María Ángeles Márquez
Over the past two plus years, the number of employees working remotely has increased substantially. Initially, this increase was a result of the Covid-19 pandemic, but as time goes on, it looks like this way of working will continue to be part of the modern workscape.
Working remotely provides opportunities to employees to work even from another country. Considering this scenario, it is advisable for companies to analyse the obligations they may have as a result of this sort of arrangement. Specifically, in Spain, there are two points to take into consideration when an employee from another country comes to Spain planning to work remotely for a company located abroad. The first point to take into consideration is if the entity is obligated to withhold taxes for the employee in Spain since they are performing their job from a location in Spain.
Spanish Personal Income Tax Law states that if the entity does not have a permanent establishment in Spain, nor carries out any activity in Spain, the entity is not obligated to withhold any amount for the employee though its payroll. Nevertheless, even though the company is not obligated to withhold taxes on behalf of the employee, it is possible for the company to withhold taxes for the employee voluntarily. If the entity decides to do tax withholding for the employee though payroll, it must register the entity with Spanish tax authorities as a non-resident company.
The second issue to take into consideration are social security obligations. Social security contributions must be paid in the country where the employee is physically working. Therefore, if the employee is working remotely from Spain, these contributions will have to be paid in Spain. In order to remit the employee’s social security contributions, the company will have to be registered in Spain as a non-resident company. However, it is possible for the employee to maintain their social security contributions in the country of origin where they have their employment contract.
The maintenance of social security in the country of origin is possible with countries with whom Spain has a social security agreement. This arrangement has to be requested in the country where the employee has the employment contract. With this option, the employee’s social security contributions are paid in the country of origin, and therefore the company is not obligated to pay social security in Spain.
Finally, although the company may not have obligations in Spain, either related to social security or regarding withholding tax for the employee, the employee will have to take into consideration their personal obligations in Spain depending on their fiscal status as a tax resident or non-tax resident in Spain, and fulfil those tax obligations.
For more information regarding this matter or other topics related to Spanish tax law applicable to expatriates or global mobility of employees, do not hesitate to contact us or to join our XLNC Expatriate Tax & Global Mobility Services Focus Group.
XLNC MAGAZINE | No. 09 | Spring 2022