"Home Office": Live in Spanin, work remote

Taxation:

Regarding taxation, most double taxation treaties based on the OECD model, including the German-Spanish one, provide for the principle of residence-based taxation. In this regard, Article 14 on income from dependent employment states:

"Subject to Articles 15, 17, and 18, salaries, wages, and similar remuneration derived from employment by a person who is a resident of one contracting state may only be taxed in that state unless the employment is exercised in the other contracting state. If the employment is exercised there, the remuneration received for it may be taxed in the other state."

Exceptions include, among others, government salaries, supervisory board and management board compensation, as well as pensions and retirement benefits from Germany.

In this regard, there are essentially two situations, with both the habitual residence of the employee and the location of the work performance being decisive:

 a) Teleworking:

The work is always performed where the employee is physically located. If the work is, for example, exclusively done from home via the internet or phone, only the residence state can tax it, not the state where the employer is based. Therefore, if you reside in Spain and work from home for a German company (via the internet or by phone), your income is taxed exclusively in Spain. In this case, your employer does not withhold income tax in Germany but must register as an employer with the Spanish tax authorities and withhold taxes in Spain if necessary.

If part of the work is actually performed on-site in Germany (e.g., 3 weeks of home office in Spain and one week per month at the workplace in Germany), the work performed in Germany can be taxed in Germany. These earnings would be tax-free in Spain up to a maximum of €60,000 per year.

 b) Commuters:

Although you have your residence in Spain, if you perform a significant part of your work in Germany, your income will still be exclusively taxed in Spain if you work less than 183 days in Germany per year, your employer is based in Germany, and you continue to maintain your residence in Spain. If the conditions mentioned in Article 12, Paragraph 2 are not met, your income may need to be taxed both in Germany and in Spain.

Determination of Residence and Withholding Tax

Your residence is generally considered to be in Spain if you stay in Spain for more than 183 days per year, have a permanent residence in Spain, and/or your spouse and minor children reside in Spain. For more information on determining your residence, please refer to our article: [Differences between Residence, N.I.E, and Residencia].

Regardless of your employer's obligation to pay the corresponding payroll taxes in Spain, you are generally required to submit an annual income tax return in Spain. If your employer has already paid quarterly taxes to the Spanish tax office, you will likely receive a small refund through this annual income tax return, as the payroll tax will be automatically recorded in your return. However, if your employer has not paid payroll taxes in Spain or has mistakenly paid them in Germany, you will need to report your entire income in Spain and settle the full annual tax liability at once. In the case of payroll taxes incorrectly paid in Germany, double taxation may even occur.

It is important to note that the Spanish tax authorities invest significant resources in determining who is considered a resident in Spain and who is only in Spain for vacation purposes. It is quite possible that the tax office will check whether your children attend school in Spain, whether you regularly make financial transactions in Spain (cash withdrawals, card payments in stores, etc.), or whether you regularly pay electricity, water, or telephone bills, among other things. For more information on this topic, refer to our article: [Tax Trap of Second Residence]

The Relevant Social Security

In the case of teleworking or situations where the employee works from home for a foreign company (i.e., the employee works from their residence in Spain for a German company), the tax aspect is often the lesser hurdle. However, the registration of the employee with the relevant statutory social security is much more complicated.

The employer often registers the employee with the German social security system, either knowingly or out of ignorance, even though the employee is working from their residence in Spain. In the event of illness, it may occur that the employee does not have valid insurance coverage in Germany or Spain. Additionally, the mistaken belief that it is not possible to employ workers in Spain without a branch or subsidiary often leads to the omission of the necessary administrative actions.

If there is no branch in Spain, it is possible for the employer to appoint a representative in Spain who handles all registrations with the tax office and social security, pays the payroll taxes, manages payroll, and acts as the company representative before the authorities.

Although the registration of the employee at first glance seems quite complicated, the advantage of this solution is that the employer can assign the Spanish representative (e.g., law firms, tax offices, and Gestorías) to handle all administration and representation, thus only requiring the employer to issue a notarized power of attorney once. This power of attorney can, of course, be issued by the employer's local notary, but it is important that it is always accompanied by the Hague Apostille to ensure its validity in Spain.

An exception regarding the obligation to register the employee with the Spanish social security only applies in the case of so-called secondments, which can only be used temporarily and under fulfillment of various conditions such as the existence of a business establishment.

Our Services as Lawyers and Tax Advisors:

If you as a company offer your employees the opportunity to work legally from Spain without giving up their employment relationship or neglecting the proper payment of taxes and social security contributions, we can help.

After an initial registration with the Spanish authorities (without establishing a branch), we act as your representative in Spain and take care of social security contributions, payslips, payroll, and provisions.

[more about our services]

The Alternative: Freelancer or Branch

If employment abroad and the associated registration of the employer with the tax office and social security is not possible, an alternative is the aforementioned service relationship or the possibility of working as a "freelancer" from Spain for a German company. Although the first option involves the loss of employee status and the establishment of a service relationship by transforming the employment relationship into a freelancer or self-employed position, leading to the loss of employee protection, this type of employment is often chosen for its simplicity and savings in income tax and social security contributions.For more information, refer to our article: [Freelancer: Work in Germany, Live in Spain].

A second option is for the employer to decide to establish a branch in Spain and open a subsidiary or branch office. For more information, see our article:[Subsidiary or Branch in Spain].

Our law firm is happy to assist you with analyzing your specific situation, taking necessary administrative actions on your behalf, and helping you file the corresponding tax returns. If you have any questions or are interested, we are available to assist you via email or phone in German.

Autor: 

Christoph Sander
Rechtsanwalt & Steuerberater, 
Geschäfsführender Partner
info@sspartners.es
Tel: (+34) 951 12 13 06
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