For years, U.S. companies and their remote-working employees in France operated in a legal gray area. As we move into 2026, that era of ambiguity has ended. The 2026 French Remote Work Compliance Pivot, driven by the 2025 Update to the OECD Model Tax Convention, has fundamentally changed how corporate tax liability—specifically Permanent Establishment (PE)—is triggered.
What is Permanent Establishment?
A Permanent Establishment (PE) is a fixed place of business through which a foreign company conducts its operations. When triggered, it subjects the foreign company to corporate taxation in that country—in this case, France.
📊 The OECD 50% Threshold Explained
The 2025 OECD Model Tax Convention update introduced a critical new metric: if an employee works remotely from a country for more than 50% of their working time over a 12-month period, this can trigger PE status for their employer in that country.
| Remote Work % | PE Risk Level | Action Required |
|---|---|---|
| <25% | Low | Standard documentation |
| 25-49% | Medium | Enhanced tracking, legal review recommended |
| 50%+ | High / Triggered | Immediate restructuring required |
The 183-Day Connection
This threshold works in parallel with France's existing 183-day personal tax residency rule. An employee who becomes a French tax resident while also triggering PE for their employer creates a dual compliance burden that significantly increases costs.
🏢 Risks for US Companies
When a PE is established in France, the consequences for US companies extend far beyond simple tax obligations. The French tax authorities (Direction Générale des Finances Publiques) have increased enforcement resources specifically targeting remote work arrangements.
Corporate Tax Exposure
France's corporate tax rate of 25% applies to profits attributable to the PE. This includes not just salary costs but allocated overhead and management fees.
Social Security Obligations
French social charges (approximately 45% of gross salary) become mandatory, dramatically increasing total employment costs.
Labor Law Compliance
The employee must be offered a French employment contract with all protections under the Code du Travail, including the 35-hour week and extensive termination protections.
Retroactive Audits
French authorities can audit back 3-6 years. If PE status is determined to have existed historically, back taxes, penalties, and interest accrue.
🛡️ Mitigation Strategies
The good news is that with proper planning, US companies can continue to employ talent in France without triggering PE. Here are the primary strategies we recommend to our clients:
1️⃣ Structured Time Allocation
Require employees to spend at least 51% of their working time outside France. This can include:
- Quarterly travel to US headquarters
- Work from other EU countries (leveraging Schengen mobility)
- Designated "work from anywhere" periods
2️⃣ Independent Contractor Structure
Converting the relationship to an independent contractor model can avoid PE, but this carries significant risks:
- France has strict rules on "disguised employment" (travail dissimulé)
- The contractor must have multiple clients and genuine independence
- Must register as auto-entrepreneur or create a French company
3️⃣ Establish a French Entity
For companies with multiple employees in France or strategic reasons to have a local presence, establishing a SARL or SAS subsidiary provides the cleanest solution—but requires commitment to full French compliance.
🤝 The Portage Salarial Solution
For many US companies, Portage Salarial represents the optimal middle ground. This uniquely French employment structure allows a company to engage talent in France without establishing a PE or subsidiary.
How Portage Salarial Works
A licensed Portage company becomes the legal employer in France. They handle all payroll, social charges, and compliance. The US company pays a service fee (typically the gross salary + 5-15% margin), and the worker receives a fully compliant French employment contract.
| Feature | Direct Employment | Portage Salarial |
|---|---|---|
| PE Risk | High (if >50% in France) | None |
| Setup Time | 3-6 months (entity setup) | 1-2 weeks |
| Ongoing Admin | Full French payroll & HR | Handled by Portage company |
| Cost Premium | Setup + ongoing compliance | 5-15% service fee |
For more on entrepreneur visa requirements, see our guide on ANEF Business Validation for Entrepreneurs.
🛠️ Action Plan for 2026
If you're a US company with employees working remotely from France, or a US worker planning to relocate, here's what you should do now:
- ✓Audit Current Arrangements: Document where all employees are physically working and calculate the percentage of time spent in each jurisdiction.
- ✓Review Contracts: Ensure employment contracts and remote work policies clearly address location requirements and reporting obligations.
- ✓Implement Tracking: Use time-tracking or location-logging tools to maintain records that can demonstrate compliance if audited.
- ✓Consult a Specialist: Engage a cross-border tax advisor familiar with both US and French obligations before the employee crosses the 50% threshold.
🎯 Key Takeaways
- •50% Threshold: Working from France more than 50% of the time now triggers PE risk under OECD 2025 guidelines.
- •Full Compliance Cost: PE status means French corporate tax (25%), social charges (~45%), and labor law compliance.
- •Portage Salarial: A compliant alternative that eliminates PE risk while allowing full-time work in France.
- •Documentation is Key: Maintain detailed records of work location to defend against retroactive audits.
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