Permanent establishment
A desk at someone’s home can be enough.
A foreign company hires in France and lets the person work from home. The question follows at once: does that create a permanent establishment? The answer does not fit in one word, because this is not one question but three, and they are not answered together.
See the three questionsThree questions often taken for one.
The first concerns corporate income tax. It is settled under French domestic law first, then measured against the treaty. Domestically, article 209, I du code général des impôts covers businesses carried on in France, and the administration recognises three routes: an autonomous establishment, a representative without independent professional standing, or transactions forming a complete commercial cycle.
The second concerns VAT, and it follows different criteria. A fixed establishment for VAT requires a sufficient degree of permanence and a structure whose human and technical resources allow it either to supply the services concerned or to receive and use services supplied to it. The same presence can therefore be an establishment for one tax and not for the other.
The third concerns social security. It depends on neither of the first two. It is settled by the European coordination regulations, and a company can end up paying contributions in France without holding a square metre there.
Remote work does not sit in one box, then. It cuts across three. And the only way to settle it is to look at what the person actually does, not at the title on the contract.
Three questions, three tests
| Question | Test | Consequence if answered yes |
|---|---|---|
| Corporate income tax | Fixed place of business, or a person with authority to conclude contracts in the name of the enterprise | French taxation of the profits attributable to the establishment, plus accounting and filing obligations |
| VAT | Sufficient permanence and human and technical resources to supply or receive services | The person liable changes on certain transactions, and the customer’s reverse charge ends |
| Social security | European coordination regulations, independent of any establishment | Affiliation in France and French contributions, even with no establishment |
What creates a permanent establishment
For a German company the reference is the Franco-German convention of 21 July 1959. Its article 2, paragraph 7, defines a permanent establishment as a fixed place of business in which the enterprise carries on all or part of its activity, and names among others a place of management, a branch, an office, a factory, a workshop, a mine, and a building or installation site lasting more than twelve months.
The same paragraph also covers the person acting on behalf of the enterprise: that person constitutes a permanent establishment where they hold and habitually exercise authority to conclude contracts in the name of the enterprise. This case needs neither office nor sign on the door. A salesperson who negotiates and closes is enough.
What does not create one
- Storage, display, deliveryA facility used solely to store, display or deliver goods belonging to the enterprise.
- Purchasing and gathering informationA fixed place of business used solely to purchase goods or to collect information for the enterprise.
- Preparatory or auxiliary activitiesAdvertising, the supply of information, scientific research or similar activities of a preparatory or auxiliary character for the enterprise.
- The independent agentA broker, general commission agent or any other agent of independent status acting in the ordinary course of business.
- The subsidiary aloneControlling a company resident in the other state, or being controlled by one, does not by itself make either a permanent establishment of the other.
The list is a guide, not a guarantee. What counts is the activity actually carried on: a job title reading “support” protects nobody who negotiates prices.
Social security follows its own rules
Since 1 July 2023, a framework agreement made under article 16(1) of Regulation (EC) No 883/2004 allows an employee to stay in the social security system of the employer’s state. As at 1 February 2026, twenty-three states have signed it, France and Germany among them.
- The conditionsCross-border telework accounts for less than 50 % of total working time, only two states are involved, and the employee has no other employer.
- The applicationIt is made by the employer to the institution in its own state, which issues the portable document A1 with box 3.11 ticked.
- The termThree years at most, renewable on a fresh application.
- Outside that frameworkThe multi-state rules of article 13 take over: beyond 25 % of the activity in the state of residence, the law of that state applies.
The employer with no establishment in France
Anyone working on French soil falls under the French system once the coordination rules say so, and the employer then has French formalities to complete even without being established there.
article L. 243-1-2 du code de la sécurité sociale provides for exactly this case: an employer whose business has no establishment in France meets its filing and payment obligations with a single collection body designated by order. Added to that are the pre-hiring declaration, the payslip and the applicable employment law.
Who does what
Your side
- The place of work and the shape of the contract
- An honest description of the role: duties, customer contact, authority to commit
- The employment contract and what needs adjusting in it
- Equipping the workplace
FRADECO
- Settling the position separately for income tax, social security and employment law
- Checking whether a permanent establishment arises, and what follows from it
- Registering you as a foreign employer without an establishment
- Running payroll and filing the DSN once that becomes necessary
- Dealing with URSSAF and the tax authorities
Our part
Settling the position in four steps.
- 1Describe the actual workWhat the person does day to day, who they deal with, what they sign or negotiate, and what the company puts at their disposal.
- 2Answer the three questions separatelyIncome tax, VAT, social security: each on its own criteria and each with its own conclusion.
- 3Document the position takenContract, job description, limits of authority, resources provided. It is that documentation which holds up in an audit, or does not.
- 4Put in place what followsRegistrations, French payroll, filings, or conversely staying in the employer state’s system.
The hiring decision is of course yours. We settle the position, put it in writing and put in place what follows: registration, French payroll, filings.
When it pays off: before the contract is signed. A clause written before the hire costs an hour. The same question three years later covers three financial years.
Frequently asked
What we are asked about remote work.
The answers cover the usual arrangements: an employee in France, an employer established elsewhere.
Permanent establishment
Does a single remote employee create a permanent establishment?
Not automatically. It turns on what the person does and what the company has at its disposal. A role in support, market watching or information gathering stays on the preparatory side. A sales role that negotiates and concludes in the name of the enterprise crosses over.
Does the company have to rent the employee’s home for the question to arise?
No, and that is the most common misconception. The test is whether the enterprise has the place at its disposal, not whether there is a lease. Conversely, reimbursed costs or equipment provided can feed the analysis without settling it on their own.
What if the employee signs contracts?
That is the most sensitive point. The convention covers a person who holds and habitually exercises authority to conclude contracts in the name of the enterprise. Authority limited in writing, and respected in practice, does not have the same effect as authority exercised in fact.
Is a permanent establishment for income tax also one for VAT?
Not necessarily. The criteria differ: VAT asks about permanence and about human and technical resources sufficient to supply or receive services. The two findings often overlap, but neither follows from the other.
Social security
Does the employee stay in the employer state’s social security system?
It is possible, subject to conditions. The framework agreement in force since 1 July 2023 allows it where telework accounts for less than 50 % of total working time and only two states are involved. The application is made by the employer.
How long does the authorisation last?
Three years at most, renewable on a fresh application. The portable document A1 issued carries box 3.11 ticked.
And if telework exceeds half the time?
The framework agreement no longer applies. The multi-state rules return: from 25 % of the activity in the state of residence, the law of that state applies, with the contributions that go with it.
In practice
Can an employer employ in France without an establishment there?
Yes. article L. 243-1-2 du code de la sécurité sociale provides for exactly this case: filing and payment obligations are met with a single collection body. Added to that are the pre-hiring declaration and the payslip.
Which employment law applies?
An employee who habitually works in France has the benefit of the mandatory provisions of French law, whatever law the contract chooses. The contract is better drafted from that starting point than around it.
Can a written position be obtained from the administration?
There is a route for it. The “rescrit” procedure allows the administration to be asked about a specific set of facts. It requires a complete file and a faithful description, because the answer binds the administration only on the facts as presented.
What is the exposure if the question is answered wrongly?
An assessment on the profits attributable to the establishment, possibly VAT, and a contributions adjustment. The three come from different authorities and do not start at the same moment, which lengthens the period concerned.
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Related work
The finding decides, the payroll carries it out. Two services share the subject.
Next step
Settle the question
before the contract is signed.
A first conversation describes the role as it really is and says, for each of the three areas, what it triggers in France. We work in French, German and English.
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