The General Financial Directorate confirmed that the home office of employees of a foreign company in the Czech Republic does not, in itself, give rise to a permanent establishment or an obligation to register for corporate income tax. The specific circumstances must always be assessed.

What is crucial for the creation of a permanent establishment?

In particular, what the employees do in the Czech Republic and what authority they have. A higher risk of a permanent establishment arising exists, for example, if the employees negotiate contractual terms, manage part of the business or perform activities that constitute a substantial part of the company’s business operations. Conversely, a permanent establishment generally does not arise in the case of purely administrative and support activities. The important conclusion is therefore that it is not working from home in itself that is decisive, but the employee’s actual role and the nature of the activities performed in the Czech Republic.

Recent developments

In 2025, the OECD updated the rules concerning home offices in its Model Tax Convention and Commentary. It introduced a new two-step test for determining whether an employee’s home office gives rise to a permanent establishment, combining a quantitative criterion (working from home for a substantial proportion of working time over an extended period) and a qualitative criterion, the so-called “commercial reason” (the employer effectively requires the employee to work from home, for example by not providing another office). However, the Czech Republic entered a reservation regarding these changes.

Specifically, the Czech Republic disagrees with introducing the new criteria solely through the Commentary on the Model Tax Convention, without any basis in the wording of Article 5 itself (permanent establishment), and does not consider the type or category of premises used by an employee to be a factor that should play such a fundamental and decisive role in determining whether a permanent establishment has arisen. In practice, this means that the Czech Republic does not consider itself bound by the OECD’s new quantitative or qualitative criteria and will continue to apply its existing, stricter interpretation when assessing whether a home office gives rise to a permanent establishment.

The full text of the reservations and comments submitted by individual OECD member countries, including the Czech Republic, regarding the Model Tax Convention is available in the official OECD publication here.

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