If you're reading this, chances are you're dreaming of spending your evenings on the beaches of Spain while remotely hitting your targets at work. While Spain's new Digital Nomad Visa has made your dream a possibility, first you need to convince your boss to let you work remotely from Spain.
In this article we'll cover some of the concerns which you and your employer might have about tax and other legal matters along with suggestions of how to overcome these issues.
How do I work remotely and pay tax?
As Benjamin Franklin famously said, there are two certainties in life: death and taxes.
What is certain is, if you spend the majority of the year in Spain, or if you have your family or the centre of your economic interests in the country, you'll have to pay Spanish tax.
But how does this work for a digital nomad working remotely whose employer is deducting UK tax each month?
You or your UK employer could apply for an NT code and pay you gross (i.e. without deducting tax). You'd then pay any tax due in Spain through your tax return.
This means that tax shouldn't be an issue for your employer as there will only be a small admin change.
Social Security and working remotely
Known as National Insurance in the UK, this is the tough part.
Paying social security gives you the right to healthcare, a government pension and other benefits such as sickness and unemployment pay.
But what happens if, for example, you get sick or made redundant but don't live in the country where you are paying social security? This is where things get complicated.
For UK employees working remotely abroad temporarily, the UK has social security agreements with the EU, which means you pay national insurance contributions in the UK while working abroad. These were set up long before remote working became popular to cover, for example, British ski reps working in the Alps or lorry drivers working all over Europe.
If your employer is willing to 'send' you abroad for a period of 2 years, they will be able to apply for a certificate from HMRC which can be used as evidence that you are covered for social security purposes while abroad.
This certificate could be used as evidence of social security coverage when you apply for the Digital Nomad visa.
Although intended for temporary workers only, HMRC say that there's a possibility that you'll be able to extend the period of the certificate to longer than 2 years if you provide a signed statement giving reasons why it would be in your best interest to remain UK insured.
Another option is for your employer to register to pay social security in Spain. To do this, they will need a legal representative with a Spanish address, which could be you, the employee.
Other Legal Matters
Your employer may be concerned about other issues with you working remotely such as complying with employment laws, data protection, intellectual property rights and dispute resolution. This is beyond the scope of this article and you'd have to get proper legal advice if these are a worry.
Something else to keep in mind if you'll be making sales or finalising any kind of contracts while in Spain is the permanent establishment risk. If sales and contracts are being made in Spain, there's a risk that Spain's tax authorities could theoretically oblige your employer to pay Spanish corporation tax on any profits made from these activities. This probably wouldn't be an issue if the functions you are performing in Spain are complementary to those carried out in the UK and if you are not acting in the name and on behalf of your employer but, again, you'd need to get legal advice if this is a concern.
Alternative ways of working remotely from Spain
So, as we've seen, there are many issues involved for your employer which could mean that they aren't keen on employing you as a remote worker in Spain.
But don't give up! Let's take a look at some alternatives to being a direct employee.
1. You could register as self-employed
This would be the best option for your employer as it would be simple. You'd work as a contractor, sending your employer an invoice each month and they'd pay it along with all of their other supplier invoices.
However, it's likely not to be the best option for you as you'd lose all of the rights you have as an employee, such as holiday pay and protection from unfair dismissal. The self-employment option is one to go for only if you have a good relationship with your employer, are financially strong and have a back-up plan.
Spain has a bad reputation for being one of the worst places in Europe to be self-employed but this is because social security payments are fixed each month, making life difficult for those who have a sporadic income. Think Class 2 UK national insurance contributions but much higher. This isn't a big issue for those who make a stable amount each month as you'll hopefully be doing.
What can be a worry are the responsibilities in terms of filling reports when you are self-employed. However these can be outsourced to a company such as ourselves.
2. Your employer could set up a company in Spain
This may sound far-fetched to some but, especially if your employer has expansion plans, setting up a branch in Spain could be an option.
This would be the best deal for you as you'd keep all of the advantages of being an employee whilst working remotely. Your employer would set up a Spanish company and run monthly payroll, as well as meeting all of their other obligations.
3. Your employer could use an Employer of Record
An Employer of Record is a middleman, a Spanish company which would serve as your legal employer, charging your employer a fixed fee each month.
This sounds ideal but comes at a price as the Employer of Record is taking on a lot of administrative and legal responsibility. Employer of Record services can cost as much as $699 per month for each employee, which means that they aren't feasible for most.
The tax, social security and legal issues involved in working remotely may seem daunting, but with a little research and lots of flexibility, your new digital nomad lifestyle can become a reality. Good luck and please get in touch if you have any questions.
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