We share and analyze an interesting binding consultation by the DGT (DGT CV 25-10-22) on the taxation of earned revenue for a company from another country through teleworking.
Teleworking and imputed income
We set out the case:
A Spanish employee and tax resident in Spain is going to work remotely for a Netherlands company without the need for the worker’s physical presence on the Dutch territory where the company is located.
In this scenario, many queries arise in the area of taxation. This is why, in order to address taxation issues, the employee in question submits a query to the DGT, which raises two main questions:
1 - Can the company withhold taxes in favor of the Dutch Treasury? If so, can these withholdings be offset against the income tax return in Spain?
2 – Or, conversely, must taxes be withheld in favor of the Spanish Treasury?
What does the Directorate General for Taxation say?
As this is income derived from work performed by the consulting worker (resident in Spain) for a company located in the Netherlands, special attention must be paid to the provisions of the Convention between Spain and the Netherlands to avoid double taxation as regards income and wealth taxes.
With regard to the taxation of income from freelance work: the Convention states that "work is deemed to be performed in the territory where the worker is physically located at the time when he or she performs the activities for which the income is paid."
Given this principle, and as indicated in the aforementioned Convention, “a resident of a contracting country who receives remuneration (as an employee) from sources located in another country may not be subject to taxation in that other country in respect of that remuneration for the mere fact that the results of his or her work are exploited in that other country.”
This means that “the income derived from teleworking as an employee from a private domicile in Spain, even if the fruits of that work are for a Dutch company, and taking into account that the worker is a tax resident in Spain, given that he/she is in employment in Spain, he or she should only be taxed in Spain.”
On the obligation to apply withholdings or make interim payments
The DGT reminds us that, "in addition to this income being subject to personal income tax withholding, the practice of withholding requires the existence of an obligor from whom to withhold."
In this specific situation, since a company not based in Spain is subject to withholdings, said company is obliged to withhold in the following scenarios:
1 – “If you operate on Spanish territory through a permanent establishment.
2 – In the event of operating without a permanent establishment, only with regard to income from work performed or other income subject to withholdings or interim payments constituting a deductible expense for obtaining income derived from the provision of services, technical assistance, installation or assembly works derived from engineering contracts and, in general, from economic activities or operations carried out in Spain without the mediation of a permanent establishment.”
Need advice on international taxation?
Working from home and having queries about your tax situation? Does your company have workers in different countries and do you need advice to meet tax and employment obligations?
At GD Global Mobility we have experts in the analysis and study of international labor taxation. We can help you in optimizing your taxation through prior planning geared towards your situation.
Among other services, we can help you to analyze:
- How to prevent double taxation.
- Tax incentives for international mobility
- Exemption from taxation of income obtained as a result of work performed abroad
Do you need our help? Contact our professionals for a no-obligation consultation. They will help you navigate the complex world of international taxation, ensuring that you comply with tax and labor regulations while minimizing associated risks and costs.
