Remote work has long outgrown its status as a temporary, pandemic-era fix and has settled in as a fully fledged model of work organisation. Companies can bring in specialists regardless of where they are based, and employees can live and work where they choose. From the employer’s perspective, however, this flexibility raises significant tax questions. Unlike payroll taxes, social contributions, and immigration requirements, the corporate income tax (CIT) consequences often go unnoticed until the tax authority identifies them.

The underlying principles

The international tax system rested for a long time on practice that made sense before remote work became the norm. The Organisation for Economic Co-operation and Development (OECD) initially addressed CIT questions through its Covid-19 guidance, but the more significant shift came at the end of 2025, when the OECD Council updated the Model Convention on income and capital. In relation to Article 5, it explains in considerably more detail how remote work affects the creation of a permanent establishment.

Although the OECD Model Convention and its commentary are not legally binding, they carry substantial practical weight. Most bilateral tax treaties between countries - including those concluded by Latvia - are based on this model, so tax authorities and courts rely heavily on the commentary when interpreting treaty provisions.

In an international tax context, a remote worker is an individual who is present and works in a country other than that of their employer. Where an OECD-based tax treaty applies between the countries involved, remote work raises three main CIT questions for the employer:

  • whether the employee’s presence abroad creates a permanent establishment (Article 5);
  • if it does, what share of profit is attributable to it (Article 7);
  • whether remote work requires a review of transactions between related companies (Article 9).

What does this mean for Latvian employers?

Remote work performed from abroad can create CIT risks for a Latvian company even where the company itself has not formally established any operations in that country. In certain circumstances, an employee’s presence in another country can give rise to a permanent establishment, an obligation to attribute part of the company’s profit to it, and transfer pricing questions within the group.

Latvian companies need to consider both the national rules of the foreign country concerned and the applicable tax treaty. Latvia’s tax treaties are, for the most part, based on the OECD Model Convention, so its commentary carries real weight in the practice of the State Revenue Service (VID) and the courts as well. The OECD’s 2025 clarifications provide more detailed criteria for assessing remote work situations, but in every case the outcome still turns on the actual facts.

What matters is not merely which country is named in the employment contract, but where the employee actually works, how regularly and for how long they are present there, what functions they perform, and whether the company has a commercial reason for their location. Within a group, it is also necessary to assess which company actually benefits from the employee’s work.

These questions are best assessed before the employee begins working abroad on a permanent basis. Timely analysis makes it possible to identify potential tax obligations, put the employment and intra-group arrangements in order, and reduce the risk that the consequences come to light only later.

The full article is published in iFinanses and available here. A follow-up will also look at practical scenarios and a specific Baltic example.