Payment of social contributions to Denmark or Spain?

If the director resides in an EU country other than Spain and already pays contributions to social security in this country, it will be necessary to clarify which of the two countries is entitled to payment, as otherwise there will be a double payment of social contributions in both countries.

Regulation within the EU

EU Regulation No. 883/2004 of 29 April 2004 on the coordination of social security determines which legislation must be applied in cases when:

• A person who pursues an activity as an employed person in two or more Member States.
• A person who pursues an activity as a self-employed person in two or more Member States.
• A person who pursues an activity as an employed person and an activity as a self-employed person in different Member States.
• There is a temporary secondment to a member state other than the person’s country of residence.

EU Regulation No. 987/2009 of 16 September 2009, which entered into force on 1 May 2010, lays down the rules for implementing EU Regulation 883/2004 on the coordination of social security schemes, including provisions on cooperation between the social security authorities in the member states.

Which country´s law applies?

Often, when starting a business in Spain, there is an initial period when the company has not yet made any hires, or you may not intend to have employees at all, as you continue to operate a business in another country and think you can run the Spanish business remotely.

The start-up takes place either by registration as self-employed or by founding a Spanish company, but in both cases the Spanish authorities will require payment of Spanish seguridad social.

When in this situation you continue to pay social contributions to another country, it raises the question of whether you also must pay social contributions to Spain?

According to Article 13 of EU Regulation 883/2004:

• a person who normally exercises self-employment in two or more Member States, is covered by:
  • the legislation of the Member State of residence, if the person carries out a significant part of his business in this Member State; or
  • the legislation of the Member State in which the centre of interest for the person’s business is located, if he is not resident in one of the Member States where the person exercises a significant part of his business.
• a person who normally exercises both self-employment and paid employment in different Member States is covered by the legislation of the Member State where the person exercises paid employment.

How do I avoid paying doble contributions?

Self-employed or employed persons carrying out commercial activity or paid work in more than two Member States must notify the relevant authority in their country of residence and request a certificate detailing to which social security contributions are to be paid.

The procedure to be followed for this avoidance of payment of double contributions is regulated in Article 16 of EU Regulation 987/2009 of 16 September 2009, which establishes the following general features:

• It is necessary to inform the relevant authority of the Member State of residence about the exercise of activity in two or more Member States.
• The relevant authority must be requested via form TA.300 to issue form TA.1, in which it must be stated which country’s law is applicable in the specific case. Form TA.1 must be sent by the relevant authority to the other member state and ask for its consent.
• In Spain the authority is “TGSS, Servicio de Asuntos Internacionales”.
• In Denmark the authority is “Udbetaling Danmark, International Social Sikring”. https://indberet.virk.dk/international-social-sikring/international-social-sikring
• In Sweden the authority is Försäkringskassan https://www.forsakringskassa.se/arbetsgivare/medarbetare-som-ska-arbeta-utomlands
• If the other member state has not responded after two months, the law specified in TA.1 is considered to be valid and finally accepted.
• If the other member state is in doubt, the two member states will try to reach an agreement in accordance with Article 6 of the EU Regulation.
• If no agreement is reached, they will ask the applicant for more information.
• If the required information is not provided, the relevant authority in the Member State of residence will determine which law shall apply.

Unpaid activity in more than two member states

It is not only paid work or the exercise of self-employment that in Spain will lead to demands for the payment of social contributions. It can also be an unpaid activity, such as the activity a sole administrator in a Spanish company without employees carries out via the company’s subscription rule, even if the sole administrator does not receive a salary for this.

The Spanish authority TGSS will consider the person to be carrying out an activity in Spain and will therefore require the payment of social security contributions. If the administrator carries out an activity (as employed or self-employed) in another Member State, and from this derives personal income and pays social security contributions in this Member State, it will be necessary to follow the procedure described earlier in order to avoid payment of social security contributions in both Member States.

Tax residency – full tax liability

It is not only the double payment of social contributions to two Member States that has economic consequences. When social security contributions are paid to Spain, the Spanish tax authorities may take this into account when determining whether the person can be considered a tax resident, which may result in additional requirements for the payment of income tax.

Conclusion

If you are already registered in a Scandinavian country and pay contributions to social security, you should obtain a certificate for the current social security law from the relevant authority, so that you avoid unnecessary demands for payment of seguridad social to Spain.

If you are in the process of setting up a Spanish company where you expect to be appointed as a sole administrator, and there are no plans for hiring employees for an initial period, this process should be started as soon as possible with the relevant Scandinavian authority, and preferably before Spanish incorporation document has been finally registered in the Spanish commercial register.