Digital nomads are people who want to migrate to a new nation to work remotely, and Spain has become another country opening its doors to digital nomads.

Many nations around the world see the possibility of earning income and boosting their economy by employing foreign nationals in remote jobs in other countries. Remote employment has provided people with the perfect opportunity to see more of the world while still maintaining their careers. As a result, governments on every continent have scrambled to establish and standardize visa programs that allow foreign workers to provide services within their borders. This includes nations in South America, such as Argentina, Brazil and Colombia, as well as Central America, such as Costa Rica and Mexico. In Europe, Portugal, Greece and Italy and, more recently, Spain stand out.

Due to the abundance of cultural and gastronomic resources, pleasant climate and relatively low cost of living, Spain has long been considered a desirable location for people from other countries to settle and work remotely. Consequently, with the new Startup Law, Spain has begun issuing digital nomad visas, which allow non-EU foreigners to come and stay in the country for extended periods of time while providing services to companies located in other nations.

Why does Spain grant visas to digital nomads?

The initiative to grant special visas to digital nomads is part of Spain's efforts to become more competitive and allow access to anyone residing outside the European Economic Area, which comprises the 27 states of the European Union (EU). EU citizens do not need a visa to work in the country.

According to the Spanish government, the legislation will not only attract foreign talent and investment, but will also attempt to bring back highly skilled Spaniards who have decided to live abroad. However, while the digital nomad visa simplifies the immigration procedure, companies that allow their workers to relocate to a country where they have no legal presence are subject to additional consequences and risks. These employers must be mindful of local labor rights and tax obligations that may be triggered as a result of the relocation.

Below, we provide a summary of the most important factors that companies should consider before authorizing their workers to relocate to Spain to take advantage of the digital nomad visa.

1— Legal protection of workers

In general, the labor laws of most nations apply their own employment standards to both natives and non-citizens of the country who perform services within their borders. This is what people mean when they talk about the principle of territoriality.

However, there are some countries, such as Brazil, Colombia and Mexico, that have established some exemptions. These exemptions make it possible for foreigners working remotely for employers based in other countries to be governed by the labor regulations of the foreign country where they were hired, provided that control and subordination are exercised exclusively from those countries.

If employers allow their employees to work from Spain and the company's home country does not have a bilateral social security agreement, a specific provision or an exception to the territoriality principle with Spain, they will need to carefully examine the application, as they may be required to comply with Spanish labor regulations if they continue to allow their employees to work from here.

While some countries' labor regulations may, in theory, allow foreign entities that do not have a legal presence in their country to hire personnel, in the case of Spain, additional investigation may be necessary to determine how the company can, in fact, comply with labor and social security obligations (e.g., companies that do not have a legal presence and do not have an identification number in Spain will not be able to register as employers with social security entities, etc.).

2— Tax duties and obligations

Both companies and workers should carefully consider the potential tax requirements of living and working in Spain before relocating. Although the Spanish digital nomad visa may grant some tax advantages, in order to make offshoring attractive to workers, companies should also consider the permanent establishment and corporate tax obligations that may be triggered when they have staff providing services in Spain, in relation to the payment of corporate tax. This is because Spain requires employers to pay corporate tax in Spain.

Therefore, when processing the residency of a teleworker, the company should not establish itself in Spain, nor open one for that purpose, since in that case an intra-company transfer would be taking place. Instead, it should focus on opening a Social Security contribution account in Spain.

For this, the company must have a legal representative in Spain and demonstrate its validity as a company; as well as, present an explanatory report of the reason (wanting to have a person teleworking from Spanish territory) that leads it to want to have a Social Security contribution account in the country. For these cases, the taxes to be paid by the company will only be related to the income withholdings included in the payment of the salary to the worker.

Conclusion

COVID-19 caused a shift in the workplace and accelerated the long-growing need for remote employees. The pandemic also served as a massive wake-up call, teaching us not only that many jobs were more than feasible to do from home, but also showing us the need for flexibility that would make it easier for employees to take control of their own schedules. Certainly a necessity for those who had to commute long distances, expensive childcare and those who simply wanted to spend more time with their families.

The incorporation of foreign nomadic profiles has evidenced a long-term commitment and, as a result, an improvement in productivity, as well as a connection between the employees' personal purposes and the companies' values. The proliferation of practices of this type, we believe, is beneficial not only for workers, but also for companies, because of the benefits that both parties can obtain from it.