Germany's Federal Ministry of Finance has issued updated guidance on Permanent Establishments, clarifying the conditions under which businesses, construction projects, home offices, desk-sharing arrangements and other activities may create a taxable presence under domestic law and international tax treaties.
Germany’s Federal Ministry of Finance has issued updated guidance on the determination of a Permanent Establishment (PE), setting out the administrative principles for assessing when a business presence constitutes a PE under domestic tax law and international tax treaties.
The guidance, published on 18 June 2026, explains the conditions for establishing a PE under section 12 of the General Tax Code and outlines how domestic rules interact with the PE provisions contained in Article 5 of the OECD Model Tax Convention.
According to the guidance, a PE under domestic law generally requires a fixed place of business or facility used for the activities of an enterprise. Key factors include the existence of a physical business facility, a fixed connection to a specific location, a sufficient degree of permanence—typically exceeding six months—and a right to use the facility through legal or factual control.
The document also clarifies that a place of management is considered a PE where the day-to-day management of a business is carried out. Construction and installation projects generally constitute a PE if they continue for more than six months, with related projects potentially aggregated when determining the duration threshold.
The Ministry further explains the concept of a permanent representative, which differs from a PE because it does not require a fixed place of business. Instead, the representative must conduct the business activities of an enterprise on a sustained basis while operating under the enterprise’s instructions.
The guidance highlights several differences between domestic law and treaty provisions. Under the OECD Model Tax Convention, construction projects generally create a PE only if they last more than 12 months. Treaty rules also exclude activities that are preparatory or auxiliary in nature and include anti-fragmentation measures designed to prevent businesses from dividing operations into separate activities to avoid PE status.
The updated guidance addresses a range of practical scenarios, including remote working arrangements. It states that a home office will generally not constitute a PE for an employer because the employer typically lacks sufficient control over the employee’s private residence. However, a home office may qualify as a place of management if key management functions are carried out there.
The Ministry also provides guidance on desk-sharing arrangements, noting that a PE may arise where a business has a reliable ability to access workspace on a regular basis. In addition, premises regularly used by influencers to plan, edit and upload content are generally regarded as fixed places of business and may therefore constitute a PE.
For maritime activities, the guidance clarifies that a vessel in transit does not constitute a PE. However, ships that remain permanently moored and operate as hotels or restaurants may be treated as a fixed place of business due to their long-term location.
