What is a "permanent home"?
The permanent home (German: “ständige Wohnstätte”) is the first of five tests in the so-called tie-breaker rule under Article 4(2) of the OECD Model Tax Convention (OECD-MA). It decides which country counts as the country of residence when a person is fully liable to tax in two states at once under domestic law – for example because they keep their home in Germany while a longer stay abroad also creates a home or habitual abode there.
The official OECD wording (Article 4(2)(a)) reads: “he shall be deemed to be a resident of the State in which he has a permanent home available to him; if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests).” The German Federal Ministry of Finance (BMF) spells out the same concept in its letter of 12 December 2023 on the taxation of employment income under double tax treaties (para. 13): a permanent home means premises that are, by their nature and furnishing, suitable for living, that can be used continuously, and that are actually used on a regular basis.
If a person has a permanent home in only one of the two states, the tie-breaker test ends immediately at this first stage: that state is the country of residence under the double tax treaty (DTA). Only if a permanent home exists in both states does the second stage – the centre of vital interests – come into play (see Tax Residency in Cross-Border Postings for the full cascade).
The 5-stage tie-breaker cascade
Article 4(2) OECD-MA sets a strict testing order – each stage is only reached if the previous one produces no clear result:
| Stage | Criterion | When it decides |
|---|---|---|
| 1 | Permanent home | Decisive immediately if present in only one state |
| 2 | Centre of vital interests | If a permanent home exists in both states |
| 3 | Habitual abode | If the centre of vital interests cannot be determined, or no permanent home exists in either state |
| 4 | Nationality | If habitual abode exists in both or neither state |
| 5 | Mutual agreement procedure | If the person holds both or neither nationality |
In practice, most cases are resolved at stage 1 or 2 – the cascade is rarely followed through to the end. This is exactly where the most common advisory mistake happens: skipping the permanent home test and jumping straight to the centre of vital interests risks incorrect payroll withholding and double-taxation exposure.
What qualifies as a permanent home – and what doesn't?
Per the BMF definition (para. 13, based on German Federal Fiscal Court/BFH case law), a home must meet three conditions at the same time: it must be suitable for living by its nature and furnishing, it must be available for continuous use (accessible at all times, not just occasionally), and it must be actually used regularly. Ownership is not required – a rented apartment qualifies just as well.
A dwelling used as a family home remains a permanent home, per the BMF (para. 13), “until the end of the tenancy or the family's actual move-out” – citing three BFH rulings (23 Oct 1985, BStBl II 1986 p. 133; 16 Dec 1998, BStBl II 1999 p. 207; 5 Jun 2007, BStBl II p. 812) that describe the concept as an “anchor point integrated into the person's general rhythm of life.”
| Qualifies as a permanent home | Does NOT qualify |
|---|---|
| Owned or rented apartment with continuous availability | Hotel room or holiday rental for a few weeks |
| Furnished room usable at any time | Home let to a third party during the absence |
| Family home until the actual move-out | Short stay for vacation, business travel or a course |
Particularly relevant for workation cases: if the German home is let to an independent third party during the stay abroad, it is no longer “available” to the person and drops out as a permanent home – the tie-breaker can then tip toward the host country, provided a permanent home is established there.
When both countries establish a permanent home: the 1-year rule of thumb
If a person keeps their German home and also establishes a second permanent home during a stay abroad, stage 2 of the cascade – the centre of vital interests – decides. The BMF letter (para. 18) sets out two opposing presumption rules: for postings of five years or more, there is a rebuttable presumption that the person's stronger personal ties shift to the host country; for postings of up to one year, there is a rebuttable presumption that personal ties remain in the state of the retained home.
BMF Example 2 (para. 19) closely mirrors a typical longer workation: an employee keeps their German home, the employment relationship with the existing employer continues, and a second home is established during a stay abroad limited to up to one year. The BMF's conclusion: the centre of vital interests generally remains in Germany – regardless of marital status – “because, given a stay in the host state limited to one year, the continuation of the existing employment relationship, and the retention of the previous home in Germany, the personal and economic ties to Germany are usually weightier than those to the other state.”
A practical example from German tax literature (Haufe, practice examples on international assignments) confirms this pattern even more directly for the classic workation case: an employee resident in Germany spends three months in winter in a warmer country and continues working remotely for their German employer, without establishing a home or habitual abode abroad. Result: Germany remains the country of residence under the DTA, since the employee has their home there and is fully liable to tax there. The tie-breaker test ends at stage 1 here, because no permanent home is created abroad at all.
Centre of vital interests: the second stage
If both states confirm a permanent home, the BMF letter (para. 14) requires checking which state the person has "closer personal and economic relations" to. Personal relations cover, per the BMF (para. 15), "in particular family and social relationships, political, cultural and other roots"; economic relations follow income sources and asset position (para. 16). Both categories generally carry equal weight (BFH ruling of 23 July 1971, BStBl II p. 758).
Important for HR teams: anyone who fails to provide the information needed to weigh these factors during the tax assessment procedure risks adverse tax consequences, per the BFH (ruling of 15 February 1989, BStBl II p. 462) – under the heightened cooperation duties of Sec. 90(2) of the German Fiscal Code (AO) for cross-border facts, the burden lies with the taxpayer.
Distinction from the A1 certificate: two separate tests
The permanent home test decides tax residency under the relevant DTA only – it has no bearing on social security jurisdiction. Within the EU/EEA and Switzerland, the A1 certificate under Regulation (EC) 883/2004 separately governs which social security system applies. The two tests run independently: a person can remain tax-resident in Germany (because the permanent home stays there) and still need an A1 certificate for the stay abroad to prove continued German social security coverage.
FAQ
What is the difference between a residence (Wohnsitz) and a permanent home?
The residence under Sec. 8 of the German Fiscal Code (AO) is a concept of German domestic tax law and establishes unlimited tax liability. The permanent home under Article 4(2) OECD-MA is a treaty-law concept that only comes into play in cases of dual residency, to decide which state counts as the country of residence for DTA purposes.
Does a hotel room during a workation count as a permanent home?
No. Per the OECD Commentary and the BMF definition, a home must be available at all times, not just for a short-term purpose. A hotel room or holiday rental for a few weeks regularly fails to meet this test.
What happens if I rent out my German home while abroad?
If the home is let to an independent third party and is no longer available to the owner, it drops out as a permanent home in Germany. For a family home, the BMF treats the permanent home as continuing until the family's actual move-out.
From when is a change of residency presumed during a posting?
For postings of up to one year, there is a rebuttable presumption that personal ties remain in the state of the retained home (usually Germany). For postings of five years or more, the opposite rebuttable presumption applies – a shift toward the host country.
Does the permanent home test also affect social security?
No. It affects tax residency under the DTA only. Social security jurisdiction within the EU/EEA/Switzerland is determined separately via the A1 certificate.
The information provided on this website does not constitute legal advice and is not intended to address any legal issues or problems that may arise in individual cases. The information on this website is of a general nature and is provided for informational purposes only. If you need legal advice for your individual situation, you should seek the advice of a qualified attorney.