In-depth analysis: Legal basis of business premises

According to the new BMF letter of 18.06.2026, the legal basis of permanent establishments can be systematically divided into three levels:

1. Domestic law (in particular Sections 12, 13 of the German Fiscal Code and the Income Tax Act)
2. Treaty law (double taxation agreements, Art. 5 OECD Model Tax Convention 2025)
3. Administrative practice and case law (Federal Ministry of Finance letters, Federal Fiscal Court rulings)

In the following, we will explain these basics in detail, but with a practical focus.

1. Domestic basis: Section 12 AO – the definition of a permanent establishment

1.1 Central Standard

The starting point is Section 12 of the Tax Code (AO).
Section 12 sentence 1 AO defines:

"Business premises is every feasts Business premises or Attachment, credentials for is activity one Company serves."

From this, the Federal Fiscal Court (BFH) and the Federal Ministry of Finance (BMF) develop four criteria for the offense:

1. Business establishment or facility
2. Fixed relationship to the Earth's surface (local stability)
3. Certain duration (temporal stability)
4. Direct service to business activities and power of disposal

All features must basically fulfilled be, but are within the framework of a Overall assessment consider.

1.2 Business establishment or facility

Legal basis: Section 12 sentence 1 AO, paragraphs 10 et seq. BMF letter

• Business premises or system is any physical object or every Summary: Key takeaways about intuitive eating of objects, credentials for as Basic Business activities suitable .
• Examples:
  • Office, Factory, Workshop, Warehouse
  • Property, Parking spaces, Company premises
  • Machine Facilities (Wind turbines, Solar systems, Pipelines)
  • Non-personal or anonymized information remains protected by tax secrecy. Disclosure to third parties is only allowed if no identification is possible and both states confirm that no harm to tax administration will occur. "small" Facilities: a message Office corner with Desk, a Laptop an an fest assigned PLATZ

Important:
No "structural facility" in the classical sense is needed. What is crucial is the fitness, to be the basis of a business activity.

1.3 Fixed relationship to the Earth's surface (local stability)

Legal basis: Section 12 sentence 1 AO, paragraphs 11 et seq. BMF letter

• The Business premises . locally associated with a specific place .
• A mechanical send email now with In ground under is not mandatory.
• Exemplary cases with sufficient local Strength:
  • Buildings or Building sections
  • fest installed Facilities
  • continuous installed Vessels or pontoons (Hotel-, Restaurant-, Power plant ships)
  • Marktstände with recurring Location

Even mobile facilities (e.g., mobile sales stands) can be considered business premises if they are used repeatedly in the same location over a longer period of time.

1.4 Certain duration (temporal strength)

Legal basis: Section 12 sentence 1 AO, paragraphs 12 et seq. BMF letter

The time component requires:

• The Relationship to Earth's surface . at least six months consist or
• The Equipment is of from the outset to certainly, at least six months an an Location zu remain (Also when they tatsächlich earlier again deducted becomes).

Special features

• Non-personal or anonymized information remains protected by tax secrecy. Disclosure to third parties is only allowed if no identification is possible and both states confirm that no harm to tax administration will occur. when originally only a message shorter Usage planned war can at actual Usage over at least six months credentials for temporal strength later arise.
• Recurring Activities an the derselb Stars (Z. B. (Market stalls) can credentials for temporal strength fulfill, to when credentials for Usage each only on a daily basis he follows.

1.5 Serving the company's activities and "rooting in"

Legal basis: Section 12 sentence 1 AO, paragraphs 14–23 BMF letter

The permanent place of business must be suitable for the business activities of the company. serve directlyThis requires two things:

1. Pursuing or promoting one's own entrepreneurial activity
   • Print, with or through the power of credentials for Equipment shall a message eigene entrepreneurial activity exercised or promoted.
   • Non-personal or anonymized information remains protected by tax secrecy. Disclosure to third parties is only allowed if no identification is possible and both states confirm that no harm to tax administration will occur. pure auxiliary or Preparatory activities suffice domestic from (different) im Treaty law).
   • Queen Capital utilization ("nakedness Rental particular when is corporate purpose Rental is) serves not right away is own operational activity im Senses is Definition of business premises.

2. Rooting the activity in the place
   The entrepreneurial activity . with In Location "rooted" be:

   • Spatial rootedness:
     Es consists a message concrete Bond is activity zu this Furnishings, etwa through the power of
     • excluding or limited number of persons Use Rights (own Office corner, Locker, Locker),
     • continuous to Disposal standing Jobs (Also im Desk sharing, when a message reliable Usage option consists). Common areas without any assignment justify dagegen regularly no Business premises.
   • Temporal rootedness:
     The activity . on at least six months am Location created breast or the over this Period develop.
     Daily/regular Usage over an Period away weighs heavier as only localized Calls.

1.6 Power of disposal

Legal basis: Paragraphs 24–36 of the Federal Ministry of Finance letter

In addition to suitability and use, the company needs a not merely temporary power of disposal about the facility.

Content:

• Independent right of use:
  • A legal or factual Position, credentials for not any and without Participation some Company withdrawn great can.
  • Basis can Property, Rent, lease or to a message implied Permission .
• The Company . credentials for Equipment in is for seine activity required Way can use it at any time (Enter, Linger, (Taking action).
• None compelling Sole disposal necessary; Shared use suffices, when the Company over "his" Sphere of use the verfüg can.
• None Power of disposal is for, when is Authorized users credentials for Usage to unilaterally and completely prohibit at any time can (Z. B. in tolerated Usage without secured Legal position).

2. Legally designated types of business establishments (§ 12 sentence 2 AO)

Section 12, sentence 2 of the German Fiscal Code (AO) lists typical types of business establishments. "in particular" – This list is not exhaustive. Important examples:

1. Place of management (§ 12 sentence 2 no. 1 AO)
2. branch offices, offices
3. factories or workshops
4. Warehouses, purchasing or sales outlets
5. Mines, quarries, extraction sites
6. Construction work or assembly (§ 12 sentence 2 no. 8 AO)

Legal significance:

• The Numbers 2 6 are declaratory: you goals in advance, dass credentials for general Requirements some § 12 Sentence 1 AO erfüllt .
• The Numbers 1, 7 and 8 are expanding:
  you can a message Permanent establishment always dann justify, when not Elements "firm Business premises im narrower Sinn are present (Z. B. site is Management, Mineral resource extraction Construction/Assembly).

3. Place of management (§ 12 sentence 2 no. 1 AO in conjunction with § 10 AO)

3.1 Concept and Function

Legal basis: Section 12 sentence 2 no. 1 AO, Section 10 AO, paragraphs 41–47 BMF letter

• General Manager is is central point of business management.
• Relevant Location is there, wo
  • is managing director Will educated shall and
  • credentials for current Measures of some importance angeordnet .

Meaning:

• Each commercial Taxpayers effect at least one management establishment (no) floating income").
• The applies to for "travelers" entrepreneur without feasts Business premises.

3.2 Demarcation according to the type of decisions

• Day-to-day business (decisive for the location of the management):
  • Ongoing, recurring operating Decisions,
  • typical Expertise is Managing Director without Shareholder resolution.
• Exceptional deals (not decisive):
  • Fundamental decisions to Corporate policy,
  • Structural measures, basic Capital measures
  • decisions with outstanding more economical Meaning, credentials for typically on shareholder level hit .

The place where most of the day-to-day business The place of management is controlled – regardless of the formal articles of association.

3.3 Special features: unfamiliar spaces, home office, international cases

• The site is General Manager can the
  • in rooms Service or management company,
  • in office space one external Managers or
  • im Home Office is Management representative condition, when there credentials for laufende Corporate management tatsächlich exercised is.

Under treaty law (Art. 5 OECD-MA), a permanent establishment may also arise if the management functions are not to be classified as auxiliary activities.

4. Construction and assembly sites (§ 12 sentence 2 no. 8 AO)

4.1 National regulations

Legal basis: Section 12 sentence 2 no. 8 AO, paragraphs 48–60 BMF letter

Construction and assembly operations constitute a separate type of business establishment, even if not all elements of the general definition are met.

Facts of the case:

• Construction work or Installation to locally progressively or floating
• shall Business premises, when
  • credentials for einzelne Construction/Assembly longer as 6 months Dauert or
  • a message of more Parallel current Construction work/assembly longer as 6 months Dauert or
  • different without Interruption on each other the following Construction work/assembly together longer as 6 months take.

Important details:

• Start: with the first Work near Location (including Site setup, Engineering near Location).
• End: with Completion or more final Setting is Work.
• Interruptions:
  • Short term (Weather, Material shortage Strike): both man credentials for Deadline higher than this.
  • Longer, not operational Interruptions (> 2 Weeks z. B. official (Orders): both man credentials for Deadline when Staff deducted is.
• Times of subcontractors great In General contractor added.

5. Permanent Representative (§ 13 AO)

5.1 Function of Section 13 AO

Legal basis: Section 13 AO, paragraphs 61–69 of the Federal Ministry of Finance letter

The term "permanent representative" is a independent connecting factor, especially for:

• limited Tax liability (§ 49 Abs 1 No. 2 Letter. a EStG),
• foreign income at unlimited Tax liability (§ 34d No. 2 EStG),
• certain Regulations some Foreign Tax Act.

Significant:
A permanent establishment according to § 12 AO requires a permanent facility, the permanent representatives according to § 13 AO notBoth concepts exist side by side.

5.2 Elements of the Offense

A permanent representative is a person who

1. business of a company is concerned,
2. this sustainable do and
3. there Instructions some Company is subject to.

Sustainability:

• Repeated, scheduled Take action, not only sometimes or short term.
• Z. B. regular visits im inland to Order acquisition or Distribution.

Obligation to follow instructions:

• Objective Dependence on instructions, no Employment relationship necessary.
• critical is dass is Will some Company the Act some representative shapes.

Examples (§ 13 sentence 2 AO):

• Persons, credentials for for a Company sustainably conclude or broker contracts, or Obtain orders.
• Persons, credentials for a distribution warehouse the Unterhalt and daraus deliver (if the Warehouse not always as Permanent establishment to § 12 Sentence 2 No. 5 AO applies).

6. Legal basis under the agreement: Article 5 of the OECD Model Tax Convention 2025

6.1 Basic definition of a permanent establishment under a tax treaty

Legal basis: Article 5(1) OECD Model Tax Convention, paragraphs 70 et seq. Federal Ministry of Finance letter

Article 5(1) of the OECD Model Tax Convention defines:

"Business premises is a message feasts Business equipment, through the power of credentials for credentials for business activity one Company whole or partially exercised becomes."

Essential points:

• Structure similar Construction Who § 12 AO (fixed Business equipment, feasts Relationship, Duration, exercise is Task).
• The deutsche Administration and is Bfh put Art. 5 Abs 1 OECD-MA in light of the principles relating to Section 12 of the German Fiscal Code (AO) off sodass extensive accordance consists.

Difference to § 12 AO:

• Under treaty law enough es not, dass credentials for Equipment abstract is activity serve could; es . a message actual practice is business activity "through" credentials for Equipment respectively.
• Activities in preparatory Discover African or Auxiliary tasks can over Art. 5 Abs 4 OECD-MA from In Definition of permanent establishment fall out.

6.2 Special features: Negative list and ancillary activities (Art. 5 para. 4 OECD-MA)

Legal basis: Article 5(4) OECD Model Tax Convention, paragraphs 94–103 of the German Federal Ministry of Finance letter

Article 5, paragraph 4 contains a Negative catalog:
Certain facilities (e.g., warehouses) are considered – despite fulfilling the basic criteria – not as a business establishment, if in them exclusively preparatory or auxiliary activities be exercised.

• Domestic (§ 12 AO) are es no Solchen Negative catalog.
• Consequence:
  • A Equipment can domestic Permanent establishment be, treaty law but for Art. 5 Abs 4 OECD-MA not.
  • Im Inbound case: Germany hätte to domestic Law a right to tax, the but through the power of the DBA cut off is.
  • Im Outbound case: Germany retains the right to tax, when im Ausland lack treaty law Permanent establishment no right to tax arises.

The classification as Main activity or Auxiliary work This is done based on the company's purpose, its overall function, and the importance of the activity in the business model.

6.3 Construction and assembly sites (Art. 5 para. 3 OECD-MA)

Legal basis: Article 5(3) OECD Model Tax Convention, paragraphs 81–93 of the German Federal Ministry of Finance letter

• Under treaty law shall a message Construction work or Installation only after exceeding a 12-month period to Permanent establishment (provided the DBA not shorter Deadlines (provides).
• The domestic Rules of procedure for § 12 Sentence 2 No. 8 AO (Start/End, Interruptions, Subcontractor times) great largely analogous applied.
• Other as in § 12 AO great different construction projects only dann In summary, when technical, economic and organizational context consists (Overall project).

6.4 Permanent establishments of representatives (Art. 5 paras. 5–8 OECD-MA)

Legal basis: Article 5, paragraphs 5 and 6 of the OECD Model Tax Convention, paragraphs 107–124 of the German Federal Ministry of Finance letter

The treaty-based permanent establishment of representatives is an independent concept:

• Es can a message Permanent establishment give, without dass a message feasts Business premises i. S. some Art. 5 Abs 1 OECD-MA is present.
• Facts of the case:
  • A dependent representative closes usually Contracts or plays credentials for leading Rolle in the Conclusion of contract, and
  • this Contracts are In Company economically to be attributed to

At the same time:

• Independent representatives (Broker, Commission agents) justify in principle no Business premises, solange they im Frame ihrer ordinary business activities act.
• Act they for a Company outside ihrer usual Task, can a message Permanent establishment arise.

Special feature of German double taxation agreements:

• Many deutsche DBA use or credentials for ältere version (no explicit "leading "Role" criterion Who im OECD-MA 2017 / 2025).
• The German reservations OECD Commentary great taken into account, z. B. "painter example“ and to Construction supervision.

7. Administrative practice and application rules

7.1 New BMF letter 2026 as an administrative regulation

The BMF letter dated June 18, 2026:

• Systematized credentials for previous Jurisprudence and Administrative practice.
• replaced frühere Administrative statements Definition of permanent establishment partially and refers for credentials for Allocation of profits from permanent establishments the weiterhin on credentials for Administrative principles to Allocation of profits from permanent establishments (VWG BsGa).
• applies in all open cases, provided not specific legal regulations oppose.

In practical terms, this means:

• The Financial administration shall Site issues future closely aligned with the criteria presented in this letter align.
• Many Borderline cases (Home office, activity in strange rooms, Service and Management companies, Staffing, ships, Influencer) are expressly regulated and damit "ready for exam".

8. Interaction of domestic law and treaty law

8.1 Two-stage examination

In cross-border situations, to test in two stages:

1. National level

   • Lies a message Permanent establishment to § 12 AO or a constant representative to § 13 AO in front?
   • When no: no domestic right to tax on this Basis.
   • When Yes: in principle German right to tax (Inbound) or foreign Permanent establishment (Outbound).

2. Treaty law level

   • Becomes this right to tax through the power of a DBA limited?
   • Lies a message permanent establishment under the agreement to Art. 5 OECD-MA or is appropriate Double Taxation Agreement (DTA) regulation in front?
   • To grab exceptions (art. 5 Abs 4) Anti-fragmentation, special rules for representative etc.?

Result:

• Only when both levels erfüllt are (domestic) Permanent establishment and no DTA restriction), colors es to taxation is Permanent establishment profits in Deutschland

 

These legal principles form the framework within which every specific question regarding permanent establishments – be it home office, project work abroad, construction projects, service centers or representative structures – must be examined.