The society we live in is advancing faster than work and tax regulations. In 2020, necessity forced us to embrace alternative methods for safe work, making teleworking an option for millions of employees worldwide. Today, work knows no bounds; you can have your laptop in Tenerife while working for a British company. Let’s explore the tax implications.
Where am I tax resident?
You are considered a tax resident in the country where you have spent more than 183 days in a calendar year. Even sporadic absences would be counted as if you were in Spain. While there are a few exceptions, this is the general rule.
If you are teleworking from Spain, it is likely that you will be considered a Spanish tax resident and, as a result, you will be required to pay taxes in Spain. It is irrelevant where your employer is based. You have to pay taxes in the country where you live.
This is the conclusion that we get from the Model Tax Convention on Income and on Capital of the OECD in its article 15.
Should I pay PAYE in the UK?
Based on the tax treaty between the UK and Spain, in its article 14, salaries, wages and other similar remuneration shall be taxable in the State where the employment is exercised. This is Spain in our example, so HMRC cannot charge tax in our salaries, so you should ask your employer to leave the PAYE by a 0% rate in the UK.
It is likely they ask you for a tax residency certificate. My advice is when you come to Spain, you inform Tax Agency that you become Spanish tax resident. This way, you would be able to get the certificate easily.
What happens with Social Security?
Honestly, dealing with taxes isn’t a significant issue, as the guidelines for tax payments are quite clear. However, it’s crucial to note that Social Security operates independently of taxes. Usually, that would be paid by your employer in the UK and the benefits are there, not here in Spain. This means that you will not have rights for universal health care, unemployements, pension, etc. here.
This applies to countries lacking proper legal frameworks. Recently, it has become apparent that the primary rule is that if a UK-based company has an employee teleworking in Spain, they must establish a branch there to comply with Spanish laws for salary, taxes, and Social Security payments.
This poses a challenge for the company rather than the employee, resulting in increased expenses due to the necessity of establishing branches in every country where employees are based. This approach lacks efficiency. As an alternative, some companies offer the option of individuals being self-employed in Spain, invoicing the company directly. However, this may not comply with legal standards. Another workaround involves employing third-party companies in those countries to handle contracts, though this too may not be entirely legal, serving as a temporary solution in the interim.
If you are considering working from Spain, feel free to schedule a tax consultation with me. I will provide detailed explanations tailored to your specific situation, addressing everything you need to know.
