Digital nomads

Digital solutions combined with the pandemic has meant an increase in so called international remote work, meaning when a person is formally employed in Scandinavia but works remotely from Spain without being included in the specific legal regime of posted workers.

To offer this possibility can clearly be a competitive advantage, for example when recruiting on a job market where competition to hire talent and qualification is fierce.

However, the company needs to consider a number of aspects, in order to manage to make the international remote work a strength and not a liability.

Labor regulations

The parties to an employment agreement can chose the applicable law. Therefore, it is possible to agree that the law applicable to the employment agreement of a person working in Spain for a foreign company, shall be the law of the company’s home country and not Spanish law. However, it is important to take into account that a large part of the provisions in Spanish labor law are mandatory. This means that they will apply to all workers on Spanish territory regardless of the applicable law chosen by the parties.

A very clear example of how this may work in practice is the case of a dismissal. A worker located in Spain may well claim compensation before Spanish courts instead of settle for the possibly lower compensation offered by the employing Scandinavian company in accordance with the law that – theoretically – governs the contract. A different issue is whether the country where the company is located and where the ruling will ultimately have to be reinforced, will recognize that application of Spanish law.

Other Spanish regulations that will apply are those concerning safety and risk prevention and mandatory registration of working hours.

To sum up, the fact of locating a worker in Spain implies some administrative obligations and it is important to keep in mind that mandatory Spanish legal provisions may be applicable in some aspects.

Social security

The Spanish social security regulations are very clear on that social security fees should be paid in Spain for any worker that is carrying out his or her tasks on Spanish territory. This obligation has nothing at all to do with which law applies to the contract or if the company has not got any presence in Spain apart from the international remote worker. Paying social security fees is mandatory and if the company does not comply, it risks large fines.

What about Temporary work agencies or hiring the person as a freelancer?

These commonly used solutions can certainly be a good option when the role of the worker actually adapts to what they are designed for.

In the case of Temporary work agencies, for example, it should be pointed out that it is only allowed to hire workers through another company if it is an authorized temporary work agency. Also, there are requirements to comply with regards to the duration of the hire and the previous staff situation.

When it comes to freelance working, this is an option only if the worker is actually independent. If he or she is treated as an employee in terms of instructions, schedule, etc., Spanish courts could easily rule that the person is in practice not freelancing and should have all the rights of an employee. A sort of hybrid exists in Spanish law, which allows a freelance worker to work exclusively or almost exclusively for one company, who in turn grants the dependent freelance worker some of the rights of an employee.

Tax issues

Tax issues will be relevant in two senses in the case of an international remote worker.

On the one hand, in Spain like in the Scandinavian countries, these is the figure of permanent establishment. A company with a permanent establishment in Spain is tax liable for the income generated in Spain and has wider obligations as to tax declarations and accountancy. To assess whether a worker located in Spain implies a permanent establishment, the Spanish tax agency looks at aspects such as:

If the worker has a general power of attorney to represent the company.
If there is an office or a physical space belonging to the company where the activity is carried out.

However, the issue of whether there is a permanent establishment in Spain will be assessed on a case-to-case basis.

The second tax- related aspect is what taxes the employee will pay in Spain. The fact of having a foreign employer and employment contract doesn’t affect the fact that the person will be considered a Spanish tax resident if complying with any of the conditions for that (the most common one being that they have spent more than 183 days in Spain during the natural year).

This is not irrelevant for the company.

Firstly, because it will trigger the question of if the company needs to withhold taxes from the employee’s salary and pay them to the Spanish tax agency. At the moment, the tax agency has stated that this will not be necessary as long as the company doesn’t have any activity or permanent Establishment in Spain.

Secondly, and importantly, the Spanish authorities will find out about that there is a Spanish resident working remotely through the worker’s income declaration. This is one of the reasons that situations of irregular remote work tend to surface.

So, can it be recommended to have remote workers in Spain?

At present, the Spanish law with regards to international remote work is largely sectorial and therefore it can be hard to get a clear image of all the implications. A legislation package dealing with at least some of the questions that arise from the international remote work situations is underway but will likely not be done until around summer of 2022.

It is also interesting to point out that the legal issues that international remote work situations potentially can give rise to are likely to bounce back and forth between countries. Just consider, for instance, the issue of a Spanish court ruling on payment of damages according to Spanish law to an employee with an employment agreement theoretically governed by a different law. Will this ruling actually be enforced by a court in one of the Scandinavian countries? It is recommended to get both detailed and practically oriented legal advice.

It has to be recognized that international remote work remains a complex area legally speaking. However, if all aspects are considered and the company can make an informed decision it is in many cases possible to make the arrangements to manage to make the international remote work an advantage and not a problem.