Spain: Remote working and permanent establishment – Does the non-resident employer have to pay taxes on profit in Spain?

Avatar photo
Warwick Legal Network
26 února, 2024


1. Introduction: approach of the question.

The new era of work is already here: remote working.

Organizations must prepare themselves to have half of the workforce working remotely. But are organizations prepared for the taxes of remote working?

What tax risks does the company have in remote working?

There are some tax risks to consider, one of them is the existence of a permanent establishment through the employee working remotely.

Therefore, the question is whether the non-resident employer has a permanent establishment in Spain, and therefore the employer must pay taxes on the profit in Spain.

Practical case. A French company French Software, SrL has an employee Marie, a software engineer. For personal reasons she wants to move to live in the South of Spain, in Andalusia.

For the profits that may be attributable to Marie’s activity in Spain, must French Software, SRL pay taxes on profits in Spain? Does the employer French Software, SRL have a permanent establishment in Spain because Marie is located and providing her services from there?

2. Main circumstances of telework: cross boarder case.

Firstly, we should stop on those characteristics of teleworking in cross boarder circumstances with a fiscal impact.

2.1.Tax residence of the employer and the employee.
In the case that was mentioned in the introduction we find the following key elements should be taken into consideration:

 Employer: French company resident for tax purposes in France. In some cases, although the group may be for instance French, the employee in Spain may depend on a subsidiary in another country, such as Switzerland or Belgium.
Employee: is a tax resident in Spain. His center of life interests is located in Spain.


2.2. Home office.
In the cases of telework from Spain for a non resident employer, normally the non resident employer does not have an office or settled place in Spain. The services are provided by the employee from his own home in Spain.

2.3. Use of technologies to provide the labor.
The employee uses technology to provide his services within the employment contract. In this aspect, we can see different modalities in our clients.

The worker does not need to physically travel to the clients or suppliers in Spain. In practice, the employee travels to other countries or visits clients in Spain or abroad on certain days.
The employee travels to Spain on some or various days to visit clients, suppliers, public administrations, etc…


2.4. Telework activity.

The activities that are carried out from teleworking can be diverse, and for its fiscal relevance, we can classify them in the following ones:

Customer service for clients located in Spain.
Management of an area of several countries.
Global management positions in a company Group outside of the European Union.
Expansion of the company in Spain.
Functions related to a specific department of the company Group.


3. Characteristics of the permanent establishment.

What is a permanent establishment? It is a legal figure that in Spanish law and in the Tax Treaties covers a double factual situation.
a) A place of business of a company (head office,), located in a different State, through which it performs all or part of its activities (Place of business clause).
b) A dependent agent (personal clause).

3.1. Place of Business Clause.

The main circumstances that are required to this place of business are:

Place of business. The company must have in the other State of installation, material means and if necessary personnel that are appropriate to carry out its activity.
Permanence. The place of business must be permanent in time. There is no specific time limit, but the time limit provided for in Article 5.3 OCDE Tax Treaty Model, which is 6 months, is taken as a reference.
Fixity. The place of business must be geographically fixed and established in a certain location.
Power of disposal. The company, head office, must have the power of disposal over the place of business).
Performance of main activity. Through the place of business are carried out the main activity of the company, head office, and not only auxiliary activities in the sense of the Art. 5.4 OCDE Tax Treaty Model)


3.2. Personal assumptions. Agency clause.

Dependent agents (Art. 5.5 OCDE Trax Treaty Model) are deemed to be permanent establishment and have the following characteristics.
a) Contractual relationship between the agent and the company.
b) Power to contract: the agent must have the power to conclude contracts on behalf of the company and to exercise it on a regular basis.
c) Legal dependence: The agent is legally bound to follow the instructions given by the company.
d) Economic dependence: The agent acts for a single company or a small number of them.

4. The remote worker as a permanent establishment: key issues.

4.1. Place of business clause.

a) Place of business: The home office can be considered in principle and without prejudice to particular cases as an installation, where there is an office and material means suitable for the worker to provide his services.
b) Permanence. The worker is in Spain permanently where he has his center of life interests (Article 4 OCDE Trax Treaty Model). In this regard that requirement may be considered fulfilled.
c) Fixity. The worker is in a fixed place in Spain. Home office may fulfill this requirement.
d) Power of disposal. In most of the cases it may not be fulfilled, see below.
e) Main activity. This is one of the main aspect as it is no clear that this circumstance through the services provided by remote worker may be fulfilled. See below.

4.2. Power of disposal over the worker’s home.

The OECD (Update guidance on tax treaties and the impact of the COVID-19 pandemic, 21.1.201) and the Spanish Tax Administration (Spanish Tax Ruling 18.1.2022) have established certain criteria.

– The company will not have power of disposal and therefore a PE will not be constituted in the following cases:

The worker has requested the transfer to Spain.
The employee has an office at the headquarters in another Country ( in the mentioned case in France).
The company does not assume the housing costs.

– The company may have the power of disposal in cases where the company relocates the employee and assumes the costs of the employee’s housing.

5. Performance of a main activity by the tele-worker.

According to article 5.4 DTA OCDE Trax Treaty Model, the exercise of auxiliary activities will not determine the existence of a PE. The criteria to be able to base the absence of a main activity would be the following.

Absence of clients in Spain for the non resident company, so it can be argued that it does not operate in Spain, see the criterion of the Spanish Tax Administration (Spanish Tax Ruling 23.12.2022).
Market served by the teleworker. In many occasions, the teleworker serves markets other than Spain such as Italy, France, Portugal.
Global activities of management or direction for the non resident, normally European, Group.

In any case, it is necessary to pay attention to the valuation that the Spanish Tax Administration may make of the circumstances.

6. Agency clause.

6.1. Contractual relationship.

With the employment relationship, this requirement would be fulfilled.

6.2. Power to contract.

This requirement normally is not met, since most teleworkers do not have the power to contract in name or on behalf of the head office nor do they exercise it habitually. Although there is no case law on the subject, it could be understood that this power to contract refers to the operation of business in Spain.

6.3. Legal and economic dependence. 

This element is fulfilled since the employment and exclusive relationship entails both legal and economic dependence.

7. Conclusion.

There is no only one solution for all cases. Each case must be studied individually, and above all it must be properly planned by a professional in order not to incur in an evident risk of permanent establishment when this could have been avoided. The legal opinion expressed in this article is personal and may not be assumed by the Tax Authorities which, as readers know, often surprise with their interpretations.

If the Tax Administrations were to consider that all European companies have PEs everywhere through the mere teleworker -and therefore they have to pay taxes on profit-, there could be a collision with the European freedoms that are part of the backbone of the European Union. To stablish extra burden to the European mobility of employees within the EU would not help to achieve the essential EU goals. Maybe there is room and an opportunity for the EU Institution to take measure to clarify this tax uncertainty in favor of this employees mobility within EU.


For further information, please contact:

David Elvira Benito, Partner

Bufete Mañá-Krier-Elvira, Barcelona


t: +34 93 4878030


#WLNAdvocate #Spain #Barcelona #EU #lawfirm #network #lawyers #lawoffice #law #business #corporatelaw #international #taxlaw #tax #remoteworking