Essential tax considerations for international travel from Spain

The increasing internationalization of labor and business relations has led to a significant rise in the number of international mobility situations for workers, managers, and professionals. In this context, pre-relocation tax planning takes on particular importance, given that the concurrence of different tax systems can generate situations of double taxation, conflicts of tax residency, and compliance obligations in multiple jurisdictions.

From a tax perspective, international mobility requires a comprehensive analysis that encompasses not only the determination of the taxpayer's tax residence, but also the application of double taxation treaties, the tax regime of income obtained during the relocation, the implications in terms of Social Security and the formal obligations arising from expatriation or impatriation.

1. Determination of tax residence

The determination of tax residence is the central element of any analysis of international mobility, insofar as it conditions the scope of liability to personal income tax.

In general, Article 9 of Law 35/2006, on Personal Income Tax (IRPF), establishes that a natural person will be considered a tax resident in Spain when he or she remains in Spanish territory for more than 183 days during the calendar year or when the main center or base of his or her economic activities or interests is located in Spain.

Additionally, the regulations incorporate a rebuttable presumption of residence when the legally unseparated spouse and dependent minor children habitually reside in Spain.

In cases where a person may be considered a tax resident simultaneously in two States according to their respective domestic laws, it will be necessary to resort to the so-called tie-breaker rules provided for in the corresponding agreement to avoid double taxation, which successively address criteria such as permanent residence, centre of vital interests, place of habitual residence or nationality.

Therefore, prior analysis of tax residency status is essential to avoid situations of dual residency and the potential tax conflicts arising from them.

2. Analysis of the applicable double taxation avoidance agreement

Double taxation agreements (DTAs), generally inspired by the OECD Model Tax Convention, constitute the main legal instrument for resolving international tax disputes.

Its prior review is essential to determine:

• The distribution of taxing powers between the State of residence and the State of source.
• The tax treatment of income from dependent employment.
• The taxation of dividends, interest, royalties and capital gains.
• The existence of specific clauses for administrators, directors or managers.
• Mechanisms for the elimination of international double taxation.

Of particular relevance is the analysis of the article relating to employment income, especially in cases of temporary displacements, where the so-called 183-day rule may determine the attribution of taxing power to the State of residence or to the State where the work activity is actually carried out.

Since each agreement incorporates its own particularities derived from bilateral negotiations, an individualized examination of the applicable conventional instrument is essential.

3. Application of tax incentives linked to international relocation

When the taxpayer maintains their status as a tax resident in Spain, the possible application of the tax incentives provided for work carried out abroad must be analyzed.

In particular, Article 7.p) of the Personal Income Tax Law provides an exemption for employment income received for services actually provided outside of Spain, with a maximum limit of 60.100 euros per year.

Applying this exemption requires verifying, among other requirements:

• The effective completion of work abroad.
• The existence of a non-resident entity or a permanent establishment located outside of Spain as the beneficiary or recipient of the services.
• That in the territory where the work is carried out there is a tax of an identical or similar nature to the IRPF and it is not a jurisdiction classified as non-cooperative.

The interpretative complexity of certain requirements has generated abundant administrative doctrine and jurisprudence, so it is advisable to adequately document the functions performed, the travel undertaken and the entity benefiting from the work.

4. Implications for international social security

International mobility also raises important questions regarding applicable social security legislation.

From a practical perspective, it is necessary to determine whether the worker will remain subject to the Spanish Social Security system or will be subject to the system in force in the destination State.

This issue will depend, among other factors, on:

• The existence of European regulations for the coordination of Social Security systems.
• The application of bilateral agreements signed by Spain.
• The expected duration of the trip.
• The nature of the employment relationship.

Within the European Union, obtaining the A1 certificate is essential to prove compliance with Spanish Social Security legislation during certain temporary displacements.

Proper planning of these issues is particularly relevant for both the company and the worker, given its impact on contributions, healthcare and future contributory benefits.

5. Taxation of income and assets held in Spain

The eventual loss of Spanish tax residency does not determine the disappearance of all tax ties with Spain.

Individuals who acquire non-resident status may continue to be subject to taxation in Spain for certain income obtained in Spanish territory in accordance with the Consolidated Text of the Non-Resident Income Tax Law.

Among other issues, it is advisable to review the tax treatment applicable to:

• Income derived from real estate located in Spain.
• Dividends from resident entities.
• Interest and other returns on movable capital.
• Capital gains derived from assets located in Spanish territory.
• Significant stakes in Spanish companies.

Likewise, in certain cases of change of tax residence to a foreign country, it may be necessary to analyze the possible application of the so-called exit tax, regulated in article 95 bis of the Personal Income Tax Law.

6. Compliance with formal obligations and information duties

International mobility entails compliance with various formal obligations whose proper management is essential from a tax risk management perspective.

Among the actions that should be assessed are:

• Notification of change of tax domicile using form 030.
• Obtaining tax residency certificates issued by the competent authorities.
• The submission of form 247 in those cases where it is appropriate.
• The review of potential reporting obligations regarding assets and rights located abroad.
• The preservation of sufficient supporting documentation to prove the reality and characteristics of the displacement.

Proper compliance with these obligations facilitates the defense of the taxpayer's position in the event of any tax verification or inspection procedures.

7. Relevance of documentary evidence

In matters of international taxation, the burden of proof takes on particular significance.

Practical experience shows that a significant part of the verification procedures developed by the Tax Administration focus on the accreditation of factual circumstances related to tax residence, the days of stay in each jurisdiction or compliance with the requirements demanded for the application of tax benefits.

Therefore, it is highly recommended to systematically keep all documentation related to the move, including employment contracts, international assignment agreements, tax certificates, travel receipts, records of physical presence and any other evidence that allows proof of the taxpayer's actual international situation.

The taxation of international relocations is a highly complex area of ​​technical complexity, involving domestic regulations, double taxation treaties, international tax principles, and provisions for the coordination of social security systems. In this context, pre-relocation planning should not be viewed solely as a tax optimization exercise, but as an essential tool for managing tax risk.

In short, a preventive and multidisciplinary approach makes it possible to minimize tax contingencies, avoid cases of double taxation and ensure the efficient fulfillment of tax obligations in an environment increasingly marked by the international mobility of people and capital.

María Angeles López – Tax lawyer in Employee Mobility Solutions (EMS), a company specializing in international mobility solutions for businesses and their employees.