Teleworking from Spain for a foreign company (EU)

When an employee decides to move within a country, there are usually not many consequences to consider. However, when the employee moves to another country, it seems much more complicated. The idea of international treaties and principles of freedom (free movement of people and capital) is based on the principle that nothing changes, but in practice, the legal situation is not so clear.

The good news for employees and companies is that there are solutions that are not very expensive and do not require the company to establish itself in Spain.

Terminology

Teleworker or Digital Nomad should not be confused with ‘detached employees’. The latter are employees who are temporarily transferred for work without the intention of emigrating. For example, their company sends them to a specific location to carry out a project. The figure of the ‘teleworker’ is similar to that of the ‘digital nomad’. These are employees who change their place of residence on their own initiative, with the particularity that they emigrate to a place of residence abroad. Their company is not trading in that country and does not have any activities there.

Differences between the digital nomad and the detached employee are:

• Temporary nature: the digital nomad emigrates and changes their permanent place of residence. The detached employee temporarily changes their place of residence without the intention of emigrating.
• Taxation: the digital nomad becomes a tax resident of the country to which they emigrate. The detached employee retains their tax residence in their country of origin, even though they actually live in another country.

Employer of Record (EOR)

There are companies that offer a service as an ‘interim employer’ or ‘Employer of Record (EOR)’. These companies take on the employment contract with the employee (in accordance with Spanish labour law) and then invoice the contracting company in the country of origin. This allows the foreign company to maintain the employment relationship and the employee to continue to provide their services remotely, without the foreign company having to establish a legal entity in Spain.

Advantages: The company does not lose the employee, and it does not have to pay income tax and social security contributions in Spain directly to the Spanish state, but pays these via the EOR.

Disadvantages: The price of the service, and the employee must terminate their contract with their employer in order to enter into a new contract with the EOR, which may result in them losing seniority rights or other rights.

Payroll Service Provider (PSP)

A cheaper option is the ‘Payroll Service Provider (PSP)’ or ‘Gestion de nomina’. In this case, the PSP only provides the payroll administration service: calculation, submission and advice. The PSP only helps the company to comply with certain tax requirements in Spain.

Advantages: the company does not lose the employee, the price, the employee retains his employment contract

Disadvantages: the company must pay income tax and social security contributions in Spain directly to the Spanish state.

Applicable law

In general, it can be concluded that the parties can choose the applicable law, provided that the minimum rights of both countries are respected. In the event of a dispute, the case must be assessed according to the law of the country where the employee resides. This means that when using the PSP service, nothing needs to be changed in the existing employment contract between the company and the teleworker.

Mandatory Spanish labour rights that may take precedence:

• Interprofessional minimum wage (SMI):
• Maximum working hours and rest periods:
• Prevention of occupational risks:
• Non-discrimination and equality:
• Prohibition of child labour:
• Collective and trade union rights:
• Reimbursement of teleworking expenses (according to the interpretation of Law 10/2021);
• Compulsory coverage by the Spanish social security system.

However, within the EU, the minimum rights are practically the same in all countries. Therefore, there are unlikely to be many differences.

Social security

According to European regulations, an employee who performs their normal work in their country of residence, even if this is for a foreign company, must be insured in that country and pay social security contributions. Consequently:

• The company must register as a non-resident employer in Spain;
• It must open a Código Cuenta de Contribución (CCC) and pay monthly social security contributions to the Spanish government for this employee.

Taxes – IRPF

The employee has moved his tax residence to Spain and is therefore a tax resident of this country for IRPF purposes. Consequently:

• The company must be registered with the AEAT (Spanish tax authorities) as a non-resident, solely for the purpose of fulfilling its tax obligations as a withholding agent and contribution payer, without carrying out any economic activities in Spain.

Other practical aspects

In general, everything remains the same, with the sole exception of situations in which Spanish law would set a higher minimum that cannot be deviated from:

1. Holiday: The law of the country of the employer applies with regard to the number of days, the accrual system and the taking of holidays.
2. Allowances or compensation for expenses: These are rights that are not generally considered ‘mandatory’. Therefore, the provisions of the agreement under The law of the country of the employer apply.
3. Travel expenses. It is most sensible to apply a minimum reimbursement to avoid conflicts.
4. Severance pay: The original severance pay scheme applies.
5. Risk prevention: It is possible to agree that the rules of origin apply.

Sickness

The employee is affiliated with the Spanish social security system. He must therefore consult his general practitioner in the Spanish public health care system (Servicio de Salud de su comunidad autónoma). The Spanish doctor will issue a sick note (Incapacidad Temporal). This will be treated in the same way as for any other employee affiliated in Spain, regardless of whether his employer is based abroad.

The payment of wages during sick leave depends on the duration of the leave:

The company may offer more favourable terms (e.g. 100% of the salary from the first day), but never less than the Spanish minimum.

Let Lex Foris advise you on the most practical and efficient way to set this up.

Roeland van Passel