One of the most common questions we get is from persons who come to live in Spain but work for non-Spanish companies. Sometimes they are employed by a company that they own themselves and sometimes they work for foreign company as a normal employee.
The two situations are radically different so rather than confuse the reader, we are going to tackle the questions in two separate articles.
Click here if you want to know about working for a foreign company that you own.
The rest of this article is about living in Spain and having a normal job with an employer who is not established in Spain. We are assuming that you have obtained formal residency to live and work in Spain or you are a EU/EEA national with the automatic right to live and work in Spain.
Tax residency in Spain and income tax
First of all, you need to understand Spanish tax residency rules. Here is a link to an article that goes into the detail, but for most situations it is relatively simple:
If you live in Spain more than 6 months in a calendar year you will be tax resident for ALL of that calendar year. To clarify the situation in the year of arrival, I will provide two simple examples:
- You arrive in Spain on 20 June 2024 to live in Spain – you will be a tax resident of Spain for the whole of 2024 because you will have spent more than 183 days in Spain in 2024.
- You arrive on 10 July 2024 to live in Spain – you will not be tax resident for the whole of 2024 because you will have spent less than 183 days in Spain in 2024.
The Spanish system is peculiar in having the “whole of year tax residence rule” and it leads to some strange results. As we always say – if in doubt ask!
Working a foreign employer .- formalities
These depend on where you are actually working. This table explains the alternatives:
| Situation | Spanish formalities | Formalities in foreign country |
| Working in Spain, including working from home. The job is not a secondment by a foreign employer | The employer must register as an employer in the Spanish system. Social security and employee income tax must be paid in Spain | No social security or income tax should normally apply, but this depends on the country where the employer is based. |
| Working in Spain on secondment by a foreign employer | The secondment can last up to two years and should be reported to the Spanish authorities. Spanish income tax sholuld be deducted from salary and paid to the tax office. Spanish Social Security should nolt applyh as long as employee remains in the foreign Social Security system and can provide a suitable certificate to prove this (Form A1 for UK and EU/EEA countries) | Usually, Social Security is paid in the foreign country but income tax should not be payable in the foreign country. |
| Working outside of Spain for a foreign employer | No Spanish employer obligations at all. Employee has to file an annual income tax return and pay income tax on salary and any other income. A salary exemption of 60.100€ annnually may be available in certain situations. | The normal payroll and Social Security formalities of the foreign country will apply. Income tax may or may not apply subject to the rules of the foreign country and the provisions of the foreign country/Spanish dounle Tax Treaty, if it exists. |
Employment formalities in Spain
The foreign company must register in Spain as an employer and enroll the employee into the labour, Social Security and tax system and handle the payment of social security and taxes on your behalf.
The registration process, is known in Spain as opening a work center and entails several steps:
- The foreign company needs to appoint someone in Spain to act on its behalf. This is done by providing a power of attorney that is valid in Spain, usually signed by its directors, to obtain a Spanish tax identification number and register the work center in Spain.
- Once received, the foreign company should register as an employer with the Spanish Social Security, enabling it to hire workers and formalise contracts that are then registered with the Spanish employment office – SEPE (State Public Employment Service).
- Employees registered in Spain will then have access to all the benefits from the Spanish Social Security, including sickness benefits, maternity/paternity leave, and future retirement pensions.
As an aside, it’s also crucial to carefully analyze the company’s activity in Spain and the activities performed by the employee located in Spain, to understand any potential additional tax implications for the foreign company, such as VAT and corporation tax, which may or may not be applicable.
An alternative – instead of employment, register the Spanish worker as self employed
I am mentioning this because foreign employers often shy away from having anything to do with the Spanish system. Much as this is a natural reaction to Spain’s bureaucratic reputation, in reality, dealing with Spain’s employment formalities is not a problem in most cases and we handle this work all the time.
Additionally, Spain’s Social Security system is often thought to be very expensive. Again, in reality this is not the case compared to many other EU/EEA systems. Indeed, it can be cheaper, especially for salaries exceeding 60.000€, because this is the ceiling for employee and employer contributions. If you consider the UK, for example which has no contributions ceiling at all, Spain can be a lot cheaper. As a general rule, employee contributions are around 6,5% and 32% for the employer, up to a salary of 60.000€.
Whilst it can be possible for a former employee of a foreign company to become registered in the Spanish system as self employed, this has to be done carefully and with full regard to the rules in Spain. The Social Security office is well aware of this and often carries out capaigns to identify ‘falso autonomos’, the Spanish phrase for the falsely classified self-employed.
Having understood the issues, it can be possible to set a up self employed arrangemnbt, as long as the contractual conditions are designed so that the ’employee’ is not subject to terms that would normally apply to employed staff. Many coutries will have rules to combat false self-employment and Spain is not so different in this respect.
