No Permanent Establishment Does Not Mean No Obligations

The employee's own position

A person who lives in Spain for more than 183 days in a calendar year is tax resident there and taxed on worldwide income. Under the employment article of the treaties, salary for work physically done in Spain is taxable in Spain. Whether the employer has a permanent establishment is irrelevant to that: it matters only for short-term visitors, where it is one of the three conditions of the 183-day exemption.

So the employee owes Spanish income tax on the salary from the first day of residence. If nothing is withheld during the year, it is all payable with the annual return, which is how many remote workers discover the problem.

Income tax withholding

Spanish regulations list who must withhold tax from employment income. The list includes non-resident entities that operate in Spain through a permanent establishment and, separately, non-resident entities and individuals that operate in Spain without one, in respect of the employment income they pay. Where a foreign employer falls within that second category, it has to register, withhold each month according to the Spanish tables, and file the periodic and annual withholding returns.

Whether a foreign company whose only link with Spain is one home-working employee is "operating in Spain" is not always clear-cut, and practice varies. Three practical points do not vary:

• If no tax is withheld, the employee bears the cash-flow cost and the risk.
• An employee paid by an employer that does not withhold has a lower threshold for the obligation to file a return.
• Employees under the special regime for new residents need Spanish withholding at the regime's rate to benefit from it during the year.

Social security

Social security follows the place of work. A person who works in Spain is, as a rule, insured in Spain, and the employer has to register with the Spanish system and pay employer and employee contributions there, wherever it is established. A foreign company can obtain a contribution account without having a Spanish company or a permanent establishment.

The exceptions are the ones that matter in practice:

• Posting within the European Union. An employee sent temporarily to another member state can stay in the home system, in principle for up to 24 months, with an A1 certificate. This is for postings in the employer's interest, not for a permanent move.
• Working in two or more member states. A person who works in several states is insured in the state of residence if a substantial part of the activity, taken as at least 25 %, is carried out there.
• The European framework agreement on cross-border telework. In force since 2023 among the states that signed it, it allows a person who teleworks from the state of residence for less than 50 % of working time to remain, on request, in the system of the employer's state.
• Bilateral agreements with countries outside the European Union, such as the United States and the United Kingdom, which provide for temporary postings with a certificate of coverage.

Outside those cases, an employee who lives and works full time in Spain should be in the Spanish system. Unpaid contributions can be claimed for four years with surcharges, and the employee meanwhile lacks cover for healthcare, sickness and unemployment.

Employment law

The parties to an employment contract can choose the governing law, but under European rules the choice cannot deprive the employee of the mandatory protection of the law of the country where they habitually work. For someone based in Spain, that means Spanish rules on dismissal, working time, holidays and remote work apply in substance whatever the contract says. Spanish courts will usually have jurisdiction.

Spanish remote-work legislation also requires a written agreement covering equipment, expenses and working hours when remote work is regular.

An example

A Danish company allows a marketing analyst to move to Alicante permanently. She works only from home, on Scandinavian campaigns. Under the 2025 Commentary there is no commercial reason for her presence in Spain and no permanent establishment is likely. Even so:

• She is resident in Spain and taxed there on her salary.
• She works 100 % in Spain, so no exception applies and she belongs in the Spanish social security system. The employer needs a Spanish contribution account.
• Spanish employment protections apply to her.
• Someone has to run a Spanish payroll: the company directly, or an employer of record.

None of that depends on Article 5. The permanent establishment analysis is in the main guide, and the position of people arriving on a visa is in digital nomad visa, Beckham regime and the employer's risk.