Remote work has become a permanent feature of the global labor market. More and more companies are hiring talent abroad, while professionals embrace the flexibility of working from another country. However, this trend also brings complex tax and labor law challenges that both employers and employees must address.
Risks of Creating a “Permanent Establishment”
One of the biggest risks for companies hiring remote workers abroad is unintentionally creating a permanent establishment (PE) in another jurisdiction.
If authorities determine that a company is carrying out part of its business in a foreign country through a remote employee, it may be obliged to register locally, pay corporate taxes, and comply with local labor rules.
The definition of PE varies between countries, but in general it is linked to whether the remote worker conducts core business activities on behalf of the company.
Even without a physical office, a long-term remote arrangement may trigger tax obligations.
Companies should carefully structure contracts and working arrangements to avoid unexpected liabilities.
Social Security Contributions
Remote work also raises questions about social security contributions:
Under EU regulations, employees usually pay contributions in the country where they physically work, even if their employer is located elsewhere.
For employees temporarily working abroad, exceptions may apply (e.g., A1 certificates in the EU).
Outside Europe, bilateral agreements between countries may determine which system applies.
Without proper planning, companies risk double contributions or gaps in employee coverage.
Common Scenarios: Digital Nomads, Posted Workers, and International Freelancers
The rise of remote work has created new categories of professionals that require tailored legal solutions:
Digital Nomads: Individuals working remotely from different countries, often relying on digital nomad visas. Their tax residence and social security obligations depend on the length of stay and local rules.
Posted Employees: Workers temporarily sent abroad by their employer. These cases often fall under specific EU or bilateral regulations but require formal documentation to avoid disputes.
International Freelancers: Independent contractors who provide services from abroad. Companies must ensure that the relationship is not misclassified as employment, which could trigger tax and labor liabilities.
Conclusion: Why Legal Advice is Essential
Cross-border remote work offers great opportunities for companies and professionals, but it also creates complex legal challenges in terms of taxation, employment law, and compliance.
At Frühbeck Abogados, we assist companies, employees, and international freelancers in:
Structuring cross-border work arrangements to avoid creating a permanent establishment.
Determining the correct social security regime.
Ensuring compliance with both Spanish and international labor and tax obligations.
Early legal guidance can prevent costly disputes and ensure that cross-border remote work remains a flexible, secure, and beneficial option for all parties involved.