What should I take into account if I telecommute for foreign companies from Spain?

For millions of people in the world, teleworking or working remotely, has opened a new path towards the freedom to choose where to work from.

For people who work in foreign companies, living and working from Spain is now a viable option to consider. Along this path, many doubts arise about what the conditions of residing in one country and “really” working in another will be.

To know what labor and tax obligations we have to assume that it is vital to specify what our tax residence will be.

How to determine tax residency in Spain?

In Spain, tax residence is specified by applying the Personal Income Tax Law (hereinafter LIRPF). In case of doubt or conflict with the legislation of any other country, the existence and content of the Double Taxation Agreements will be reviewed.

To make it simple, a double taxation agreement is an agreement between two countries about the tax rules to avoid paying taxes for the same concept in both.

How is my tax residency determined? Will there be problems for working from Spain?

To determine tax residence, the IRPF Law establishes three basic rules:

1) Physical permanence. If it is shown or can be shown that you physically reside for more than 183 days within Spanish territory, you are considered to be a tax resident in Spain.

2) If the previous rule cannot be applied in your particular case, the decision will focus on where your main nucleus or base of your economic activities/interests lies.

It will be presumed, according to both criteria, that your residence is in Spain when your spouse and minor children reside here.

Regarding residence according to Double Taxation Agreements.

It may be the case that according to the particular legislation of each state, the same person may be considered to have her residence in two or more countries. In these cases, the agreements are used to clarify said residence. In a very generic way, the agreements usually establish criteria similar to those indicated below:

1) You will be a resident of that country where you have permanent housing at your disposal.

2) If the previous criterion does not clarify the situation (because, for example, you have a home in both or several states), the center of vital interests criterion will be applied (you will be a resident of the State in which you maintain closer personal and economic relations) ).

3) If the two previous criteria have not been able to clarify the situation, you will be considered to be a resident of the State where you habitually live.

4) If the previous points have still not resolved the issue, you would be a resident of the State of which you were a national.

5) If you were a national of both states or you were not a national of either, both states would have to resolve the issue (translating, it would mean requesting a clarification from both states to determine what your tax residence is).

How can I work remotely for a company abroad living in Spain?

Let’s look at the two options.

1. Sign up as self-employed and invoice the company. Commercial relationship.
The commercial contract is a very common document that includes an agreement between two or more people (individuals or legal entities – companies) that generates and binds the parties in the rights and obligations detailed in said contract.

It is important to state that the relationship between the parties will not be labor, but commercial.

The commercial contract must contain, among other elements, the identification of the parties that are going to sign it, the object to be carried out (the work to be carried out) and the conditions under which it is going to be carried out. For example, the duration of the work, remuneration to be received, compensation for non-compliance and all those that allow security to be offered to both parties when carrying out the object of the contract. Compensation can even be established at the end of the contract.

It is possible that the figure of “false self-employed” comes to mind, it is necessary to analyze how the work is carried out to establish if the relationship has signs of employment.

In some countries the figure of the “contractor” is widely used, the person is registered as self-employed / freelance in the country from which he works remotely.

2. Formalize a contract for another’s account. Labor relationship.
This second option has a little more crumb, let’s see the obligations of the employer (the foreign company) and the employee (yourself).

We are in an employment relationship.

In this case, all paths refer us to the same regulations: Paragraph 1 of the Comments to article 15 of the OECD Model Tax Agreement on Income and Capital, regarding the taxation of income from dependent work, according to the that article 16 of the Agreement is interpreted as establishing “The aforementioned work is effectively carried out in the place where the employee is PHYSICALLY PRESENT when carrying out the activities for which said rent is paid. As a consequence of this principle, a resident of a Contracting State (in this case we speak of a tax resident in Spain) who receives remuneration, by way of dependent work, from sources located in the other State, CANNOT be subject to taxation in that other State with respect to said remuneration for the mere fact that the results of their work are exploited in that other State”

Translating, in the case of teleworking from Spain for a foreign company, as tax residents in Spain and carrying out our work from our country of residence, regardless of the country for which we work, the legislation (and taxes) are paid where we reside .

Regarding our company (employer)

In general, it is usually established that the salaries you pay are subject to taxation in your own country, unless each and every one of the following requirements is met:

1. That the worker maintains his fiscal residence in the other Member State, that is, that for periods of 12 months beginning or ending in the fiscal year he does not remain or reside in the same state as his employer for more than 183 days.
2. Salaries are not assumed by a Permanent Establishment that the employer has in the State of residence of the worker.

Therefore, if we telecommute for a foreign company (not for any type of establishment that the foreign company may have in our country), in this case, the salaries will have to be taxed here via IRPF, that is, in our Income Statement.

And what about work obligations?

The foreign company will be obliged to list in Spain. You must request the Social Security Contribution Account Code to be able to regularly enter the contributions of your “teleworker”.

In addition, in accordance with the provisions of Spanish regulations in the Treasury Collection Regulations (RD 1415/2004 of June 11), the foreign company must appoint a representative domiciled in Spanish territory that allows carrying out the relations and procedures that are necessary with the Social Security agency.

In this article we talk about the different formulas that a company has to do business in Spain, because sometimes the operations go beyond having one or more people teleworking in the national territory. Branch, subsidiary, representative office, and permanent establishment.

A special case… when the work is carried out in several countries.
In this case, the regulations establish that the State in which the substantial part of the activity is carried out must be accepted (the regulations will govern). To determine what is considered a substantial part of the work, the following criteria will be applied:

The working time or the remuneration received.
Business volume, time worked or number of services provided.
In a global evaluation of the situation of the worker, whether employed or self-employed, the fact of reaching a percentage of less than 25% according to the criteria described will be an indicator that substantial work is not carried out in said State.

It is essential to analyze each particular case with its ins and outs, and above all always check if there is a double taxation agreement and the information detailed in it.