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Criterion on the determination of tax residence in teleworking

Criterion on the determination of tax residence in teleworking

The binding consultation V0194/2021 of the General Directorate of Taxes has set criteria in relation to the tax residence of international teleworkers in the case of an employee of a British company who teleworks from Spain with the contractual condition that he spends more than 91 days a year in England.

First of all, it is important to bear in mind that the worker receives remuneration paid by a company in England and remuneration for teleworking carried out in Spain. Therefore, it is necessary to determine in which country the taxpayer is considered to be a tax resident.

Spanish legislation establishes, in Article 9 of the IRPF Law, that it is understood that a taxpayer has their tax residence in Spanish territory when any of these circumstances occurs: that they stay more than 183 days in Spanish territory, that the main nucleus of their activities or economic interests lies in Spain or when, unless proven otherwise, the spouse (not legally separated) and underage children habitually reside in Spain. 

Based on these criteria, in the case at hand we can deduce that the worker, a tax resident in Spain, will work from Spain for most of the year, so that his stay in Spanish territory for more than 183 days within the year will mean that he is considered to be a tax resident in Spain in the corresponding tax period. Sporadic absences are taken into account for the calculation of said period of stay, unless the taxpayer proves his tax residence in another country.

However, if the taxpayer turns out to be a tax resident in Spain and at the same time a tax resident in the United Kingdom (according to its regulations), there would be a conflict of residence between the two States. How is this conflict of residency resolved? Through the application of the Agreement between Spain and the United Kingdom and Northern Ireland to avoid double taxation and prevent tax evasion in matters of income and wealth tax and its Protocol (Article 4.2).

So what options are there for the taxpayer? That he is considered a tax resident in Spain or a tax resident in the United Kingdom.

Telework: Tax Resident in Spain

It should be borne in mind that in this case income from work is received, on the one hand, for work done in England and, on the other, for teleworking from Spain.

Income received for work done in England

In the case of considering the taxpayer as a tax resident in Spain, the DGT affirms that the income received from the work activity carried out in England can be taxed in both states, eliminating double taxation according to Article 22.1 of the aforementioned Agreement, by deducting from the Spanish tax an amount equal to the income tax paid in the United Kingdom.

Income received for teleworking from Spain

In relation to the income obtained from the activity carried out in Spain through the teleworking regime, the DGT understands that the employment is exercised in Spain, and it is irrelevant that the fruits of the work are received by a British company, so such income will only be taxed in Spain.

In this sense, it is important to highlight what the DGT points out in the consultation: “The aforementioned work is actually carried out in the place where the employee is physically present when carrying out the activities for which said income is paid. As a consequence of this principle, a resident of a Contracting State who receives remuneration for dependent labor from sources located in the other State may not be subject to tax in that other State in respect to said remuneration for the mere fact that the results of their work are exploited in that other State.” (Paragraph 1 of the Comments on Article 15 of the MCOCDE).

Telework: Tax Resident in the United Kingdom

  • The income from work received for the activity carried out in England will not be subject to tax in Spain since the work is not carried out in Spanish territory.
  • Regarding the income received from teleworking carried out remotely from the home in Spain, this is taxed in the United Kingdom, but may be taxed in Spain (shared power), since it is 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 the British tax. The country where the work is carried out remotely may tax the income obtained due to the principle of territoriality.

GD Global Mobility are experts in international taxation. If you need correct tax planning to ensure effective compliance with tax obligations, you can contact our professionals in international mobility.

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