Middle East Employee Mobility Is Corporate Strategy Challenge

The current conflict in the Middle East is having an economic ripple effect throughout the region affecting multinationals. This series examines the impact the conflict is having on corporate tax practice and tax administration there.

Remote work has moved from novelty to necessity. What began as an emergency response during the pandemic is now embedded in how multinational enterprises recruit, retain, and protect talent.

For Middle East-based businesses, especially those operating in an environment of heightened geopolitical uncertainty, the ability to decouple work from a fixed location is no longer just an HR perk; it’s a core resilience strategy.

In regions affected by political instability, sanctions, or security threats, location-agnostic workforces help maintain operations and protect personnel. Some Middle Eastern groups have responded to recent conflicts by relocating entire teams to Asia, with initial short-term moves becoming long-term for some employees, who now hesitate to return and consider moving elsewhere.

This new pattern—rapid group relocations, followed by individual onward moves—is testing tax and regulatory frameworks that were never designed for it.

Framework for Yesterday

The classic model of international mobility assumed structure and predictability: secondments, long term assignments, permanent transfers with defined duration. Tax treaties, social security coordination rules and corporate tax concepts such as permanent establishment were developed around that paradigm.

Middle Eastern multinational enterprises are now dealing with something very different:

• Teams moved at short notice from the Gulf to Asia or Europe “for a couple of months”
• Individuals who then choose to stay on or relocate again, often without a formal assignment
• Core functions such as finance, IT, trading, and risk suddenly being performed outside the region, sometimes without a clear paper trail.

A single employee working remotely from another country can create a permanent establishment risk, triggering local payroll and social security obligations for the employer, and this risk grows with more employees. Existing rules often assume cross-border work is intentional and managed, but that’s increasingly not the case.

The recent experience of Middle East–headquartered groups illustrates the problem in very practical terms and exposes the limits of the current OECD Model Tax Convention framework.

Read more: Gulf Conflict Creates Tax and Liquidity Risks for Multinationals

Mass Temporary Relocations

In response to the regional instability and armed conflict, some organizations moved a large portion of their workforce to “safe harbor” countries in Asia or Europe, often under informal internal guidance rather than formal assignment letters. Initially, the plan was to operate remotely for one or two months.

With uncertainty on the ground, temporary work arrangements were extended. Some employees chose not to return and explored moving to other hubs or employers without clear timelines or tax planning.

Corporate tax and mobility teams must then retroactively assess tax residence changes, possible permanent establishment creation under local rules, income sourcing across jurisdictions, and applicable social security systems.

Fault Lines

This sequence—emergency move, extended stay, individual onward relocation—exposes several fault lines that the updated OECD Model Tax Convention Commentary addresses only in part.

Core decision making or revenue generating activities performed from a host country can support a permanent establishment claim by local tax authorities, particularly where entire functions have been relocated. The MTC Commentary, while clarifying when a home office or remote working arrangement might constitute a permanent establishment, still leaves significant judgment calls where “temporary” relocations become semi permanent.

For example, it remains unclear how working days should be calculated, how profit allocation is to be assessed, or how the rules apply to senior executives and the extent to which their work abroad may impact the company’s tax residency.

Employees who planned brief stays may unintentionally meet residency rules abroad, risking dual residence and complex treaty tie‑breaker tests. The MTC Commentary provides guidance, but applying “center of vital interests” during emergency relocations remains unclear. Bonuses, incentives, and equity earned during relocations often require allocation across countries, with payroll and reporting duties in each.

The MTC framework outlines employment income allocation but isn’t designed for fast, multi-country relocations triggered by security issues. Regional or cross-border transfers can leave employees between systems when pension and benefits don’t match their work pattern. Since social security depends on separate bilateral agreements, the MTC doesn’t offer direct solutions.

KPMG’s survey shows that tax authorities interpret the revised MTC Commentary on home-office permanent establishment differently. In Asia–Pacific and the Middle East, decisions often depend on specific circumstances rather than the formal guidance, with little uniformity. In contrast, many European countries treat working from a home office for over 50% of the time as a threshold indicating a permanent establishment, considering arrangements below that level generally low-risk.

What Multinationals Need

From a policy perspective, Middle East–exposed multinationals increasingly should have:

• Clearer guardrails for remote and relocated teams—including explicit “low risk” activities that won’t, on their own, create a taxable presence, and practical examples in the MTC Commentary that reflect emergency relocations rather than only planned remote work.
• More effective residence tie breakers for employees who spend extended periods in multiple countries due to security or geopolitical concerns, rather than career-driven moves.
• Better-aligned sourcing rules for employment income and equity that recognize multi-country work as standard rather than exceptional.
• More flexible social security coordination, including the possibility of temporary exceptions or special arrangements in situations of mass relocation due to instability.
• Digitized, simplified administration, such as one-stop-shop models, that can handle group wide relocations without requiring company-by-company, country-by-country bespoke solutions.

Strategic Design

Remote and cross-border work remain integral for multinational enterprises in the Middle East. Employees already are working from various locations, shifting focus to safety, tax, and regulatory issues that companies must address proactively. Key challenges include identifying and managing these risks efficiently, balancing employee needs with compliance, and adapting MTC rules for secure and cost-effective mobility.

If managed well, remote work can be a strategic advantage for multinationals, offering operational continuity and access to talent. However, relying on outdated regulations could create liabilities, such as unexpected tax exposure and compliance burdens. The future will depend on how policy makers interpret and apply the MTC.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Daida Hadzic is Director, KPMG LLP.

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