Why Applying for Spain’s Digital Nomad Visa via W-2 and a Certificate of Coverage Isn’t the Best Path for Company Owners

If you’re a US-based W2 employee dreaming of working remotely from Spain, there’s great news: you can now qualify for Spain’s Digital Nomad Visa (DNV) using a Certificate of Coverage. This allows you to keep your W2 job, remain covered by the US social security system, and avoid Spain’s higher social security costs—for now.

But what if you’re not just an employee? For Americans who are both employees and business owners, the situation is far more complex. Spain’s rules around self-employment and business ownership can create confusion and compliance risks, especially when US and Spanish systems don’t align.

Let’s break it down.

Self-Employment in the US vs. Spain: Key Differences in Registration and Social Security Obligations

The way businesses and self-employment are structured in the US doesn’t always translate smoothly to Spain. Here’s a comparison:

In the US:

1. No Formal Self-Employment Registration

• Self-employment in the US is a tax classification, not a legal status.

2. Business Owners Can Operate Without Being "Self-Employed"

• In an S-Corp, owners who work in the business must pay themselves a reasonable salary as employees, subject to payroll taxes (FICA, split between employer and employee). Dividends or distributions from the S-Corp are not subject to self-employment taxes, so the owner is not considered "self-employed" for those earnings.
• In a C-Corp, owners are typically employees receiving a salary, and any dividends are taxed separately, not as self-employment income.

In Spain:

1. Mandatory Registration for Self-Employment

• In Spain, anyone pursuing self-employment must complete a formal registration process before beginning any business activity. This includes registering with the Spanish tax agency (Agencia Tributaria) and the social security system (Seguridad Social). These steps ensure compliance with tax laws and establish your obligations for taxes and benefits from day one.

2. Strict Classification of Self-Employment

• Owning or managing a business almost always designates you as self-employed (autónomo), regardless of how your business is structured or how you receive compensation.

3. Responsibilities of Autónomos

• As a business owner, you are required to meet autónomo obligations, which include mandatory social security contributions—even if you receive a regular salary.

The Catch for DNV Applicants

Spain doesn’t recognize the US distinction between “owner” and “employee.” If you’re the boss, you’re self-employed in their eyes, no matter how your business is structured.

Comparing Business Structures: US vs. Spain

Common US Business Structures:

• Sole Proprietorship: No legal distinction between you and your business. You’re self-employed and report all income on your personal tax return.
• LLC or Corporation (C-Corp, S-Corp): Separate legal entities offering flexibility in taxation. For example, S-Corps allow owners to split income between salary and distributions, reducing self-employment tax.

Key Takeaway: LLCs and corporations provide legal separation and flexible tax options, unlike sole proprietorships.

Common Spanish Business Structures:

• Autónomo: Similar to a US sole proprietorship or single-member LLC but without the legal shield of an LLC. Personal and business assets are not separated.
• SL (Sociedad Limitada): Spain’s version of a limited liability company, similar to a US C-Corp. However, owners managing the business or holding significant shares must register as self-employed (autónomo societario).

Key Difference: Spain’s autónomo model lacks the legal and tax flexibility of US structures, making it harder to separate personal and business roles.

The Digital Nomad Visa: What You Need to Know

When applying for Spain’s DNV, three key authorities come into play: immigration, tax, and social security. Each has its own perspective on your business and employment status.

1. Immigration

• In Spain, the Unidad de Grandes Empresas (UGE) is responsible for reviewing DNV applications. It’s estimated that they spend an average of 10 minutes per application, offering minimal opportunity to explore the complexities of a business’s structure.
• Since the DNV’s introduction in 2023, the majority of U.S. business owners have applied as independent contractors operating under their own LLCs. This approach simplifies the process for everyone involved—unless it’s immediately obvious from the submitted documents that you own the company (for example, if the business shares your name, it can be a clear giveaway).
• If the UGE identifies you as the owner of the company, they will request several more documents, including the latest tax return, proof of ownership, evidence of investment in production assets, and an official employee record. The purpose? To determine whether your business has the necessary substance and resources to sustain you throughout the three-year residency period.
• The primary responsibility of the UGE is to ensure that submitted documents comply with legal requirements. Rather than delving into intricate details, the focus is on verifying that all the necessary boxes are checked. Whether you're a business owner or an independent contractor, simply submit the required documents, and approval is almost guaranteed.

2. Tax

• Even with DNV approval, your setup may still draw attention from Spanish tax authorities. If they conclude that you are primarily operating in Spain while paying less tax than anticipated, you could face challenges during future inspections. For instance, they might determine that you unintentionally established a permanent establishment in Spain, making you liable for Spanish corporate taxes.

3. Social Security

• A Certificate of Coverage may temporarily exempt you from Spanish social security, but if authorities later determine that you should have registered as self-employed, it could result in retroactive payments, accrued interest, and fines.

Self-Employment Rules: A Comparison

In the US:

• Self-employment depends on how you earn and report income.
• Sole proprietors and single-member LLC owners are almost always self-employed.
• S-Corp owners avoid self-employment tax on business profits and are not classified as self-employed.

In Spain:

• Owning 25% or more of a company and managing it typically requires self-employment registration (autónomo societario).
• Owning 50% or more makes it nearly impossible to avoid self-employment obligations.
  Bottom Line: Spain’s rules are stricter and focus on ownership and control, leaving little room for the flexibility US business owners enjoy.

Risks of Applying for the DNV as a Business Owner/Employee

Before applying for Spain’s DNV using a Certificate of Coverage, consider these potential risks:

1. Retroactive Liabilities

• Spanish authorities can retroactively determine that you should have registered as self-employed, leading to years of back payments, interest, and fines.

2. Permanent Establishment

• Working from Spain for your US business might trigger “permanent establishment” rules, subjecting your company to Spanish taxes, additional paperwork, and legal obligations.
• Pro Tip: Compliance isn’t just about ticking boxes on paperwork—it’s about aligning with the spirit of Spanish law.

Conclusion: Plan Ahead to Avoid Headaches

The ability for US W2 employees to use a Certificate of Coverage for Spain’s Digital Nomad Visa is a game-changer, but it doesn’t override Spain’s fundamental rules. If you’re a business owner, especially with an LLC or S-Corp, applying as an “employee” of your own company might seem like a clever workaround—but it could lead to significant compliance challenges later.

To make your move to Spain as smooth as possible:

• Understand how Spanish authorities define your role and obligations.
• Seek expert advice to ensure compliance on both sides of the Atlantic.
• Plan ahead to avoid costly surprises down the road.

For tailored guidance, consult Move To Spain Guide for immigration-related questions and My Taxes for tax compliance and planning. Our combined expertise can help you navigate the complexities of Spanish law and ensure you’re fully protected. By taking these steps and seeking the right advice, you can enjoy the benefits of Spain’s Digital Nomad Visa while avoiding unexpected legal and financial pitfalls.