BECAUSE of the COVID-19 pandemic, remote working has increased considerably.  

Thanks to the use of new techs, it is presented as a way to reduce the costs of renting offices for companies and time for employees.

Like any trending change in our economy, it is highly recommended to analyze what are the tax consequences derived from this new modus operandi of companies.  

Spanish Tax Authorities differentiates, regarding the obligation to withhold on account of the Personal Income Tax (IRPF) of its employees by a non-resident company in Spain, depending on whether the non-resident company carries out an economic activity in Spain or not. 

Spanish Tax Authorities had the chance to analyze whether there is an obligation to withhold income tax on the income paid to a worker, tax resident in Spain, who carried out their work from his home in Spain, without his physical presence being necessary in the workplace, basically the system known as “teleworking” or “remote working”.

If the hiring company is tax resident in any country with an Double Tax Treaty to avoid double taxation signed with Spain, and it does not carry out any activity in Spain nor does it have a branch, agency or other type of permanent establishment in Spain, Hacienda concludes that:

  • Income from dependent work derived from remote working from a private home in Spain, even if the benefits of said work are for a foreign company, and the workers are considered tax residents in Spain, when exercising their employment in Spain, they are only taxed in Spain. 
  • The foreign company, as long as it does not have a permanent establishment and does not even carry out any activity in Spain, it will not be obliged to withhold.

However, there would be two cases in which the foreign company would be obliged to make withholdings on account of personal income tax in Spain on the work income paid to resident workers.  

Such would be the case when the employment of remote workers hired in Spain would suppose:

  • the existence of a permanent establishment in Spain;  or, if this does not exist,
  • carrying out  an economic activity in Spanish territory without the mediation of a permanent establishment

It is important to note that the delimitation of when there is a permanent establishment in Spain or not is not always easy.

For this reason it is important to first determine the tax consequences of the type of activity to be carried out in Spain by the Company, in order to be able to conclude on its tax obligations with respect to its employees over here.

If you need tax advice in English for your personal and business affairs please contact Jose Oltra directly.

For information on Swan Partners visit www.swanpartners.es For information specifically relating to expat services please see www.martinhayes.es 

SWAN Partners C/ Pizarro, nº 1, 4º-15ª. 46004 Valencia (Spain) + 34 96 334 89 83

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