Our definitive conclusion is that there must have been a project to create a specific type of visa for this public so Spain can control tax payments
Some interesting points to be known by those who are planning to move and remote work in Spain and by the foreign companies they work for:
Nature of the problem
The Non-Lucrative Visa has been in last years the instrument that work nomads, remote workers or teleworkers used to be able to obtain legal residency in Spain and keep their employments for the foreign companies they were employed.
In recent months, a number of Consulates are denying this visa, even when applicants are meeting the requisites established by Law for the granting of these permits
Who are these visas created for? What are the granting requisites?
These visas are intended for non EU nationals who wish to reside in Spain without engaging in any work or professional activity.
It does not apply to EU citizens or to nationals of countries to whom EU law applies as they are beneficiaries of the European Union rights of free movement and residence.
In short, requisites of the NLV to be conceded are as follows:
- No Criminal records
- Public or private health insurance taken out by an insurance company authorized to operate in Spain
- Medical certificate, issued by a registered medical practitioner, no later than 3 months prior to the date of application
- Financial means required to cover the living expenses and, where appropriate, those of their family members, for one year, as follows:
– For the support of the main applicant, monthly, 400 % of the IPREM (Indicador Público de Renta de Efectos Múltiples), which in 2021 amounts to 564,90 €, being 2.259,6 € or its legal equivalent in foreign currency.
– For the support of each of the family members in charge, monthly, 100% of the IPREM, which in 2021 amounts to 564,90 € or its legal equivalent in foreign currency.
The availability of sufficient financial can be derived from the holding of an estate or from shares or participation in Spanish, mixed or foreign companies.
Can the Spanish Law stop people to work for a foreign company while residing with Non-Lucrative Visas in Spain?
From our point of view, at present and till a specific visa for remote workers is created, the only possible visa permit for someone who develops professional activities in Spain, from home and for a foreign company is the Non-Lucrative Visa.
A variety of employment visas exist for those who work for a Spanish company, a foreign company with a permanent establishment in Spain or work transitorily in Spain for a foreign company.
A specific visa exists for those who are self-employed, whatever the nationality of their clients is.
No visa exists for remote workers for a foreign company working from home.
Is there a taxation problem behind?
More than a tax problem, the difficulty for controlling the taxation is what is behind, in our opinion.
Non-lucrative visa home-teleworkers are obliged to pay taxes in Spain. It was clear they were tax resident as once you live 183 days in Spain (even if your centre of economic interests is not in Spain) you become a taxpayer in Spain for all your assets and income worldwide, but taxation of work income when these are generated and used by a foreign company was questionable, especially as the ODCE Double Tax Treaty Model established in article 15:
ARTICLE 15 INCOME FROM EMPLOYMENT
1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State.
2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if:
a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve month period commencing or ending in the fiscal year concerned, and
b) The remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
c) The remuneration is not borne by a permanent establishment which the employer has in the other State.
From the reading of that article it can be concluded that being resident in Spain (for instance) if the work is exercised in the UK (for instance too), this work can be taxed in Spain, always provided the stay in the country of work is shorter than 183 days, remuneration is not made by a resident of that country or not borne by a permanent establishment of the employer in that country.
This above led to the conclusion that teleworkers resident in Spain, working from home, would be under UK taxation. Something that both the ODCE and the Spanish Tax authority has disliked:
The ODCE, in its commentaries to article 15 sets:
Paragraph 1 establishes the general rule as to the taxation of income from employment (other than pensions), namely, that such income is taxable in the State where the employment is actually exercised. The issue of whether or not services are provided in the exercise of an employment may sometimes give rise to difficulties which are discussed in paragraphs 8.1 ff. Employment is exercised in the place where the employee is physically present when performing the activities for which the employment income is paid. One consequence of this would be that a resident of a Contracting State who derived remuneration, in respect of an employment, from sources in the other State could not be taxed in that other State in respect of that remuneration merely because the results of this work were exploited in that other State.
And our Spanish General Directorate of Taxes (DGT) in its very recent binding answer to a consult V0194/2021 dated February 2021 has also said:
Regarding the income received from teleworking carried out “remotely” from your home in Spain, they are taxed in the United Kingdom, but may be taxed in Spain, since they are derived from a personal activity carried out in Spanish territory.
In the latter case, the United Kingdom, as the country of residence, must eliminate double taxation by deducting the Spanish tax due from British tax.
In short, the country where the work is carried out remotely will always be able to tax the income obtained, by applying the criterion of territoriality, regardless of whether or not it is considered a resident in that country and whether the rules to avoid double taxation.
Conclusions: urgent legislative work needed
As some colleagues have agreed these interpretations seem in contradiction with the very letter of the article and of course, are interpretations which are not adapted to our virtual world but, in any case, they are protecting Spain from not being able to tax those workers for their work income.
The problem for the Tax administration is how? If they are working for a foreign company, receiving salary in foreign bank accounts, not registered in Spanish Social Security system, not registered (them or their companies) in the Tax Activities Registry.
A matter of legislative work to be done urgently as Spain is losing hundreds of taxpayers, residents and consumers… in the meantime.