A bit of a long shot but you never know with this forum…

My employer is saying that I cannot work remotely from Spain (even though my job is online) because if I do they might be at risk of taxation in Spain due to “permenant establishment”. They worded it as:

there is a PE (permanent establishment) tax risk if they are working for ——— for more than 183 days outside of the UK. Permanent Establishment tax is a corporate tax that ———- will need to pay to the Spanish tax authority.

I’m not sure if this is the case, however. Does anyone have any experience/insight into this?

Cheers!
FM.

I might be a bit out of date with this but generally if management and control of a business is from within the uk then there is no foreign establishment.

If management and control of a uk company, or part of it, is from a foreign establishment then then yes tax may be payable in that domain.

Obviously we don’t have the full details of the circumstances here but hopefully that’ll help you a bit.

I might be a bit out of date with this but generally if management and control of a business is from within the uk then there is no foreign establishment.

Management and control is relevant when one is looking at the residence of a company. This is separate to the concept of a permanent establishment. Whether what you are doing constitutes a taxable presence of your company in Spain is first a question of Spanish domestic legislation. If it does, the next question is whether Spain’s taxing rights are removed by the UK Spain double tax convention which generally restricts a country’s right to tax business profits to those carried on through a permanent establishment as defined therein – see Article 5 .

It is essentially a question of what you do for the company, back office roles are more likely to be ok.

The company I work for has a limit of about 3 years where an ex pat worker can live and work in another country before they either have to come back to the UK or move to a different country for another 3 year stint, or go into local terms of employment. Not sure if this is an arrangement my company chooses to operate or there are other arrangements companies can make. I know the company my brother works for is different.

Wobbli: that’ll be a different issue.

OP: this is a real concern. Baysickly if your employer is permanently doing business within Spain, the Spanish government will want to charge your employer tax on all of its activities.

A lot depends on your role and Spanish law. I looked into it for myself in a couple of other countries: I’m in a non-sales, non-profitmaking non-client engaging support job, so me working remotely in those countries probably wouldn’t have created a PE for my employer.

However a lot of places will just being saying “no” to everyone because it requires an analysis of each job and country to land on an answer. Also even reporting to another tax office can be an expensive pain in the bum even if they dont have to pay tax t o them
And that’s not even considering withholding obligations for income tax etc

A lot will depend on how important you are to them. If your employer has a sister company I Spain maybe they can employ you through them…?

(I bet someone will be along in a minute to suggest a sham contracting arrangement…)

Yea, I was going to suggest setup a company in Spain and just invoice yr employer but that is very risky on your part ‘cos you lose all employment privileges!

Sound like you ‘just fancy’ working from Spain and have no interaction with the local economy (ie yr job is ‘footloose’).
However, the authorities will see it as you using spanish goods/services and will want to tax you on that (sooner or later). Not sure how it works but that is the general principle.

Even if you live there less than 183 days there’s a non-residents tax on your income. Do you have an EEA passport? If not you don’t benefit from the remote working rules. And since Brexit that would be difficult for a British company.

Try an expats’ forum rather than here.

Hi all,

Thanks for the responses. I basically agree: HR have are not sure and it’s easier for them to simply deny remote working outside the UK. It won’t be too hard to replace me.

With regrads to the dual tax treaty. Here it says:

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an agent of an independent status to whom paragraph 6 applies — is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

[my bold]

Does anyone know what “agent of independent status” means? In Spain, if you are not employed by a Spainish company, you declare yourself as self-employed and use a tax agent to declare your earnings while paying a fixed fee for social security, so I was wondering if this is what is meant by ‘agent of independent status’. If so, maybe I have a case to push back.

@ mefty / politecameraaction: it’s an online teaching job for a UK unviersity who subcontacts it to UK-based corporation.

https://www.litrg.org.uk/tax-guides/coronavirus-guidance/coronavirus-working-remotely-your-uk-employer-while-overseas

I think that would be an employment agency/accountant/etc

An agent of independent status would be someone who acts on behalf of someone but is independent. So X plc might sell widgets in Spain and get a local agent to negotiate contracts for them who gets a commission. The agent wouldn’t constitute a PE of X plc provided independent. If the agent got all commission from X plc probably not independent. An employee isn’t an agent anyway (and if were wouldn’t be independent) and none of that’s relevant. Whats relevant is whether, in your case, your employer has business being undertaken in Spain from premises “at their disposal”. The whole area can be a big grey area and why many employers just say no as if they get a PE a whole world of pain ensues, including making your salary subject to Spanish tax irrespective of whether you are there for 183 days or more or not.

And its nothing to do with the EU either – the position was the same pre / post Brexit. If a company carries on a business in another country through “fixed” premises tax is payable on those activities (calculating the taxable profit can be very subjective) and the employees salary associated with that PE is also taxed. The costs of complying with all the rules properly in Spain will be massively expensive for your employer (registering for payroll and company tax + monthly / annual filings etc etc).

An employee isn’t an agent anyway (and if were wouldn’t be independent) and none of that’s relevant.

Agreed.

With regrads to the dual tax treaty…

If a company is relying on a double taxation treaty not to pay tax in Spain based on what it’s paid already in the UK, it means it’s already conceded that it’s taxable in Spain. Most companies won’t want to go that far because it’s adding another tax system with which they need to comply, even if there is no tax bill at the end of the year.

So basically, I’ve not got much hope of convincing them to reconsider.

I’m no longer in this line of business, but earlier this year Spain was a major concern for permanent establishment rules; the word was that they were tightening the rules such that if an organisation had 2 or 3 people working remotely from Spain the authorities might well consider the organisation to have a PE in Spain. It seems to be more COVID related than Brexit; it’s about increasing the tax take from all companies, not just the ones in the U.K.

Based on what I saw of individuals working from Spain, it’s a headache that no HR department would want unless there is a *very* good business reason for it.

PM me if you want more info.

Teaching is a red flag for permanent establishment assessments at the best of times – delivery of services, and primary purpose…

@ mefty / politecameraaction: it’s an online teaching job for a UK unviersity who subcontacts it to UK-based corporation.

I think there is a pretty good case that what you are doing does not give rise to a permanent establishment as it is unlikely that there will be any premises in Spain at the disposal of your employer, you can read more about the issues in this OECD report. That said your employer is likely to regard this as too difficult and therefore refuse permission. If you want to pursue it you will probably need to obtain some advice (regarding PE and income tax) and preferably a ruling from the Spanish authorities. This will cost and you are not guaranteed the answer you want either from the tax authorities or your employer.

The other issue firms are likely to want to avoid with working remotely overseas is that employee rights will vary.

Hold my beer, I’ve got this…

Er In Spain working remotely for a U.K. company…

You have to apply for a NT (no/nil)tax code which can be done online via the portal it’s a P85 this stops you paying uk tax.

You have to pay tax in Spain so you will need a Spanish tax bloke to file this for you and make sure you get any tax deductions your entitled to (the tax is higher in Spain)and will present it as they expect.

The Spanish tax year is different as well.

It was very painless to get the NT and my companies payroll company helpfully refunded to the beginning of the U.K. tax year when they were advised of the tax code change.

You still pay your national insurance.

(I’m assuming you’ve got residency rights/TIE)

The really useful HMRC advice tweet on the very thing

HMRC Working in Spain Tweet

That’s a different issue – about an employee paying income tax in Spain. Permanent Establishment risk is about whether the company has to pay tax in Spain on its business generally.

Yep not disagreeing with that, but as single individual working remotely with no real business presence my advice from the Spanish tax advisor and the tax office he approached was to crack on as they were happy to collect the tax as opposed to me just not declaring which was just as easy.

If your renting office space and operating a Spanish branch then yep that’s a permanent Establishment.

Yep not disagreeing with that, but as single individual working remotely with no real business presence my advice from the Spanish tax advisor and the tax office he approached was to crack on as they were happy to collect the tax as opposed to me just not declaring which was just as easy.

This makes perfect sense and provides @fatmountain with a potential route to meeting his aims if his employer is willing to be open to it.

Many thanks all for the informative replies.

It’s as I suspected: too much hassle for one employee and in the end I am dispensible.

Cheers,
FM