According to the report from the National Institute of Statistics (INE) of March 2022, the Spanish population residing abroad increased by 3.3% in 2021, with the UK, France, and Cuba showing the highest increase. It is clear that mobility of people in general, and workers in particular, is widespread and on the rise. The pandemic has shown us that we can work from anywhere, which is why companies are increasingly embracing mobility and hiring people who work in other countries. If your company has expatriate workers, you need to know how they are taxed. We will explain it to you in detail in this post.
An expatriate is considered to be a person who temporarily or permanently lives in a country different from their country of residence.
How are expatriate workers taxed
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Any expatriate worker can opt for different tax regimes to reduce their tax liability in the Personal Income Tax (IRPF). These are the options available:
Regime of allowances or expenses for living and housing
This regime is regulated in article 9.A.3.a of the Personal Income Tax Regulation (IRPF), which establishes the following:
Allowances for living and housing expenses. The amounts destined by the company to compensate for normal expenses for living and housing in restaurants, hotels, and other hospitality establishments, incurred in a municipality other than the usual place of work of the recipient and the one that constitutes their residence, are exempt from taxation.
Except for the cases provided for in the following letter b), when it comes to relocation and stay for a continuous period exceeding nine months, such allowances will not be exempt from taxation. For these purposes, the time of vacation, illness, or other circumstances that do not involve a change of destination will not be discounted.
Therefore, the regime of allowances implies the following:
- Expenses related to housing are not subject to taxation.
- Allowances received in concept of living costs that do not exceed the following limits are not subject to IRPF:
- For relocations without overnight stay: the limit is 48.08 euros.
- For relocations with overnight stay: the limit is 91.35 euros.
- If the relocation takes place within Spain, the limits are 26.67 euros and 53.34 euros.
- In order to be eligible for these tax exemptions, the following requirements must be met:
- They must be temporary short-term relocations, i.e., less than nine months. If the worker stays abroad for a continuous period of more than 9 months, the allowances are subject to IRPF. The vacation, illness, or other circumstances that alter the destination do not count towards the counting of the relocation period.
- It is necessary to justify that the relocation occurred outside the municipality where the company is located and the expatriate worker’s usual residence. Therefore, it is essential to keep documents that prove the days and place where the relocation occurred, as well as the work-related reasons for it.
Regime of excess exempt from IRPF
Excesses received by expatriate workers over the total amounts they would have received if they worked in Spain, such as salaries, extra payments, or other concepts, are also exempt from Personal Income Tax (IRPF) taxation. For this non-subjection to apply, it is necessary that there is a change in the place of work to a foreign country, and for the stay to be prolonged.
This exemption does not apply to those individuals who are temporarily relocated abroad and, upon completing their services in the place they were relocated to, return to their regular workplace.
Expatriate Tax Regime
It may also happen, for example, that a company sends workers abroad to provide a service to a client for a temporary period. The remuneration generated by this relocation will be exempt from Personal Income Tax (IRPF) up to a maximum of 60,100 euros per year. This only affects the following remunerations:
- Those received by the employee annually, including bonuses and extraordinary payments, which are proportional to the duration of the relocation in relation to the total number of days of the year.
- Those that are specific to the services provided abroad. In this case, the remunerations that come from the overtime hours worked by the employee abroad or those calculated based on the result achieved by the company as a consequence of the employee’s relocation are included.
This regime is compatible with the allowances regime if the relocation lasts less than nine months, but it is incompatible with the excess regime.
In order to apply the exemption detailed above, the following requirements must be met:
- The employee must have physically relocated outside of Spain to provide their services and work for a company or entity that is not a resident of Spain.
- If the company for which the services are provided is a related company, those services must provide an advantage or utility.
- There must be a tax of a similar nature to IRPF in the place of relocation.
- Bonuses received must also be taken into account in the calculation.
As a result of all the above, if your firm has one or more expatriate workers, you should obtain the assistance of a tax advisory firm for expatriate companies to know the applicable regime.