How OECD commentary update impacts taxation of remote working arrangements in Thailand

The OECD released an update to its Model Tax Convention on November 19 2025, introducing changes to the Commentary on Article 5 concerning the concept of permanent establishment (PE) and the impact of remote working arrangements.

The changes clarify the circumstances in which an individual’s home or similar place could constitute a “place of business” of their employer.

The update is particularly welcome in jurisdictions such as Thailand, where the Revenue Department has yet to issue guidance on how it treats remote-working arrangements of individuals with foreign employers.

Article 5 of the convention defines a PE as a fixed place of business through which the business of an enterprise is wholly or partly carried on.

The concept of PE is used primarily to determine the right of a country to tax the profits of an enterprise of another country. Under Article 7 of the convention, a country cannot tax the business profits of an enterprise of another country unless it carries on business through a PE situated therein.

Cross-border remote work has blurred traditional notions of where an enterprise conducts its business. While an enterprise’s head office remains the formal centre of its operations, the increasing use of remote and hybrid work arrangements raises the question of whether the home office or personal accommodation of the employee can constitute a taxable “fixed place of business” of the enterprise.

The changes to the commentary recognise that it is increasingly feasible for individuals to work from a home or other relevant place in a country different from that in which their employer is resident and that this is often a choice of the individual rather than the employer.

The premises used by the individual differ from typical enterprise workplaces, such as offices, because they are not accessible to other employees and remain under the individual’s exclusive control.

The following tests have been introduced in the commentary to provide certainty about when a PE is created by an individual working from a home or other relevant place:

• 50% time-based threshold – if an individual works from a home or other relevant place (second home, holiday rental, home of a friend or relative, etc.) for less than 50% of their total working time within a 12-month period, that location would generally not be considered a place of business of the enterprise. This is meant as a simple first step to deal with the most commonly observed situations. Exceptions to this rule are not anticipated in most situations.

• Commercial reason test – even if the 50%-time threshold is met, a PE does not automatically arise. There should be a commercial reason for the activities to be undertaken in the country where the home is located; e.g., the individual directly engages with customers and suppliers of the enterprise. The commentary gives eight examples of commercial reasons.

If an employee is permitted to work from home or other relevant place simply so that the employer can reduce costs or solely to obtain or retain the services of that individual, these are not considered commercial reasons.

Factors that determine whether a PE exists may still require consideration on a case-by-case basis, such as the degree of permanence of the home office that would constitute a “fixed” place of business and the nature of the activities carried on by the employee.

Paragraph 4 of Article 5 will deem a place not to constitute a PE if the activities undertaken at that place are limited to activities of a preparatory or auxiliary character.

The considerations are also different if an individual is the only person, or the primary person, conducting the business of an enterprise. If, for example, a consultant is present for an extended period in a country and carries on most of the business activities of their own consulting enterprise from a home office, the home office would constitute a place of business of the enterprise.

The application of the 50% time-based threshold and the commercial reasons test are illustrated in these examples.

During a 12-month period, a UK consultant who works in the UK as part of their regular working pattern rents and works from a villa in Phuket for three consecutive months following a holiday stay. Because the individual’s time spent working from Thailand lacks permanence, it cannot be considered a fixed place of business and thus a PE is unlikely.

A software engineer from Malaysia Co works four days per fortnight in a 12-month period (approximately 30%) from a condominium in Bangkok, which he has leased for a one-year term. While his activities are carried on at a location with sufficient degree of permanence, the condo cannot be considered a PE as the engineer spent less than 50% of his working time in Thailand.

An employee of Singapore Co works more than 80% of the year from their home in Thailand and engages in client-facing meetings with clients of Singapore Co in Thailand to provide services to those clients. It is highly likely that the home in Thailand would be considered a PE of Singapore Co, since the employee spends at least 50% of their working time working from their home and Singapore Co has a commercial reason for the individual’s presence in Thailand.

Thailand is not a member of the OECD but is moving through an accession process to become a member. The 2025 commentary update includes changes and additions made to the positions of non-member countries and it is notable that Thailand did not express a position on the update to Article 5 concerning remote working.

It is anticipated that the updated commentary will serve as an important reference for analysing the tax status of remote working arrangements under Thailand’s double tax agreements, in the absence of Revenue Department guidelines on this subject.