Working remotely from Spain for a foreign employer: taxing rights and withholding

Employment is exercised where the employee is physically present, so telework from Spain gives Spain exclusive taxing rights under article 15 of the applicable treaty; a foreign payer is obliged to withhold only if it operates in Spanish territory, with or without a permanent establishment; and the absence of withholding shifts the whole liability, and its timing, onto the employee.

Binding ruling V1339-2026, issued on 2 June 2026, addresses a pattern that has become ordinary since 2020 and remains poorly documented: an individual who is tax resident in Spain works from his home here for a foreign employer that has no establishment in Spanish territory, and receives his salary with no Spanish withholding applied. He asked three questions. Which State should withhold, what the foreign employer must do about the withholding it did not apply, and where he must file.

The ruling answers two of them and expressly refuses the third. That refusal is the most instructive part of the document, and it is the part the circulating summaries omit.

The ruling is a consulta vinculante. It binds the Administration in its treatment of the taxpayer who asked it and expresses the criterion the DGT will apply to comparable facts, under article 89.1 of the General Tax Act. It is administrative doctrine rather than case law.

What the DGT was able to answer

Article 88.1 of the General Tax Act confines written rulings to questions about the regime, classification or characterisation applicable to the person asking. The second question concerned the Portuguese employer's own obligations, and it was asked by the employee. The DGT held that the statutory requirement was not met and declined to answer in the terms in which the request was framed, confining itself to the taxation of the employee.

The distinction is not formal. It means that nothing in this ruling determines the position of the foreign employer, and the DGT says so twice, closing with the observation that the factual assessment belongs not to the Centre but to the application bodies of the AEAT. A ruling of this kind is not a comfort letter for the employer, and it cannot be produced as one.

Where the employment is exercised, and why the 183-day test is not in play

The starting point is domestic. A Spanish tax resident is subject to personal income tax on worldwide income, wherever it arises and whatever the payer's residence, under article 2 LIRPF, subject to any applicable treaty.

The treaty here is the double taxation convention between Spain and Portugal signed in Madrid on 26 October 1993, published in the Boletín Oficial del Estado on 7 November 1995, as modified by the Multilateral Instrument done at Paris on 24 November 2016, signed by Spain on 7 June 2017 and published on 22 December 2021. Article 15(1) allocates employment income to the State of residence unless the employment is exercised in the other State.

The DGT interprets that provision through paragraph 1 of the 2017 OECD Commentary on article 15, which locates the employment where the employee is physically present when carrying out the activities for which the remuneration is paid, and states expressly that a resident cannot be taxed in the other State merely because the results of his work are exploited there. Applying that, the employment is exercised in Spain. That the fruits of the work accrue to a Portuguese company is irrelevant, and Spain alone has the power to tax.

One consequence deserves emphasis because it is regularly misunderstood. Article 15(2), with its 183-day threshold and its conditions as to who pays the remuneration and whether it is borne by a permanent establishment, has no application on these facts. That paragraph operates only where the employment is exercised in the other State. Where the employee works from his State of residence, the general rule in article 15(1) exhausts the analysis and the day count is beside the point. Advisers who reach for the 183-day test in a pure telework case are answering a different question.

The position changes if part of the duties are in fact performed in the employer's State. Remuneration attributable to those days may then be taxable there, article 15(2) becomes relevant, and Spain relieves double taxation under the treaty. Where an employee travels, the allocation is proportionate and requires a contemporaneous record of working days by location. Nothing in this ruling excuses that record; it simply did not arise on the facts presented.

The withholding test is whether the payer operates in Spain

Article 99.2 LIRPF imposes the withholding obligation on entities and legal persons paying income subject to the tax, and extends it to non-residents that operate in Spanish territory through a permanent establishment, or without one in respect of employment income they pay and other income subject to withholding that constitutes a deductible expense for obtaining the income referred to in article 24.2 of the consolidated Non-Resident Income Tax Act.

Article 76.1 of the Personal Income Tax Regulation, approved by Royal Decree 439/2007 of 30 March, develops that provision. Letter c) covers non-residents operating in Spain through a permanent establishment. Letter d) covers non-residents operating in Spain without one, as to the employment income they pay and the further income just described.

Two elements must therefore coincide before a withholding obligation arises: income subject to withholding, which salary plainly is, and a person obliged to withhold. The DGT identifies the determining element in the second limb, and states it plainly. What matters is that the non-resident employer operates in Spanish territory, whether or not through a permanent establishment. Paying a salary to a Spanish resident is not, of itself, operating here.

On the premise that the Portuguese company neither has a permanent establishment in Spain nor carries on economic activity in Spanish territory without one, it is not among those obliged to withhold, and no withholding obligation arises on the salary.

Note the shape of that conclusion. It rests on a premise the DGT takes from the request and cannot verify, and it is a statement about obligation, not about capacity. The formulation that has circulated, that the company cannot withhold, is not what the ruling says and is materially different. A foreign employer that does operate here is obliged to withhold and to register accordingly, and the fact that it has never done so is not a defence.

No withholding is not an absence of tax, and the difference is not only cash flow

The DGT is explicit that the absence of withholding leaves the income fully taxable. The employee reports it in his Spanish return and pays the resulting liability directly.

The practical consequences run further than that sentence suggests. The employee bears the entire annual liability on filing, rather than in monthly instalments, which for a senior remuneration package is a substantial single payment falling due in June, and one that clients accustomed to a PAYE or equivalent system do not anticipate.

More importantly, the relief that exists where withholding has been omitted is unavailable here. Where a withholding obligation exists and the payer fails to comply through its own fault, article 99.5 LIRPF allows the recipient to deduct from his liability the amount that should have been withheld, notwithstanding that he never received it. That relief presupposes an obligation. Where the payer was never obliged to withhold, there is nothing to deduct, and the full amount falls on the employee. The two situations look identical on a payslip and are not remotely identical in their consequences, which is precisely why the operating-in-Spain question needs an answer rather than an assumption.

What the ruling does not decide

It does not decide whether this employer operates in Spain. It assumes it does not, because that is what the request asserted, and it reserves the factual assessment to the AEAT.

That reservation matters more here than in most rulings, because the arrangement under examination is itself a recognised source of permanent establishment risk. An employee working habitually from a home in Spain for a foreign enterprise raises a question under article 5 of the applicable treaty as to whether that home constitutes a fixed place of business at the enterprise's disposal, and, where the employee concludes or habitually plays the principal role leading to the conclusion of contracts, a separate question of agency. The commercial function matters: an employee engaged in intermediation services, as here, sits closer to that risk than one performing purely internal duties. The ruling neither raises nor forecloses the point. It answers the employee's question on the employer's premise, and the premise is the whole of the employer's exposure.

It does not address social security, which follows a different set of rules under Regulation (EC) 883/2004 and, for habitual cross-border telework within the European Union, a separate framework arrangement whose application to any given case must be checked on its own terms. The tax conclusion carries no implication for where contributions are due.

It does not address other treaties. The reasoning rests on article 15 of the OECD Model and its Commentary rather than on anything peculiar to the Spain-Portugal convention, so the analysis transfers to a United Kingdom or United States employer, subject in each case to the wording of the relevant treaty. For a United States national or green card holder the position is materially different in one respect, since the saving clause preserves United States taxation of its citizens regardless of the allocation under article 15, and the analysis becomes one of credits rather than exclusive taxing rights.

And it does not address the employer's own registration and reporting position in Spain should the factual premise prove wrong, which is the point at which what began as a payroll question becomes an assessment against a foreign company.

Reading it as a whole

V1339-2026 is a correct and narrow ruling. It settles that telework from Spain is taxed in Spain, that the day count under article 15(2) does not arise, and that a foreign payer's duty to withhold turns on whether it operates in Spanish territory rather than on whom it pays. Everything beyond that it either declines to answer or assumes.

The document is therefore best read as a description of where the risk sits rather than as reassurance that there is none. The employee's position is straightforward and can be managed. The employer's position is untouched, and it is the employer who has the larger exposure and the least visibility over it.

For anyone advising on this pattern, the work is on the facts. Establish what the employee actually does from Spain, and in particular whether the role involves negotiating or concluding contracts, because that is what converts a home office into a treaty question. Assess the permanent establishment position deliberately rather than inheriting it from a request for a ruling. Keep a contemporaneous record of working days by location, because the allocation depends on it and it cannot be reconstructed. Model the employee's cash position for a full year without withholding before the first return falls due. And where the employer may in fact operate here, address the registration and withholding position before an inspection does, since the consequences of getting it wrong fall on a party that has not been asked and may not know it is exposed.

The ruling tells the employee where he pays. It tells no one whether the employer is safe.

Lullius is a tax boutique in Palma de Mallorca advising international private clients on Spanish tax, private wealth and tax controversy. The authors contributed the Spain chapter to the tax litigation guides of both Chambers and Partners (Tax Controversy 2026) and The Legal 500 (Tax Disputes Comparative Guide 2026).

This article is provided for general information only. It reflects the position as at August 2026 and does not constitute legal or tax advice, nor does it create a lawyer-client relationship. No action should be taken, or refrained from, on the basis of its content without specific professional advice on the particular facts. Lullius accepts no responsibility for any loss occasioned by reliance on this material.