Remote work across borders has become the new normal: employees work from a second home, a rented apartment or their partner’s residence – often in a different country than their employer’s head office. For companies with staff based in the Czech Republic, the key question is whether this location can qualify as a “fixed place of business” and thus as a permanent establishment under the double taxation agreement.

When does a home office become a permanent establishment?

Under the OECD Model Tax Convention, a home office in the Czech Republic may constitute a permanent establishment if:

• the workplace is sufficiently fixed and stable,

• the business activity is carried out there wholly or partly,

• the activity is not merely preparatory or auxiliary,

• the person works there for a significant part of their working time,

• and there is a commercial reason for performing the work in this specific country.

In practice, this means that a long-term home office in the Czech Republic used for core operational functions (management, sales, consulting, IT delivery, etc.) can easily be treated as a fixed place of business.

The Czech view: broader than the OECD approach

From a Czech perspective, the tax authorities apply domestic income tax rules and existing tax treaties strictly. As a result, the Czech Republic may consider a permanent establishment to exist in situations where the OECD commentary would not.

This stricter approach is particularly relevant for service-based businesses and digital models that rely heavily on remote work. Foreign employers who rely only on the general OECD interpretation without understanding Czech practice risk underestimating their exposure to taxes in the Czech Republic.

Interaction with double taxation agreements

If a permanent establishment is created, the profits attributable to that PE are subject to Czech's business tax (corporate income tax) in the Czech Republic. The respective Double Taxation Agreement with the Czech Republic is then crucial to avoid double taxation in the home-office country.

However, applying the respective double taxation rules in a remote-work environment is complex. Profit allocation between the head office and the Czech permanent establishment requires careful analysis of functions, risks and assets, especially when staff split their time between several countries.

What foreign businesses should do

Companies with employees or contractors working remotely from the Czech Republic should:

• assess each remote work arrangement for permanent establishment risk,

• document the business reasons for working from the Czech Republic,

• define responsibilities and decision-making powers clearly,

• review relevant Czech republic income tax rate and compliance obligations,

• and align their policies with the framework of the Double Taxation Agreement with the Czech Republic.

Early analysis and clear documentation can significantly reduce the risk of unexpected corporate tax liabilities and disputes with the Czech tax administration.

Ing. Ondřej Antoš, LL.M.