Do you have non-resident employees in your company? Do you know how they should be taxed? In today’s article we will tell you who is considered to be a non-resident worker and how these employees are taxed.
Withholding tax on non-resident workers in spain
Index of contents
You first need to know in which cases a person is considered to be a non-resident in Spain. In general, it is understood that a worker is a non-resident if he/she lives outside our country for more than 183 days a year.
In Spain, If you pay a non-resident employee for their work (employment income), then the general rule is that you must apply a withholding tax of 24%. The withholding will be 19% in the case of residents of the European Union, Iceland and Norway. But there are some exceptions to this rule that we will see later on in this article.
Exceptions to the general rule on withholding taxes
There are two exceptions to the general rule discussed above. A non-resident worker, in certain cases, may choose to recoup a large part of the withholdings that had been held, but, in other cases, they might not be able to ask for these withholdings.
In which cases can withholdings be recovered?
Workers who have low incomes and reside in other countries of the European Union, Norway or Iceland might be able to recover their withholdings. In this case, they can make use of the so-called “Optional regime for individuals residing in the European Union and in the European Economic Area” to do so. In order to be eligible, workers must have a total income per year (both obtained in Spain and abroad) lower than 90% of the personal and family minimum that they would have if they were taxed under the IRPF, and at least 75% of their income must come from Spain and be taxed under the non-resident income tax (IRNR).
How do I request a withholding tax refund?
In order to request a refund for the withholdings, employees must compile the form approved by the Tax Agency for these cases and file it as from May 2 of the year following the year in which the withholdings were made. The filing period is four years from that date. On the other hand, the Tax Agency has a period of six months to issue a decision on the application filed. If it doesn’t issue a resolution within that period, the application will be deemed to be rejected due to administrative silence.
If the Tax Agency accepts the refund request, it will make a calculation of the amount to be refunded, which will be the result of the difference between the withholding made by the employee and the amount for which he/she would have been taxed on their salary obtained in Spain if he/she had been taxed for Personal Income Tax (IRPF). Normally, in this situation, the employee is taxed at a rate lower than 19% or 24%.
What happens in the case of cross-border workers?
If your company is located in an area that is close to the borders with France or Portugal, and if you employ workers from either of these two countries, the cross-border worker regime may apply.
Cross-border workers are those who have an address in the border area of one state, to which they return each day, and are authorized to work as employees in the border area of the other state. For example, this could be the case of an employee who resides in France and travels every day to work for a company in Spain, returning to his home in France at the end of his working day.
The taxation in Spain for this type of employee will depend on his / her tax residence:
- If their tax residence is considered to be in Spain, they will have to pay IRPF tax on worldwide income.
- If he/she is not a tax resident in Spain, he/she will be taxed by the non-resident income tax for the income obtained in Spain.
In both cases, the regulations of the international double taxation treaties signed by Spain must be considered.
In those double taxation agreements, such as the ones signed by Spain with France and Portugal, it is regulated that no withholding will be applied to cross-border workers. They will be taxed on their full income in their own country instead. In the case of France, it is established that for this regime to be applicable, the distance between the employee’s domicile and the border cannot exceed 20 km. However, in the case of Portugal there is no limitation as to the distance between the company and the employee’s place of residence.
Therefore, if you have workers residing in other countries, it is essential that a labor consultant analyzes your case to verify if you comply with the regulations regarding withholdings.
Hello, my employer posted me to another EU country for four months this year. Where will I have to pay income tax?
Dear Thomas, as the posting lasted less than six months, you probably continued to pay taxes in your home country (where you usually work). As a general rule, you would not have to pay income tax in the host country unless:
– The company has a permanent office in that country.
– You are seconded to a company based in that country.
Even if neither of these conditions is met, host country law may require you to pay tax on your salary during the temporary posting. But in that case, it should be possible to claim reimbursement in the host country under the double taxation agreement between the two countries. Brest Regard
Hi!, I have a job in Belgium but plan to continue living in France and cross the border daily, where will I pay tax? Thanks!
Dear Amanda,
As a cross-border worker, your salary is taxed in Belgium, which will apply a provisional withholding tax. However, as a tax resident in France, it is there that you will have to declare and pay tax on your worldwide income, including your Belgian salary. In principle, to avoid double taxation, taxes paid in Belgium will be considered when calculating the taxes due in France.
Check the bilateral tax treaty between France and Belgium to see if you are considered a “frontier worker.” If so, you may only have to pay tax in France. You should also check the latest version of the protocol between France and Belgium on frontier workers.
You can also contact the Belgian and French tax authorities or the cross-border association of European employment services in your region to clarify the situation. Best Regards.
Hello, I´ve been working in another country for a year in a temporary posting situation, and now I´m being told that I´ve to pay income tax there, Can I benefit from tax relief/reductions in that country? Thanks!
Hello Chris, after living in another EU country for a year, you will usually be considered a tax resident there. In that case, they should offer you the same tax breaks and deductions as their nationals, even if they relate to expenses incurred outside their territory.
For example, if you can deduct childcare costs in your host country, you should also be able to deduct childcare costs incurred in your home country. Best Regards