Originally associated mainly with the software and telecommunications sectors, remote work has now become common across a wide range of industries. For many employees, this creates the opportunity to fulfil what was once an unattainable dream: living in Spain while working remotely.

Taxation

Most double taxation agreements based on the OECD Model Convention provide that employment income is generally taxed by reference to the employee’s tax residence and the place where the work is physically performed. The double taxation agreement between Germany and Spain follows this approach. The relevant provision concerning income from employment states:

“Subject to the provisions applicable to directors’ fees, pensions and public-sector remuneration, salaries, wages and other similar remuneration derived by a resident of one Contracting State in respect of employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is exercised there, the remuneration derived from it may be taxed in that other State.”

Different rules may apply, among other cases, to public-sector salaries, directors’ fees, supervisory board remuneration, pensions and certain retirement benefits.

In practice, two main situations may arise. Both the employee’s habitual residence and the place where the work is physically performed are decisive:

a) Remote work from Spain

Employment is generally considered to be exercised in the country in which the employee is physically present while carrying out the work. If the employee works exclusively from their home in Spain using the internet, telephone or other digital tools, the employment income is generally taxable in Spain rather than in the country in which the employer is established.

Accordingly, if you are resident in Spain and work remotely from your Spanish home for a foreign company, your salary will generally be subject to taxation in Spain. Depending on the circumstances, the foreign employer may be required to register with the Spanish tax authorities and comply with Spanish payroll withholding obligations.

If part of the work is physically performed in another country, the remuneration attributable to those working days may also be taxable in that country. For example, if an employee works remotely from Spain for three weeks per month and spends one week working at the employer’s premises abroad, the remuneration attributable to the work physically performed abroad must be analysed separately. Under certain conditions, foreign employment income may qualify for the Spanish exemption for work performed abroad, subject to the statutory annual limit.

b) Cross-border commuters

If you are resident in Spain but regularly perform part of your work in another country, the taxation of your salary depends on the number of working days spent in each country, the location of the employer and whether the remuneration is borne by a permanent establishment in the country where the work is performed.

If the requirements of the applicable double taxation agreement are met, the salary may remain taxable only in Spain. If they are not met, part of the remuneration may be taxable in the country where the work is physically carried out, while Spain, as the country of residence, must apply the relevant rules to avoid double taxation.

Determining tax residence and payroll withholding obligations

You will generally be considered tax resident in Spain if you spend more than 183 days during the calendar year in Spain, if the main centre of your economic interests is located in Spain or if, subject to the statutory presumption, your spouse and minor children habitually reside in Spain. Further information on the distinction between tax residence, the N.I.E. number and immigration residence can be found in our article: Differences between tax residence, N.I.E. and residencia.

Regardless of any obligation imposed on the employer to make Spanish payroll tax withholdings, employees who are tax resident in Spain will generally also be required to file an annual Spanish personal income tax return.

If the employer has already paid Spanish payroll withholdings during the year, these amounts will normally be credited automatically in the employee’s annual income tax return. Depending on the final calculation, this may result in a refund or an additional amount payable.

If the employer has not made the required Spanish withholdings, or has incorrectly withheld payroll tax in another country, the employee may have to pay the full Spanish tax liability upon filing the annual return. Incorrect withholding abroad can also create a temporary double taxation problem until the foreign tax is refunded or credited.

The Spanish tax authorities devote considerable resources to determining whether individuals are genuinely tax resident in Spain or are merely staying in the country temporarily. They may consider factors such as whether children attend school in Spain, regular card payments and cash withdrawals, electricity and water consumption, telephone contracts and other indicators of habitual residence. Further information can be found in our article: The tax risks of maintaining a second home in Spain.

Beckham Law: a special tax regime for individuals moving to Spain

Following the reform of the special tax regime commonly known as the Beckham Law, certain employees working remotely from Spain for foreign companies may also be eligible to apply for this regime, provided that all statutory requirements are met.

The regime may apply for the year in which Spanish tax residence is acquired and the following five tax years. Employment income is generally taxed at a rate of 24% up to the statutory threshold, rather than under the ordinary progressive Spanish income tax rates.

Applicable social security system

In remote-working arrangements involving a foreign employer, taxation is often not the most difficult issue. Determining the applicable social security system and completing the necessary registrations can be considerably more complex.

Employers sometimes continue paying social security contributions in the country in which the company is established, either intentionally or because they are unaware of the applicable rules, even though the employee habitually works from their residence in Spain.

If the applicable social security legislation is not correctly determined, the employee may face difficulties obtaining healthcare coverage or other social security benefits. A foreign employer may also incorrectly assume that it cannot employ a worker in Spain without first establishing a branch or subsidiary. This can lead to the omission of necessary registrations and payments.

Where the employer has no establishment in Spain, it may appoint a representative in Spain to complete the registrations with the Spanish tax authorities and Social Security, manage payroll, pay the required withholdings and contributions and act as the employer’s representative before the relevant authorities.

Although the registration process may initially appear burdensome, the employer can appoint a Spanish law firm, tax advisory firm or administrative consultancy to manage the entire procedure. In many cases, the employer only needs to grant a notarised power of attorney.

The power of attorney may generally be signed before a notary in the employer’s country. Depending on the country of execution, it may need to be legalised or bear a Hague Apostille and may also require a sworn translation into Spanish.

An exception to registration in the Spanish social security system may apply in the case of a temporary posting. Such arrangements are subject to strict requirements, time limits and the relevant European or bilateral social security rules. An A1 certificate or equivalent documentation may be required.

Alternatives: working as a freelancer or establishing a presence in Spain

If maintaining employment abroad and registering the foreign employer with the Spanish tax and social security authorities is not feasible, one possible alternative is to provide services from Spain as a freelancer or self-employed professional.

This option changes the legal nature of the relationship. An employment relationship is replaced by a commercial services agreement, meaning that employment-law protections may no longer apply. Nevertheless, companies and professionals sometimes choose this structure because it may be administratively simpler.

However, the classification must reflect the actual working relationship. If the individual remains economically and organisationally dependent on a single company, the arrangement may be challenged as false self-employment. Further information can be found in our article: Freelancer: living in Spain and working remotely.

A second option is for the employer to establish a formal presence in Spain by opening a branch or incorporating a Spanish subsidiary. Further information can be found in our article: Subsidiary or branch in Spain.

As a firm of lawyers and tax advisers, we assist foreign employers and employees in analysing their individual circumstances, determining the applicable tax and social security rules and completing the necessary registrations and filings in Spain.

We can also assist with Spanish payroll, employer registration, personal income tax returns, the application of the Beckham Law and the establishment of a branch or subsidiary in Spain.

Should you have any questions or require personalised advice, please contact us by email or telephone. Our services are available in English, German and Spanish.

Author:

Christoph Sander
Lawyer and Tax Advisor
CEO, Partner, Director
info@sspartners.es
Tel: (+34) 951 12 13 06
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