The COVID-19 pandemic has upended conventional thinking about work, creating impetus to increase the number of digital nomads – i.e., freelancers and remote workers traveling the world while working online.
Some states provide favorable conditions for such migrants in order to attract qualified specialists and additional cash flows to the economy. Spain has joined their number, opening up new opportunities, inter alia for Russians who relocate.
On December 23, 2022, a Spanish law came into force that grants foreigners who are working under an employment contract or are freelancing the right to obtain a digital nomad visa (DNV). The law itself uses the term teleworkers (in Spanish, teletrabajadores).
1) Requirements for a DNV
- Working for a company outside of Spain (for employees)
- More than 20% of the work is done for clients outside of Spain (for freelancers)
- The company has performed real and continuous activity for at least one year
- Documents confirm the remote nature of the work
- Working for the company at least three months
- No criminal record in the last 5 years
By March 31, 2023, the government must develop specific requirements and instructions for obtaining such a visa.
2) Validity of a DNV
1 year – the validity period for the visa
the next 3 years – temporary residence permit after the visa expires
every subsequent 2 years – renewal of the permit (multiple times)
Obtaining and extending a permit is possible only if you continue to work remotely for a foreign company.
Foreign income of DNV holders is recognized as received in Spain and accordingly is subject to Spanish income tax. The income of such persons derived from sources in Spain is subject to Spanish taxes by default.
For DNV holders, a reduced income tax rate is provided for:
24% on income up to €600,000 / year;
47% on income over €600,000 / year.
As usual, dividends and interest income are shown on a separate scale and are taxed at rates ranging from 19% to 26%. However, we do not rule out the possibility that these rates may be revised next year.
The special tax regime can be applied in the tax period in which the displacement has occurred and in 5 subsequent tax periods.
The reduced rate can also be applied by the spouse of a DNV holder, children under 25 or disabled children of any age, as well as the other parent of such children if the DNV holder is not married to that other parent.
It should be noted that reduced rates are not applied automatically. One must submit an appropriate declaration to switch to the special tax regime.
At the same time, it is important to take into account that the reduction in income tax rates does not apply to other taxes. After becoming a resident of Spain, the holder of a DNV will be required to pay the Wealth Tax. The taxable base includes real estate located around the world, money in accounts, jewelry, vehicles, art, valuable antiques, rights of claim and other intangible assets.
In addition, questions arise as to how the special tax regime will compare with the tax systems of other countries. Firstly, DNV holders who have switched to a special tax regime are not recognized as classical tax residents in Spain. Secondly, the law does not provide for the classic tools that are deployed to eliminate double taxation – offset and / or exemption.
Accordingly, DNV holders may find themselves in a situation where the Spanish tax authorities deny them, as non-residents, the right to apply the rules of double tax treaties, and the bill does not provide for the relevant instruments. As a result, the DNV holder’s income may be subject to both withholding tax in the country of payment and in Spain under a special tax regime without the possibility of offsetting taxes paid. We are monitoring the situation.