The presence of Digital Nomads in Spain has been essential for the modernization of the labor market , providing workers with complete freedom and companies with the ability to recruit global talent. However, these promises are affected by labor and tax complexities that vary depending on the type of employment and location.
According to the recent Startup Law, the definition of a digital nomad is an “internationally telecommuting worker,” whether employed in a “work activity” or self-employed with a “professional activity,” exclusively working remotely through computer and telematic means.
The law focuses on displaced workers from non-EU countries who come to Spain to work for foreign companies, allowing them to apply for a residence visa for up to one year and a three-year authorization for “internationally telecommuting.”
This situation comes with tax benefits, as individuals will be taxed under the Non-Resident Income Tax (IRNR) instead of the Personal Income Tax (IRPF), following the path of the Beckham Law since 2005 to attract foreign professionals. However, a 20% limit is established for the professional activity of self-employed individuals with Spanish companies to prevent tax evasion and maintain competitive fairness with local freelancers.
Taxation and Social Security Contributions of Digital Nomads in Spain: Challenges and Legal Perspective
National digital nomads working for international companies are subject to Spanish tax legislation, being considered tax residents in Spain if they spend more than 183 days in the country during the calendar year. This regulation also takes into account the location of the “main center” of their activities and economic interests, as well as the habitual residence of their spouse and minor children. Both freelancers and employees must adjust their taxation to the country of tax residence, with the key influence of international agreements.
In the case of a Spanish company hiring a teleworker from a country with an agreement, and the teleworker establishing tax residence in that jurisdiction, exclusive tax authority lies with that country. This means that Spain cannot tax the income of the digital nomad under the Personal Income Tax (IRPF) or Non-Resident Income Tax (IRNR), even if the Spanish company is the payer. Social security contributions present challenges, especially for employees, as freelancers manage their obligations with Social Security on their own. When a foreign company displaces an employee to Spain, the response depends on the location of the work and the residence of the employee.
Although current regulations are not tailored for exclusive digital work, the European Commission has pushed for an agreement on cross-border teleworkers that allows choosing the applicable legislation. This gives workers the option to be governed by the laws of the country where the company is headquartered or domiciled, as long as cross-border telework does not exceed 50% of the total working time in the State of residence.
Rumors of Flexibility and Legal Obstacles: An Analysis of the International Pact for Digital Nomads
So far, Germany, Switzerland, Liechtenstein, the Czech Republic, Austria, the Netherlands, Slovakia, Belgium, Luxembourg, Finland, Norway, Portugal, Sweden, Poland, Croatia, Malta, France, and Spain have signed the international pact, indicating progress in labor flexibility. However, uncertainties arise regarding non-European countries without bilateral agreements, especially given the apparent contradiction between Social Security provisions and the Startup Law.
In the absence of bilateral Social Security agreements with non-EU companies, there is a need to open a contribution account and establish an entity in Spain to register displaced workers, contradicting the flexibility intended by the regulations.
Although current regulations address tax and contribution issues, salary-related matters and working conditions, crucial aspects for digital nomads, have not yet been tackled. The attractive possibility of working in Spain and receiving salaries equivalent to countries with higher average incomes remains uncertain and raises legal disputes globally. Despite companies theoretically negotiating within the limits of agreements, the advantage of hiring nomads lies in adapting to the conditions of the worker’s country of residence.
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