Relocation of workers is one of the most frequent situations as companies look to expand business overseas. Workers moving abroad require several services including but not limit to: tax planning, incorporation in the income tax return for the corresponding fiscal year.

When companies decide to expand their business abroad consider applicable; likewise, transferred workers, the change of residency from home town to host country; it generates important social and economic impact.

Thus, in the expatriation policy defined by the company and the service contract signed by both parties (worker and company) must anticipate main aspects that govern the management of workers relocation. These are: the migratory aspect and the local tax policy.

Immigration for highly qualified professional

There are different ways of dealing with internationalization from the point of view of personnel management. Immigration or immigration management forces us to define the type of employment relationship we are going to develop with our expatriate staff, which, to cite some example, could occur in the framework of double contracting (in the country of origin and destination), or the finalization of the local labor contract and the connection in the foreign country (location).

The impact of international mobility on human resources will depend on the type of relocation that is carried out, whether it is of short duration or long-term mobility, which will imply a significant impact on the worker’s work benefits. Hence the importance of analyzing the professional profile of our expatriate workers and defining a differentiated model that positively influences both parties (worker and company).

International taxation

One of the basic pillars of national and international tax planning is where the employee resides. The criteria for determining the tax residence in Spain are included in the Law on Personal Income Tax (IRPF) in its article 9.1) One of the applicable criteria is permanency, which establishes that the taxpayer acquires the status of residence in Spain when he or she stays in the country more than 183 days during the calendar year.

Hence the importance of both parties asking themselves the key questions that are generated during the relocation process, such as the following:

  • What are the necessary documents to support my tax return?
  • What retentions should we apply to the payroll of our expatriate workers?
  • What are the criteria to define the tax home or the obligation to file taxes? Among other key questions.

In Spain, we have three administrations that collect, manage and inspect taxes, which are: the State, the Autonomous Communities and the Town Councils. All taxes emanate from the State; however, in some cases, communities and municipalities have powers to legislate and collect.

In order to anticipate the decision-making process for tax purposes and thus correctly define the management of our relocated worker, we must take into account the following aspects:

  • Types of taxes
  • Sources of income
  • Double tax residence and double taxation
  • Tax obligations and income from withholdings
  • Current regulations and their possible modifications

Once we are clear about when the condition of residence is acquired, we must go to analyze the taxes one by one, check where they should be taxed and then how much should be taxed.

In any case, the international tax planning of the worker relocated abroad will depend on local and international regulations, as well as on the strategic resources of the company, its decision-making process and its organizational structure.

At Morales Asencio Law office, we are dedicated to help in workers relocation and reduce legal risks.  Schedule your appointment and we will be glad to answer your questions. Every moth we provide a free guide to inform you about legal steps to start living in Spain, contact HERE.