The definition of a permanent establishment according to the German Federal Ministry of Finance (BMF) letter of June 18, 2026 – practical guidance

The German Federal Ministry of Finance (BMF) letter of June 18, 2026, fundamentally revises the administrative principles regarding the concept of a permanent establishment and aligns them with current Federal Fiscal Court (BFH) case law and the OECD Model Tax Convention 2025. The following is a structured, practice-oriented analysis.

1. What is a permanent establishment – ​​in simple terms

According to German law (§ 12 AO), a permanent establishment is essentially:

"Any fixed business establishment or facility that serves the activities of a business."

This results in four core elements:

1. Business establishment or facility
   This could be an office, a factory floor, a warehouse, a machine, a market stall, or even a laptop with a designated workspace. "Beautiful" office spaces aren't necessary – any physical object or spatial structure that can serve as a basis for business activities is sufficient.
2. Fixed relationship to the Earth's surface (local stability)
   Crucially, there must be a local connection: a specific place where the fixture is located or used. A mechanical connection to the ground is not mandatory, but a certain degree of site-specificity is required (e.g., a ship's permanent mooring, a fixed market stall).
3. Certain duration (temporal stability)
   As a rule of thumb:
   • The facility must be for at least six months to exist in a place or to be intended to remain there for a certain period of time.
   • Even recurring use (e.g., a market stall in the same location at regular intervals) can fulfill this "certain duration".
4. Direct service to business activities and power of disposal
   • The facility must be own entrepreneurial activity It serves a purpose, not just be a capital investment (pure rental does not usually constitute a permanent establishment).
   • There must be one “Rooting” The activity is linked to the location, both spatially and temporally: The company typically uses this facility on a permanent basis.
   • The company needs a not merely temporary power of disposal (Right of use), which cannot be arbitrarily withdrawn unilaterally.

Important is:

• The characteristics are always in the overall picture of the individual case to appreciate, not schematically.
• In addition to this general definition, there are special legal types, such as the place of management, construction and assembly sites and permanent representatives.

2. Place of management as a permanent establishment – ​​requirements and delimitation

2.1 Basic idea

According to Section 12 Sentence 2 No. 1 AO, the following applies: Place of management as a business establishment.
This law ensures that, in the case of business income, always at least one business location exists (“no floating income”).

• Management (§ 10 AO) is the central point of business management:
  The place where the decisive will for day-to-day management is formed and important measures are ordered.
• Basically, there are per company only one place of management, regardless of the legal form.

Typical places:

• For companies: the place where the Managing directors actually manage day-to-day business (this can also be done abroad, in a home office or in third-party premises).
• For "traveling" entrepreneurs without fixed establishments (e.g., professional athletes, performers, referees): regularly the Room Apt as a management office.

2.2 Day-to-day business vs. exceptional business

The demarcation is crucial for locating the place of business.

day-to-day business (relevant for the location of the management):

• All ongoing, recurring decisions of ordinary business operations:
  • operational decisions,
  • Contract negotiations in day-to-day business,
  • Personnel and organizational decisions within the normal framework.
• Scale: Significance and risk in relation to the company's usual business.

Extraordinary shops (not decisive for the location):

• decisions that the Basics of the company:
  • Change in the company's purpose,
  • fundamental financing decisions,
  • exceptional M&A transactions.
• Typical examples: Resolutions from shareholders' meetings or supervisory boards.

The Place of management is therefore the place where the ongoing operational management actually takes place, not necessarily the location of the shareholder resolutions.

2.3 Special situations

• Foreign spaces / Manager's office:
  The place of management may be located in the premises of an external manager or service provider if operational management decisions are made there.
• Home Office:
  • Principle: An employee's home office does not generally constitute a business establishment of the employer because the employee lacks the power of disposal.
  • Exception: If the managing director (e.g., managing director/business manager) performs their operational management functions predominantly from a home office, the Management office lie.
  • These management functions are regularly covered by the agreement. not as mere auxiliary tasks, i.e., working from home can then also permanent establishment under the agreement .

3. Permanent establishment of representatives – domestic and treaty law

The BMF letter clearly distinguishes between:

• Domestic permanent representative (§ 13 AO)
• Permanent establishment under treaty law (Art. 5 para. 5, 6 OECD-MA 2025)

3.1 Domestic permanent representative (§ 13 AO)

persons

• Natural persons, legal entities, partnerships.
• Got to different from the company be (the owner himself cannot be a permanent representative of his own company).
• Corporate officers (e.g., managing directors of a GmbH) can be permanent representatives.

Key requirements (§ 13 sentence 1 AO)

1. Business management for the company
   • Economic activities of any kind for the company; visible to the outside world.
   • No formal power of attorney is necessary.
2. Sustainability
   • Business activities involving Planning and regularity, not just occasional or short-term deployments.
   • Repeated visits to the country (e.g. weekly/several times a month) to obtain orders or make deliveries may suffice.
3. Subject to instructions
   • Objective obligation to follow instructions from the company: The company's will shapes the representative's behavior.
   • No employment relationship is required; self-employed individuals can also be permanent representatives.

Legal examples (§ 13 sentence 2 AO)

• No. 1A person who consistently concludes contracts, brokers deals, or obtains orders.
  – typically sales representatives.
• No. 2: Person who sustainably maintains a distribution warehouse and delivers from it
  – in this exceptional case, the power of disposal over the warehouse is relevant to the representative.

Important:
Unlike a permanent establishment under Section 12 of the German Fiscal Code (AO), a permanent representative requires no permanent business establishmentThe activity of the individual is sufficient.

3.2 Permanent establishment under treaty law (Art. 5 para. 5, 6 OECD-MA)

Dependent representative (Art. 5 para. 5)

A dependent agent permanent establishment exists if a person in the other contracting state acts on behalf of the enterprise:

• usually contracts or a leading role in the conclusion of contracts, which are then regularly concluded by the company without significant changes, and
• these contracts
  • close on behalf of the company or
  • the transfer or use of the company's assets or
  • are aimed at the provision of services by the company.

Other points:

• It takes no power of attorney in the narrow legal sense.
• The decisive factor is the economic dependence (no entrepreneurial risk of their own) and the Ordinary the activity (similar to sustainability).

Independent Representative (Art. 5 para. 6)

• Brokers, commission agents or other independent representatives establish basically none Representative permanent establishment, if they operate within the scope of their ordinary business activities act.
• However, if such a representative acts outside He can establish a representative permanent establishment in his usual business activities for a company.

Relationship to other permanent establishment facts

• Article 5 paragraph 5 (representative permanent establishment) neben the “classic” permanent establishment according to Article 5, paragraphs 1 and 2.
• If the representative works in a fixed business establishment of the company, it may two business locations to give: one through the permanent establishment, one through the activity of representatives.

Home office and representative office

The letter explicitly states:

• A representative office This also applies to work performed exclusively in a home office. arise when the conditions of Article 5(5) of the OECD Model Tax Convention are met.
• The permanent establishment exemptions (Article 5(4) OECD Model Tax Convention, e.g., auxiliary activities) and the anti-fragmentation clause (Article 5(4).1) OECD Model Tax Convention must be taken into consideration.

4. Construction and assembly sites / Construction execution sites

4.1 Domestic: Section 12 Sentence 2 No. 8 AO

Construction and assembly sites are a special case of the concept of a permanent establishment:

• Construction work or assembly – including those that are geographically progressive or floating – are considered permanent establishments if
  • credentials for einzelne Construction/assembly longer than six months lasts or
  • one of several existing concurrently over time Construction work/assembly lasting longer than six months or
  • different consecutive without interruption Construction work/assembly takes longer than six months in total.

Essential points:

1. What is a construction execution?
   • Construction of a building, a facility or parts thereof.
2. What is an assembly?
   • Final assembly or installation/modification of prefabricated parts into a whole.
   • Pure repairs/maintenance work is not considered installation work.
3. Time limits and deadline calculation
   • Start:
     • Construction: from the start of work on site (including preparatory activities such as site setup).
     • Assembly: from the arrival of the first assembly worker; preparatory work is included.
   • End:
     • In the case of construction: completion or final cessation; mere storage of materials/equipment no longer counts.
     • In the case of assembly under a works contract: at the earliest upon acceptance of the finished work.
4. Interruptions
   • Short-term interruptions Weather conditions, strikes, and material shortages do not interrupt the time limit.
   • Longer interruptions (> 2 weeks) for reasons unrelated to the operational process (e.g., official infection control measures) suspend the deadline if staff are withdrawn.
5. subcontractors
   • The working hours of subcontractors are to be attributed to the general contractor.
6. Parallel and subsequent construction sites
   • Not a simple summation separate projects according to letter a.
   • Summary for parallel or immediately successive projects according to letters b and c, if the conditions (occurring simultaneously or without interruption) are met.

4.2 Under treaty law: Article 5 paragraph 3 OECD Model Tax Convention

• Construction or assembly work constitutes a permanent establishment under a tax treaty if it more than twelve months lasts (shorter periods may apply in individual double taxation agreements).
• The principles for calculating time limits within the country apply essentially the same.
• Key points:
  • Construction/assembly supervision alone justified from a German perspective no Contractual construction or assembly permanent establishment (contrary to the OECD Commentary).
  • Several construction/assembly options are possible. a unified construction project They can be combined if there is an economic and geographical connection (overall project).
  • Time spent by subcontractors is also attributed to the general contractor in this case.

5. Practical advice for companies with international employee movements

The German Federal Ministry of Finance (BMF) letter 2026 clarifies many topics that are highly relevant, especially for internationally active medium-sized companies with mobile employees. Some practical key points:

5.1 Typical risk areas

1. Working from home abroad / mobile work
   • Prolonged or predominant work by managers from a foreign home office can be a foreign management permanent establishment justify.
   • For employees without management responsibilities, the employer's power of disposal is paramount; in these cases, a permanent establishment is generally not assumed, but caution is advised in individual cases (e.g., strong involvement in sales activities, home office as a central location).
   • Under treaty law, the following applies: 50 percent threshold Working hours in the home office are considered an important criterion.
2. Traveling employees / project work
   • Recurring, regular assignments abroad – for example in sales or consulting – can
     • either one permanent representative or one Representative officeOr
     • via desk-sharing or dedicated project spaces permanent establishment trigger.
   • The letter emphasizes the Overall assessment the facts (temporal and spatial rootedness, power of disposal, usage structure).
3. Service and management companies
   • A permanent establishment can arise if the commissioning company effectively has a presence on the premises of the service company. own “material and personnel organism” has and there own entrepreneurial decisions meets (e.g., identical management bodies, permanent on-site monitoring).
   • Mere outsourcing of functions without any on-site activity does not, however, constitute a permanent establishment.
4. Construction and assembly projects
   • The 6-month limit domestically and the 12-month limit under treaty law These remain the key thresholds.
   • The clear allocation of interruptions, subcontractor times and follow-up projects makes the assessment more structured, but also more subject to stricter documentation requirements.
5. Working in external premises (e.g. at the customer's site)
   • Pure service provision at the object the customer without their own right of use (cleaning service, typical maintenance operations) regularly justifies no business establishment.
   • However, if the company uses the premises in practice as if they were its own business premises (permanent use, desk sharing with secure access, IT access, own core services on site), a permanent establishment may be created.

5.2 Impact on limited tax liability and the market

The letter clarifies the definition of a permanent establishment both domestically (§§ 12, 13 AO) and in conjunction with double taxation agreements. For the limited tax liability This means in particular:

• More clarity and systematic approach, at which points of connection (place of management, fixed place of business, construction/assembly site, permanent representative) Germany can assert a right to tax foreign companies.
• At the same time, Boundaries sharpened, when certain activities (e.g. preparatory support activities, pure construction supervision, pure rental) not to a permanent establishment and therefore not to limited tax liability.

For the market, this means:

1. Increased need for structured site analysis
   • The multitude of examples (home office, service companies, construction projects, staffing, influencers, ships, etc.) shows that the tax authorities will in the future examine in a more differentiated manner whether and where permanent establishments exist.
2. Stronger focus on functional and risk analysis
   • The clear distinction between primary and secondary activities, the emphasis on "rootedness" and the economic perspective (especially the anti-fragmentation clause) mean that Organizational structures without substance are significantly harder to defend.
3. Increased transparency requirements for international employee assignments
   • Companies with frequent cross-border assignments (project teams, managers, sales) should Travel, deployment and home office structures Document systematically and conduct regular reviews of potential site risks.
4. New focus areas in tax audits
   • It is to be expected that tax authorities – also in light of the new letter – specifically for business locations and permanent representatives They will be looking for, especially at foreign companies with activities in Germany and vice versa.