If you're a UK limited company owner planning to move to Spain on the Digital Nomad Visa, choosing between applying as an employee or becoming self-employed (autónomo) is an important decision. Each option comes with different financial and administrative responsibilities. This guide breaks down both options to help you decide which path best suits your situation..
Applying as an Employee
If your limited company has employed you for at least 28 days, you may be eligible to apply for an A1 certificate from HMRC. This certificate allows you to continue paying UK National Insurance for up to two years (minus one day) instead of contributing to the Spanish social security system.
What are the key benefits to applying as an employee?
Delayed Payment of Tax
In Spain, self-employed individuals are required to pay income tax in quarterly installments, which amounts to 20% of their income after deducting expenses. Spanish employees, on the other hand, have their taxes deducted directly from their monthly salaries, similar to the system in the UK.
The Spanish tax authorities are unable to require foreign employers who 'post' employees to Spain (i.e. with A1 certificates) to withhold and submit monthly tax payments. As a result, your salary tax will be paid annually in a single lump sum.
As you'll no longer be a UK tax resident, you can fill out a P85 form and apply for an NT tax code, which ensures no tax is deducted from your UK salary payments. This step is optional—if you don’t opt for it and assuming that you avoid Beckham Law, you can still rely on the double taxation agreement to deduct any tax paid in the UK.
While this doesn’t reduce the overall tax you owe, it allows you to keep the funds in your account for the year, where they can earn interest.
Lower Social Security Costs
As a UK employee, you can avoid the monthly Spanish social security payments required for the self-employed.
While the payment starts at around €80 per month in the first year, it increases significantly from year two onwards—rising to approximately €450 per month for those earning just over the income threshold for the Digital Nomad Residency.
It’s important to compare this with the National Insurance contributions you’ll pay as a UK employee. For high earners, paying into the Spanish system may be more advantageous, so it’s worth calculating which option works best for your circumstances.
What Are the Key Disadvantages to Applying as an Employee?
Certificate Duration
The A1 certificate lasts for a maximum of two years minus one day and, as of January 2025, we haven't heard of any digital nomads who have managed to extend it further. This means you might need to switch to self-employed status or head back to the UK once it expires.
Application Process
Obtaining the A1 certificate can take about three months, which may delay your relocation process.
Renewal is earlier
Because the A1 certificate lasts for only 2 years minus one day, this is how long your Digital Nomad Residency approval will be. After that period is up, you'll have to reapply and go through the whole hassle of the TIE appointment process again. Whereas if you apply as self-employed, you'll usually get a 3-year approval, meaning that you can delay renewal for a whole extra year.
Applying as Self-Employed (Autónomo)
Opting for self-employed status as a limited company owner involves a commitment to contribute to Spanish social security, which provides healthcare for you and your family and eligibility for other benefits like unemployment and pension.
What Are the Key Benefits to Applying as Self-Employed?
Extended Approval
The approval for self-employed status usually lasts for three years (provided you don’t have any time-limiting contracts such as a 12-month rolling or project-based contract), compared to two years for those with an A1 certificate.
Healthcare Coverage
Social security is only 80 euros a month for the first year (in some areas, you can claim this back at the end of the year so it is almost free). It's only the main applicant that pays this, and the whole family can be covered for healthcare (with the exception of some civil partners).
(Note: if you apply as an employee with an A1 certificate, you can also benefit from Spanish public healthcare coverage through the S1 certificate, but it's a more cumbersome process).
Cap on Social Security
From year 2 onwards, the social security payment can be limited to 542.13 euros per month, no matter how high your net earnings are. This means, for very high earners, the percentage can be very small (e.g. if you earn €6,000 net a month, you can pay €542.13 – if you earn €20,000 net a month, you can also pay €542.13). Note that you can opt to pay more than this if you wanted a higher state pension in the future.
What Are the Key Disadvantages to Applying as Self-Employed?
Frequent Tax Returns
The self-employed in Spain have to do numerous quarterly and annual returns (e.g. VAT, Income tax, withheld payments to suppliers, all of which a gestor can do for you).
Higher Initial Costs
It’s very difficult to file your own taxes in Spain so you need to factor in the cost of a Gestor (advisor/accountant). The services of a gestor typically start from around 50 euros per month.
Inspections
The tax authorities are much more aggressive than in the UK about what expenses they will disallow and fine you for. Add to this the additional general stress of not knowing if you are doing things correctly (or if your gestor is) and it’s not particularly relaxing being self-employed in Spain.
Tax
You have to pay 20% income tax every quarter as a payment on account, and then you pay the difference at the year end.
Unfair contributions for lower earners
For lower earners, the social security payments are expensive (€230.15 is the minimum payment from year 2 onwards).
Tax Considerations
Whether you choose to apply as an employee or self-employed, understanding your tax liability is crucial. Use the tax calculator at AutonomoInfo to estimate your taxes based on annual net revenues. This tool provides a useful comparison, as the overall tax burden remains the same across both employment statuses.
There is no calculator for those paying National Insurance or dividends, so this is the closest you will get unless you pay for a full estimate by a tax specialist.
Conclusion
Each option offers distinct advantages as well as challenges. Your choice between applying as an employee or as self-employed in Spain should consider your financial situation, tolerance for administrative tasks, and long-term residency plans. As always, consulting with a tax professional can provide personalised advice and help navigate the complexities of cross-border taxation and benefits.
All facts and figures are accurate as of the time of writing on 08/05/2024 and are subject to changes with inflation.
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