a business facility may include offices, workshops, individual workspaces and, in certain circumstances, equipment such as laptops. A facility must generally be intended to remain in place for at least six months and be available to the enterprise on a non-temporary basis through ownership, lease or another right of use.
The circular also confirms that a place of management constitutes a PE where key day-to-day management decisions are made. Construction and assembly projects may create a PE if an individual project, or connected projects, exceeds six months under domestic law.
Domestic law and treaty differences highlighted
The BMF provides further clarification on the concept of a permanent representative under Section 13 AO. A permanent representative may exist where a natural or legal person conducts an enterprise’s business on a sustained basis while acting under its instructions, even if no fixed place of business is present.
The guidance highlights several differences between domestic legislation and treaty provisions based on the OECD Model Tax Convention. While German domestic law generally recognises a construction or assembly PE after six months, many tax treaties apply a 12-month threshold. Tax treaties also commonly include a “negative list” excluding facilities used solely for preparatory or auxiliary activities from PE status, an exception not contained in domestic law.
The circular further addresses anti-fragmentation rules found in many modern tax treaties. These provisions are designed to prevent businesses from splitting a unified operation into multiple activities that appear preparatory or auxiliary in order to avoid creating a PE.
Guidance covers modern business arrangements
The updated principles also provide guidance on contemporary business models and working arrangements. In relation to home offices, the BMF states that an employee’s private residence will generally not constitute a PE for an employer because the employer lacks the necessary power of disposal over the premises. However, a management PE may arise where management functions are carried out from the home office. The guidance also indicates that an employer PE will generally not be created where an employee works from home for less than 50% of their working time.
For social media content creators, the BMF notes that influencers will typically establish a management PE at the location where content is planned, produced and uploaded.
Additional examples cover ships, third-party premises and shared workspaces. Mobile ships are generally not regarded as PEs, while permanently moored vessels used for commercial activities, such as hotel or restaurant ships, may qualify. Work performed at a client’s premises will create a PE only where the contractor maintains a sufficiently fixed business presence and carries out its core activities at that location. Desk-sharing arrangements may also constitute a PE where a workspace is reliably available for at least six months.
The updated administrative principles replace previous guidance and provide a consolidated interpretation of Germany’s PE rules under domestic legislation and applicable tax treaties.
