This article was contributed by Aneria Bouwer, Senior Tax Consultant at Bowmans Law Firm. The author examines the OECD’s 2025 update to the Model Tax Convention and its implications for permanent establishment risks arising from cross-border remote work in South Africa.
The views expressed in this article are solely those of the author and do not necessarily represent the views of Africa Tax Review.
OECD Clarifies Remote Work Tax Risks. The Organisation for Economic Co-operation and Development (OECD) has released a major update to its Model Tax Convention, introducing new rules that directly affect how foreign employers are taxed when their employees work remotely from countries such as South Africa.
The update, adopted by the OECD Council on 18 November 2025, is the first major revision since 2017 and responds to the rapid global shift towards remote and hybrid work arrangements.
OECD Clarifies Remote Work Tax Risks: Why the 2025 update matters
According to Bowmans Senior Tax Consultant, Aneria Bouwer, the update focuses on three key areas:
- Remote working
- Natural resource exploration
- Tax dispute resolution procedures
However, the most immediate concern for foreign employers operating with staff in South Africa is the revised treatment of Permanent Establishment (PE) risk.
Home offices now under fresh tax scrutiny
Since COVID-19 lockdowns in 2020, remote cross-border work has grown rapidly. Many employees now perform their duties from home in different countries without ever entering a formal office.
Bouwer explains that while the OECD issued temporary guidance in 2020, that guidance was strictly limited to the lockdown period and is no longer applicable.
With South Africa introducing a digital nomad visa in 2024, many foreign workers are legally operating from the country. However, the visa did not address the big tax risk for employers — the possibility that a remote worker could create a taxable presence for the foreign company.
When a home office becomes a taxable presence
Under the updated OECD guidance, a home office may now qualify as a Permanent Establishment if two core tests are met:
- The employee works from South Africa for at least 50% of their time over a 12-month period
- There is a commercial reason for their presence in the country
If both conditions apply, the foreign company may be forced to:
- Register with SARS
- Withhold PAYE
- Pay corporate income tax in South Africa
Understanding the new “commercial reason” test
The OECD explains that a commercial reason exists when the employee’s physical presence in South Africa directly supports the business operations of the foreign company. Examples include:
- Access to clients
- Local suppliers
- Strategic business resources
However, if the employee is in South Africa only for personal convenience, and not because the company requires them to be there, the PE risk is significantly reduced.
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Why South Africa is now a high-risk jurisdiction for PE exposure
Bouwer notes that many remote workers now spend well over 50% of their time in South Africa, which automatically raises compliance red flags under the new OECD standard.
Where employees:
- Attend meetings locally
- Interact with customers
- Manage operations from South Africa
the likelihood of triggering a taxable presence increases substantially.
What foreign employers should do now
While the new rules bring clarity, they also raise compliance obligations. Foreign companies with staff in South Africa are advised to:
- Conduct PE risk audits
- Assess whether staff presence is employee-driven or business-driven
- Review PAYE and corporate tax exposure
- Obtain employment law advice
- Consider registration with CIPC as an external company, where applicable
Tax justice, remote work, and global enforcement
The OECD update aligns with global efforts to curb profit shifting, tax avoidance, and base erosion, especially as digital work continues to blur geographical boundaries.
South Africa, as part of the global OECD tax network, is expected to apply this new PE interpretation in line with treaty obligations.
Bottom line
The key question is no longer whether an employee works from a home office — but why they are working from that country.
Where business necessity drives the location, tax exposure becomes unavoidable.
Disclaimer:
This article was contributed by Bowmans Law Firm. The opinions expressed are those of the author and do not necessarily reflect the views of Africa Tax Review.
