Spain has become one of Europe’s most attractive destinations for international talent. Highly qualified professionals, strong infrastructure, and a thriving remote-work culture make it easy — and tempting — for foreign companies to hire employees based in Spain.
But what many businesses don’t realize is this:
hiring just one employee in Spain can trigger corporate tax exposure — even without an office, entity, or formal presence in the country.
The risk? Creating a Permanent Establishment (PE).
With the OECD’s 2025 update to the Model Tax Convention Commentary, tax authorities now have clearer guidance — and broader tools — to assess when remote work crosses the line into taxable presence.
If your company is considering hiring in Spain (or already has), this is a risk you need to understand.
Why Permanent Establishment Risk Matters
A Permanent Establishment allows Spain to tax the profits attributable to your business activity in Spain, even if your company is incorporated abroad.
In practical terms, this can mean:
- Spanish corporate income tax exposure
- Local accounting and tax filing obligations
- Transfer pricing documentation
- Increased risk of tax audits and penalties
- Significant compliance costs — often discovered too late
All of this can stem from one remote employee working from home.
Remote Work Changed the Rules — Permanently
In the past, PE risk was relatively easy to manage. As long as:
- The employee worked from home by choice, and
- The company didn’t “control” the premises,
the home office was often considered low risk.
That approach is now outdated.
The OECD 2025 Shift
The 2025 OECD Commentary on Article 5 (Permanent Establishment) reflects a post-pandemic reality:
remote work is no longer exceptional — it is structural.
As a result, tax authorities are no longer asking “Does the company require the employee to work from home?”
They are asking: “Does the employee’s presence in Spain help the business operate or grow?”
If the answer is yes, PE risk increases sharply.
The New PE Test in Plain English
Under the updated OECD guidance, PE risk from a home office is assessed in two steps.
Step 1: How Much Time Does the Employee Work from Spain?
If the employee works from Spain less than 50% of their total working time over a 12-month period, the risk of a fixed place PE is generally low.
Once the employee crosses that 50% threshold, the real analysis begins.
Step 2: Are There “Commercial Reasons” for Being in Spain?
This is where many companies get caught off guard.
Commercial reasons exist when the employee’s physical presence in Spain helps the business operate, grow, or access the market.
And this does not require a formal office, Spanish customers, or a Spanish subsidiary.
Activities That Increase PE Risk in Spain
According to the OECD, PE risk rises significantly when an employee in Spain:
- Holds meetings with customers
- Helps build a Spanish or regional customer base
- Identifies business opportunities in Spain
- Manages suppliers or supplier contracts
- Provides real-time services (IT support, call centers, medical or technical services) where time zone or location matters
- Performs on-site services such as training, maintenance, or repairs
- Collaborates with Spanish partners, research institutions, or universities
- Works closely with employees of group companies located in Spain
In these situations, Spanish tax authorities may argue that the employee’s home functions as a de facto business location of the foreign company.
“But the Employee Works Remotely…”
This is the most common misconception.
Remote does not mean risk-free.
Even if:
- The employee works from home,
- The company has no Spanish office,
- The employment contract is governed by foreign law,
PE risk may still exist if the business benefits from the employee being in Spain.
What matters is substance, not labels.
When PE Risk Is Lower (But Never Zero)
PE risk tends to be lower when:
- The employee works from Spain purely for personal reasons
- The role is internal or back-office
- There is no interaction with Spanish customers or suppliers
- The work could be done from any country without affecting the business
- Remote work is driven by cost savings or retention, not market access
Even in these cases, companies should document the facts carefully. Spanish tax authorities place strong emphasis on what actually happens, not what is written in policies.
The Often-Overlooked Dependent Agent Risk
Beyond home office PE, Spain also closely examines whether an employee acts as a dependent agent.
If your employee in Spain:
- Negotiates contracts, or
- Plays a key role in closing deals,
your company may have a PE even without a fixed place of business.
This is a particularly sensitive area following the OECD’s BEPS reforms — and one where Spain has shown increasing enforcement.
What Smart Companies Do Before Hiring in Spain
Hiring in Spain can absolutely be done — but it requires planning.
Before onboarding an employee, companies should:
- Perform a PE risk assessment
- Clearly define permitted and prohibited activities
- Limit customer-facing or sales functions, where needed
- Maintain strong internal documentation
- Consider alternatives such as:
- Employer-of-Record (EOR) solutions
- Independent contractors (with caution)
- A Spanish subsidiary or branch
Final Thought: One Hire Can Change Everything
Spain is an excellent place to hire talent.
But in today’s tax environment, one employee can create a taxable footprint.
The key question is no longer “Do we have an office in Spain?”
It is: “Does our business benefit from having someone there?”
If the answer is yes, PE risk deserves your full attention — before the tax authorities give it theirs.
Please feel free to contact us for further information
