However, at a certain point this activity may create a tax presence.
A tax presence means that the local tax authorities consider your business as local enough to tax you — even if you have no legal entity, branch, or registration. In tax treaties this is called a permanent estabishment, but the concept is broader.
If your activities create a tax presence, this can trigger obligations such as:
corporate income tax on locally attributable profits
local bookkeeping and reporting requirements
registration with tax authorities
penalties or retroactive tax assessments if risks are missed
The difficulty is that tax presence is not always obvious.
Many companies assume that “no company” automatically means “no tax”, which is not always correct.
Tax presence risks often arise when a company:
has employees or directors working from another country
uses local sales agents or representatives
carries out long-term projects or on-site activities
operates warehouses or fixed facilities
manages local operations from a home office
Whether these activities create a tax presence depends on how authorities apply these tax rules in practice.
Questions around tax presence in Germany typically involve several authorities, each with a clearly defined role.
Audits and assessments are handled by the local tax offices (Finanzamt), which have broad discretion in assessing the factual reality of business activities carried out in Germany (link).
For international and treaty-related matters, the Federal Central Tax Office (Bundeszentralamt für Steuern) plays a coordinating role, particularly in cross-border cases and information exchange (link).
Disputes are resolved through the tax courts (Finanzgerichte), with final rulings issued by the Federal Fiscal Court (Bundesfinanzhof, BFH), whose case law is central to German tax practice (link).
German tax presence assessments are strongly influenced by court decisions, supported by detailed administrative guidance issued by the Federal Ministry of Finance.
Remote work and home office arrangements have become a key topic in German tax presence discussions, particularly since the COVID period.
According to BFH case law discussed extensively in professional commentary, a home office can only constitute a permanent establishment if it is at the disposal of the foreign employer and forms an integral part of the business operations. Mere acceptance of remote work from a private residence is not sufficient on its own (link).
During the pandemic, the Federal Ministry of Finance issued guidance confirming that temporary home office arrangements caused by exceptional circumstances would generally not create a permanent establishment. However, this administrative tolerance does not automatically extend to permanent or structurally embedded remote work (link).
As a result, long-term remote work from Germany is now increasingly assessed on a case-by-case basis, with particular focus on whether the employer effectively uses the home office as a fixed base.
Germany has a long-standing and well-developed body of case law on dependent agents and sales-related activities.
In several BFH decisions, sales representatives who did not formally sign contracts were nevertheless found to create a taxable presence when they played a decisive role in negotiations, pricing or customer acquisition. German courts consistently focus on economic substance rather than formal signing authority (link).
Activities described as marketing or customer support are therefore closely scrutinised when they are directly connected to revenue generation.
Scrutiny by German tax authorities typically increases where remote work becomes permanent rather than temporary, where local personnel are involved in core operational or commercial functions, where sales activities go beyond promotion into negotiation or deal structuring, or where projects show continuity instead of isolated execution.
These factors are usually assessed cumulatively, with strong emphasis on the actual day-to-day conduct of business.
If tax presence is established, Germany may levy corporate income tax and trade tax on profits attributable to German activities. This is typically accompanied by extensive bookkeeping, documentation and profit attribution requirements.
Retroactive assessments are common once a permanent establishment is identified, and disputes over profit allocation can become complex and resource-intensive.
In Germany, incorporation often becomes the cleaner option once activities are intended to be permanent, when local staff perform functions close to value creation, when sales or operational control is exercised locally, or when the administrative burden of operating without a formal entity outweighs the flexibility of a remote structure.
At that stage, a German subsidiary or branch usually provides greater legal and tax certainty than continuing to operate in an undefined tax presence situation.
Across tax systems, the assessment of tax presence typically follows a consistent set of underlying principles:
Substance over legal form
Actual business activities and economic reality carry more weight than contractual labels or formal structures.
People and decision-making
Where key individuals work, negotiate, manage operations or make decisions is often decisive.
Continuity and regularity
Ongoing or recurring activities are treated differently from occasional or incidental involvement.
Economic value creation
Where value is created, managed or controlled is a central factor in tax attribution.
These principles explain why the absence of a legal entity does not automatically eliminate tax exposure.
Tax presence risk is most commonly associated with the following types of activities:
Employees or directors working structurally from another jurisdiction
Sales personnel or agents with decision-making authority
Long-term or recurring on-site projects
Fixed places of business such as offices, warehouses or workshops
Home offices used as a regular base for business operations
The decisive factor is rarely a single activity, but rather the combination, duration and functional role of these activities.
Certain activities are widely regarded as preparatory or auxiliary and typically do not, on their own, create tax presence:
Occasional business travel
Pure marketing or promotional activities
Independent agents acting in the ordinary course of their business
Short-term presence without operational continuity
Supporting functions without decision-making authority
Risk may still arise when these activities evolve or are combined with more substantive functions.