Spain has long been a favorite holiday destination for many sun-seekers in the UK. The proposed introduction of a new digital nomad visa, opening the door to both “working holidays” and longer-term relocations, will therefore be good news for employees.
But will these potentially complex agreements now be easier to manage for employers? We take into account the potential impact on employment, immigration and taxation.
The pandemic has seen an increase in requests from employees to work remotely in another country, often for an extended period. Initially, requests were generally for short-term crisis-related relocations. Increasingly, however, requests are for permanent or semi-permanent moves abroad, with the trend continuing even though the public health crisis has now subsided.
The challenges of the “digital nomad”
Such demands create headaches for employers. No one wants to antagonize their staff or step back in the talent war. At the same time, employers face a litany of legal issues which we have already covered in detail. Would the employee’s activities in the third country create a “permanent establishment” for corporation tax purposes? Will the employer need to register to withhold income tax and pay employer payroll taxes? Does the employee have the right to work or could the employer face immigration penalties? Would the employee find himself in possession of a multitude of local employment rights, being able to sue the employer before a local labor court of which he knows little in the event of a dispute? Will the local labor inspector knock on the employee’s door? What about data protection? Regulatory issues? Health and security?
It is therefore understandable that employers tend to be cautious on this issue. This may mean that requests are denied, permissions are time-limited, or permission is only granted in specific circumstances (eg where there is an existing local entity which may employ staff). The employers of record present a possible solution, but this arrangement is not without its challenges.
Digital nomad visas – the legal implications
Is there a better way? Some countries think so: The Bahamas was the fastest with a “digital nomad visa”. The basic premise behind this is that, in return for attracting well-paid staff to come and spend their earnings in the local economy, the visa requirements mean employers won’t have to worry about these complex issues. Countries as diverse as Estonia and the United Arab Emirates have since followed suit.
Now comes a possible game-changer for UK employers: the so-called ‘start-up law’ recently presented as a bill to the Spanish Parliament, with approval expected by the end of 2022. this aims to establish a completely new visa and residence permit. for “digital nomads” which will allow people working remotely for foreign companies to live in Spain without the need for a full work visa or a local sponsoring entity.
This latest development will be of particular interest to many UK employers, given Spain’s enormous popularity as a tourist destination and second home for Britons; at the end of 2020, it was estimated that there were over 380,000 British citizens residing in Spain. However, employers will need to pay close attention to detail: while the new visa will make life easier when it comes to immigration law, there is still a potential prick in the queue when it comes to tax and labor law.
If approved, the bill will mark a turning point in Spanish immigration law. Permit holders will be allowed to work remotely in Spain provided their employer is located overseas and does not operate a Spanish entity. In addition, independent “freelancers” will be able to work for Spanish clients, provided that the time spent does not exceed 20% of the individual’s professional activity.
Under the proposed legislation, two main immigration pathways are available to individuals:
- Visa for international teleworking: this is intended for qualified professionals, graduates, postgraduates from renowned universities, vocational education and renowned business schools or candidates with at least three years of professional experience.
Foreign nationals (not habitually residing in Spain) who intend to stay and work remotely for a company not based in Spain could apply for a visa valid for up to one year, or the duration of their employment contract if shorter.
Visa holders would also have the right to apply for an “international remote work residence permit”, starting 60 calendar days before the expiry of their visa, provided that the conditions which led to the granting of their initial visa are still fulfilled.
- Residence permit for international teleworking: foreign nationals holding the “visa for international remote work”, or who otherwise have the legal status to reside in Spain, could apply for this type of permit.
This permit would be valid for up to three years, or the duration of the contract if it is shorter. Thereafter, holders would be entitled to renew their license for two-year periods, provided that the conditions of its initial approval continue to be met.
The labor law implications of the proposed visa, however, are more complex. If employees work remotely in Spain for UK employers under the new visa, the arrangement will not be considered a “posting” under Spanish law which implements the EU Posted Workers Directive. This means that (under this legislation at least) none of the local legal protections associated with postings – including the requirement to grant posted employees certain minimum employment rights and conditions – would apply.
Even where visa holder contracts are governed by UK law, the position on the application of local employment laws is not straightforward. Although an individual employment contract may be governed by the law agreed between the parties, this choice of law is not absolute; under EU rules, certain mandatory rules (i.e. those which cannot be derogated from by agreement) cannot be outsourced.
This raises the question of which mandatory rules prevail over this choice of law? These are the mandatory rules of the country:
- in which the employee “usually” performs his work;
- in which the place of business through the employee is located; Where
- which is “more closely related” to the contract on the basis of all the existing circumstances.
When a comparison is made between the law chosen by the parties and the applicable mandatory rule, the one that best protects the employee will apply.
In this context, this means that full Spanish law (including applicable industry-wide collective agreements) would apply to UK employees working remotely in Spain if the following conditions are met:
- Spanish law gives them enhanced rights compared to British law; and
- the employee will usually carry out their work in Spain (it is important to determine how long the employee will stay in Spain while working remotely versus the time they will spend providing services from the UK), Where the employee is able to prove stronger links with Spain than with the UK (for example: if social security contributions are paid in Spain; the employee becomes a Spanish tax resident; or has worked in Spain longer than he worked in the UK).
With this in mind, it may sometimes be prudent for foreign employers whose employees are working remotely from Spain under the proposed visa to recognize and grant the minimum working conditions established by Spanish law and the applicable Spanish CLA. . In particular, this would be desirable with regard to the rules relating to accidents at work, which would involve the Spanish labor authorities. However, what is appropriate will depend on the circumstances, and we recommend that you seek local advice on a case-by-case basis.
The “Start-up” bill does not include any specific provisions on corporation tax. This means that whether a company will be considered to have a permanent establishment in Spain because it sends an employee there under the new visa regime will be determined by existing legislation. In addition, the double taxation agreements signed by Spain will continue to apply. Although this is a specific issue – the mere presence of a digital nomad does not necessarily mean that there is a permanent establishment in Spain – it may constitute a practical limitation for employers allowing staff to avail themselves of the new visa.
Income tax and social security
As long as an employer does not carry out an “economic activity” in Spain (defined as “the organization for its own account of means of production and/or human resources, with the aim of intervening in the production or distribution of goods or services”), which will be the case for most digital nomads, there will be no obligation for the company to withhold income tax from work in Spain.
As the “digital nomads” will carry out their activity in Spain, they will be covered by the Spanish social security system and will therefore have to contribute to it. That said, those who have a valid certificate of social security coverage issued by a Member State of the European Union or by a state with which Spain has signed a social security agreement (which includes the United Kingdom under the post-Brexit trade agreement), will be exempt from this obligation.
And then ?
Time will tell if the proposed new visa will lead to a further upsurge in work applications from Spain, and businesses should closely monitor the extent to which other countries follow Spain’s lead in introducing measures. similar. Although not in place for this summer season, if the Spanish government goes through with its plans, employers may consider relaxing their rules on employees working from home in Spain over the coming summers.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.