Teleworking consequences on Spanish “IAE”

In a recent binding consultation, the Spanish General Directorate of Taxes (GDT) has clarified that companies are not obliged to register for IAE purposes (the Local Tax on Economic Activity) in the municipalties wehere the domiciles of its employees teleworking are located, on the basis that the company does not have any rigth of disposal over such premises.

Let us remind you that , for the purposes of this local tax, the place where activities take place determines the remit to require the payment of municipal and provincial quotes of this tax, hence this is not a minor matter. As a general rule, such place is the municipality where the premises from which the service is rendered are located, with the only exception of certain activities that are deemed as not taking place in any determined location, according to the IAE tariffs.

✔ Companies engaged in entrepreneurial, professional or artistic activities within the Spanish territory are subject to the so – called “Local tax on economic activities” (IAE). An activity is considered to be exercised with an entrepreneurial, professional or artistic nature, when it implies the organization of production and / or human resources, with the purpose of intervening in the production or distributions of goods or services.
✔ As a general rule, the place where activities are deemed to take place is the municipality in which the company’s premises are located.
✔ In the consultation made to the GDT, what is questioned is where does an activity is deemed as taking place if the company is engaged in legal, accounting, bookkeeping audit and tax advisory services as well as administrative and office auxiliary activities (Group 84 of IAE: Services rendered to companies) and the employees are teleworking.
✔ The place of activity of Legal services (tariff 841) and Financial and accounting services (tariff 842) is the municipality where the premises are situated and from which the services are rendered. All the taxpayer’s activities will be deemed to be supplied from such commercial establishment.
✔ Since IAE qualifies all the premises on which companies have direct accessibility as establishments, the taxpayer raises the question as to whether the fact of having employees teleworking may imply the obligation of being registered in such domiciles, for IAE purposes.
✔ The GDT concludes that the employer cannot be considered as having any establishment or premises for the exercise of its services activities in the employees’ domiciles from which they are teleworking since the company rendering the services does not have direct accessibility on them. Consequently, the Company shall not be obliged to register or pay any IAE quote in the municipalities from which the employees are teleworking.
✔ Needless to say that this clarification gives certain interpretative comfort in the area of IAE to many companies facing this pandemia through teleworking systems between their employees.

Spanish tax consequences deriving from teleworking – for non resident companies

It is important to note that determining whether or not a permanent establishment exists is not always easy, and it is enough for the foreign company to dispose of premises in Spain at its disposal, irrespective of the legal title to use it, or that the employee has and habitually exercises powers to contract in the name of the non – resident company. Tax consequences deriving from teleworking for non–resident companies. Expert tax advice is required in order to understand how to fully comply with the Spanish tax authority´s (DGT) regulations regarding withholding employee taxes.

In recent years, habitual remote work from home has significantly increased. Thanks to the use of new technologies, it is an optimal route to reduce office – renting costs for companies while it also saves time for employees.

As in any change of trend in our economy, it is strongly recommendable to analyse the tax consequences deriving from this new modus operandi followed by many companies. In a recent binding consultation, of Dec. 27, 2017, the Spanish tax authorities (DGT) differentiate, in relation to a non – resident company, its Payroll withholding taxes obligations as regards its employees, depending on whether or not the non – resident company performs an economic activity in Spain.

The GDT offers a solution that, although it may look simple at first sight, it requires expert tax advice in order to accurately conclude about it.

✔ In its binding consultation number 3286 – 17, the General Directorate of Taxes (GDT) analyses whether there is any Payroll withholding tax obligation with respect to two employees, tax resident in Spain, that are to work from their homes in Spain, without the need of their physical presence at the centre of work, a practice that is known as telework.

The employer company is tax resident in Ireland (it could be any other country with double taxation treaty signed with Spain) and it does not perform any activity in Spain or have any branch, agency or any other type of establishment in Spain.

✔ The GDT concludes that:

  • Employment income deriving from teleworking, from a private domicile in Spain, even if the result of the work benefits the Irish company, and as the employees are tax resident in Spain and exercise their employment in Spain, is only taxable in Spain.
  • The Irish employer, as it does not have any permanent establishment or develop any economic activity in Spain, and it does not obtain any taxable income in Spain from which the payroll expense may be deducted, is not obliged to practice any Payroll withholding tax.

However, the GDT includes two scenarios in which the non – resident company would be obliged to practice Payroll withholding tax on employment paid to its Spanish tax resident employees. Such would be the case if the employees in Spain working remotely from their homes could imply:

  • the existence of a permanent establishment in Spain; or, if it did not exist,
  • the performance of an economic activity in Spanish territory without a permanent establishment.

It is important to note that determining whether or not a permanent establishment exists is not always easy, and it is enough for the foreign company to dispose of premises in Spain at its disposal, irrespective of the legal title to use it, or that the employee has and habitually exercises powers to contract in the name of the non – resident company. Given that a permanent establishment implies the right of the country where it is located to tax profits deriving from its activities, there might be a certain interest from the local authorities to consider that it does exist in its jurisdiction.

Consequently and given the increase of these scenarios in which the company maintains a minimum structure, it is convenient to first determine which are the Spanish tax consequences for the type of activity to perform in Spain so as to conclude on the Payroll withholding tax obligations with respect to the company’s employees.

Publicado el 02-2021 por PBS