Remote Work and Permanent Establishment in Spain: When Is It Triggered

Remote Work and Permanent Establishment in Spain

Remote work may give rise to a permanent establishment (PE) in Spain when employees or executives work from Spanish territory for a foreign company.

A key issue is whether an employee’s home office can qualify as a fixed place of business under OECD standards.

For a broader overview, see our analysis on permanent establishment in Spain: concept and requirements.

When Remote Work Does NOT Create a Permanent Establishment

Generally, no PE arises where:

• Remote work is initiated at the employee’s personal request
• The company maintains offices in another jurisdiction
• The home office is not used on a continuous or structured basis
• The employee does not negotiate or conclude contracts

In such cases, the home is not considered at the company’s disposal.

When Remote Work May Create a Permanent Establishment

A PE risk may arise where:

• The company requires the employee to work from Spain
• No alternative office exists
• The home office is used on a stable and ongoing basis
• The employee performs core commercial functions

The Role of the Dependent Agent in Digital Environments

Even without a fixed place of business, a PE may arise through a dependent agent.

This is particularly relevant where the individual in Spain:

• Concludes contracts on behalf of the foreign company
• Plays a decisive role in negotiations
• Acts habitually under economic and legal dependence

In digital business models, a sales executive or manager operating remotely from Spain may trigger a PE if their activities go beyond preparatory or auxiliary functions.

OECD’s Updated Interpretation

The OECD introduces two cumulative tests.

The 50% Working Time Test

Remote work becomes relevant when employees perform at least 50% of their duties from their home for over 12 months.

Occasional remote work is insufficient. However, consistent use over several years may also meet this threshold.

This criterion allows the distinction between temporary situations and structural organisational models.

The Business Reason Test

Beyond time, a genuine business reason must exist.

Factors such as work-life balance or cost savings alone are not sufficient unless linked to business operations.

Valid business reasons may include:

• Regular meetings with key clients in Spain
• Market development activities
• Interaction with strategic suppliers
• Coordination with local partners

The new paragraph 44.17 of the Commentary provides a non-exhaustive, illustrative list of situations that may indicate the existence of such business motivation.

Combined Assessment

Both tests must be met.

• No business reason → no PE
• No sufficient time threshold → no PE

A holistic assessment is required.

Tax Consequences of a Permanent Establishment in Spain

A PE in Spain entails:

• Taxation under Non-Resident Income Tax (IRNR) on attributable profits
• Application of the arm’s length principle under tax treaties
• Accounting and reporting obligations
• Withholding and employment-related implications

Failure to assess this risk may lead to penalties.

International Tax Planning and Risk Prevention

Remote work has become a central issue in international tax planning.

Companies should:

• Review employment contracts
• Analyse actual functions performed
• Assess remote work policies
• Coordinate with tax advisors in both jurisdictions

Preventive analysis is key to mitigating risks.

Conclusion

A permanent establishment can no longer be assessed solely through physical presence.

Remote work, digital business models and OECD guidance require a case-by-case legal and tax analysis.

While remote work does not automatically create a PE, the combination of time stability and business purpose may trigger Spanish taxing rights.

Do your employees or executives work remotely from Spain for a foreign entity?

We assess your structure and evaluate permanent establishment risk with a strategic, preventive approach. Contact us to safeguard your international operations.