What could be better than keeping your UK employer, salary and benefits while being able to jump in the pool at the end of the day?
The rise of remote working has led many to wonder if they can continue with their UK employer from a sunnier climate.
What's more, the cost of living in Spain is around 18% cheaper than the UK which means your salary would go much further, right?
Sounds ideal, but is it possible to live in Spain and keep your UK job?
Let's find out.
The First Hurdle: Getting a Visa
Thanks to Brexit, the days when Brits could rock up and stay for as long as they wanted in Spain, often under the radar of the tax authorities, are over.
UK nationals are now treated the same as other non-EU passport holders, which means a maximum stay of 90 days in each 180 day period.
Obviously it wouldn't be practical to go back and forth that often while working, so the first step is getting a residency visa.
What visa's are available to brits?
- The Digital Nomad Visa
- The Non-Lucrative Visa (NLV)
- The Investors Visa (usually known as the Golden Visa)
The Digital Nomad Visa is an exciting new development in 2022 - read more about it here.
The Non-Lucrative Visa is intended for retirees and doesn't permit working so isn't recommended in this situation.
The Golden Visa allows work, but you'll need to invest at least €500,000 in a Spanish property.
There are other options (a student visa, self-employed visa etc.) which we'll explore in future blog posts but none of them are ideal for most people.
What if I can get an EU passport?
If you have the option of getting an EU passport, e.g. if one of your parents was Irish, or if you are moving with a partner or close family member who holds EU nationality, this is your best chance.
The Second Hurdle: Tax
(Disclaimer: this article has been written before the exact details of how the Digital Nomad visa will work have been announced – it's possible that some of the information below may not apply).
Let's assume you've now got a residency visa.
Once you've stayed in Spain for at least 183 days, like it or not, you are automatically considered as a tax resident and, like it or not, must pay tax on all of your worldwide income in Spain.
Will I be taxed twice?
As a UK employee, you'll be taxed on your salary every month at source in the UK from your UK employer. This itself isn't a problem - there's a treaty between the UK and Spain which means that you won't have to pay twice. You'll simply declare your income and pay the excess tax as part of your annual tax return (and as Spain is a higher tax country, it's almost certain that there will be an excess..)
Sounds ideal right? (except the extra tax..)
But there's another tax we've forgotten about.
This is the equivalent of what we call national insurance in the UK.
In Spain, this tax not only covers your future pension, it also contributes to your healthcare and all other benefits you may need in the future.
And here lies the problem.
Under EU law, as a basic rule, if an employee is physically carrying out his/her work in a certain EU country, they are subject to the worker protections and benefits of that country.
This is actually a protective measure: imagine if an employer in France, with its strict labour protections, was able to give its employees contracts through an Eastern European company in order to pay them less, make them work longer hours and save on tax.
Cross border workers. Those who work in a different country from where they live but return home each day or at least once a week (e.g. those who live in Spain but cross the border each day to work in Gibraltar) are an exception to this general rule and have access to social security in both the country they work in and the country they live in.
How does it work for Digital Nomads with UK employers?
Although this EU legislation makes sense, it creates a problem when it comes to the new digital nomad trend.
At present, if you are working for a UK employer/company while physically in Spain, you are under the protection of Spanish labour laws and your employer is technically liable to pay Spanish social security instead of UK national insurance (Note: there may be some arrangement in the Digital Nomad visa arrangements to get around this).
While many Brits have worked for UK companies for years, declaring the income on their tax return and never having any problems with the authorities, there's always a risk that it will become an area that Spain will crack down on in the future.
So let's look for a solution.
How can you keep your UK employer and pay social security?
- If your employer is sending you to work in Spain for a temporary period of up to 2 years, they can apply for a certificate from HMRC (see more here) which will allow you to pay social security only in the UK. This is because the UK has a bilateral agreement with the EU.
- Your employer could outsource to a Spanish or global HR company who will handle local payroll, taxes, benefits and compliance. An example of this is remote.com, who provide this service for a cost of €550 per month in Spain (obviously making it not a viable option unless you are earning a huge salary).
- You could register as self-employed. The downside is that you'd lose protection of being an employee and would be responsible for paying social security and income tax. The current full monthly rate of social security payments is around €300 per month (with discounts for the first 1 or 2 years). This is the best option for most people.
Paying Yourself Through Dividends
In the UK, many people are used to paying themselves through a limited company, splitting their income between a salary and dividends in order to save on tax.
There are two important points to note here:
- Dividends are not tax efficient in Spain as they are in the UK unless you are earning at least €80,000 a year. Most people earning less than this opt to be self-employed and take a salary directly rather than through a limited company.
- Earning money through dividends rather than a salary may be a way to get around the no-work requirement of the NLV. However, there's a problem. If the Spanish tax authorities were to find out that all of the work of your company is taking place in Spain (i.e. by you), there's a risk that the they could demand that you pay corporation tax in Spain. If this were to happen, you could claim back the UK tax through the double taxation treaty, but getting a rebate could take years. While the risk of this ever happening is probably very low, it's important to keep in mind.
Assuming that you manage to get a visa, the least risky way to work for a UK employer from Spain is by registering as self-employed and invoicing your employer. You'll undoubtedly pay more in tax but you'll have the peace of mind that you are doing things by the book and will never get any unexpected visits from the tax or social security authorities.
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