Yes. It's legal, it works, and we do it every month.

What almost nobody explains is that the short answer hides four separate decisions — social security, income tax withholding, permanent establishment and employment law — and that the usual mistake is to treat them as one. A company that registers with the Spanish Social Security and then starts withholding income tax "because that's what any Spanish employer does" has just made a tax decision without noticing. And a company that signs with an EOR believing it's now protected against permanent establishment has bought a reassurance the EOR can't actually sell.

Let's take them one at a time, in the order they need to be made.

1. What a foreign employer without an establishment actually is

There's nothing exotic about it. Article 21(1) of Regulation (EC) 987/2009 requires an employer whose registered office is outside the competent Member State to meet that State's social security obligations as if it were established there. For employers outside the EU, Spanish domestic law gets you to the same place: if you employ someone who works in Spain, you register here as an employer and you pay contributions here.

In practice, the route looks like this:

None of this makes the foreign company taxable in Spain on its business profits (non-resident income tax through a permanent establishment). We'll come back to that, because it's where most of the confusion lives.

The power of attorney: the first bottleneck

Representation is proved with a power of attorney signed before a notary in the company's home country, apostilled (or consular-legalised where the country isn't party to the Hague Convention) and sworn-translated. Weeks get lost here over a detail few providers mention: the foreign notary has to certify that the signatory is authorised to represent the company, not just witness the signature. Without that statement, the Spanish Tax Agency (AEAT) won't accept the power. We've seen it with US notary public certificates and with European notaries who only authenticate the signature. In Germany, for instance, the notary should issue a certificate of representation after checking the Handelsregister (Vertretungsbescheinigung, § 21(1)(1) BNotO), and the sworn translation has to cover that certificate, not just the power itself.

Our practice is to draft the power ourselves, bilingual, so the foreign notary only has to execute it.

2. Social security: the general rule and its three exits

The starting point is the place of work. Someone working in Spain pays Spanish social security (Art. 11.3.a of Regulation (EC) 883/2004), even if the employer sits in Berlin and payroll runs from Dublin. With the UK, the rule is the same under the Social Security Coordination Protocol of the Trade and Cooperation Agreement (Art. SSC.10). With a country that has no agreement with Spain, such as Nigeria, there are no exceptions to look at: Spanish contributions apply from day one and, if the employee isn't an EU citizen, they also need a residence and work authorisation.

With employers in the EU, EEA, Switzerland or the UK, three situations allow the employee to stay in the home-country system, and they're often confused:

One rule we apply: when everyone already knows the stay will exceed 24 months, there's no point using up an Article 12 A1 and then asking for an extension that the Practical Guide reserves for unforeseen circumstances. Ask for the Article 16 agreement directly, months in advance, with plan B — Spanish registration — prepared in parallel, because if it's refused there's no grace period. While the employee stays in the home-country system and lives in Spain, they'll also need an S1 form for healthcare.

The bank account problem nobody raises in the first meeting

This is where most companies get stuck, and they usually find out late.

The TGSS only collects contributions by direct debit or electronic payment, and both require a bank authorised as a collaborating entity of the Spanish Social Security. A German, French or Irish account, however good, isn't one. You can't direct-debit the monthly bill to Frankfurt or pay it by SEPA transfer from Lyon.

There are three real options:

  1. Open an account with a Spanish bank. It works, but for a non-resident company with no Spanish business the due-diligence process can take longer than the whole registration, and many companies simply don't want one.
  2. Have the advisor make the payment with funds the company deposits in advance. This is our default: the company deposits roughly three months of contributions into a separate account used only for that client, tops it up monthly and gets it back at the end.
  3. Have the employee pay the contributions with funds the company gives them, under the arrangement in Article 21(2) of Regulation 987/2009. It's legal and makes sense when the employee is also the owner. With an unrelated employee, the company is exposed to that money never reaching the Treasury — and the company is still the one liable.

3. Income tax withholding: the decision made without noticing

This is the part we care about most and the one that gets discussed least.

A foreign company hiring in Spain tends to assume it must withhold Spanish income tax (IRPF) and file Forms 111 and 190, "like any company". Plenty of payroll providers take it for granted because their software was built for Spanish employers. Our position is that a foreign company that doesn't carry on business in Spanish territory is not required to withhold — and shouldn't do it voluntarily either.

The argument turns on who counts as a withholding agent. Article 99.2 of the IRPF Law and Article 76.1 of its Regulations require two things at once: income subject to withholding and a payer legally obliged to withhold. For non-residents, letters (c) and (d) of Article 76.1 cover those operating in Spain through a permanent establishment and, for salaries, those who operate in Spanish territory without one. An employee living in Madrid and typing from her living room doesn't turn her employer into someone operating in Spain.

The Directorate General of Taxes (DGT) has said so more than once: V2614-22 (a teleworker for a Swiss company), V0057-23 (Swiss and German employers) and, more recently, V1339-26 of June 2026, involving a Portuguese company. If the entity doesn't operate in Spain, with or without a permanent establishment, it isn't among those obliged to withhold.

Two caveats, because this is where the real friction is.

First, the criterion is applied case by case, and the underlying debate is what "operating in Spanish territory" means. A company that sells to Spanish customers, has someone negotiating with Spanish distributors or delivers its services here is not in the same position as a company whose graphic designer works from Barcelona for head office. The hinge is what the role does, and that gets documented before the first payslip, not after the first information request from the Tax Agency.

Second — and we tell every client this — withholding or not withholding doesn't decide whether there's a permanent establishment. The law itself provides for a non-resident that withholds without having an establishment, so withholding doesn't create one, and not withholding doesn't protect you from one. Anyone who tells you not to withhold "so as not to tip off the tax authorities" is selling you a false argument. What does happen is that withholding when you're not required to creates an inconsistency with your own position: you behave like someone operating in Spain while arguing you don't.

What changes for the employee

Without withholding, the employee receives gross pay minus their own social security share and settles all their income tax in the following year's return. They must file once employment income exceeds €15,876, because their payer isn't obliged to withhold (Art. 96.3(c) IRPF Law). There are no quarterly prepayments on employment income, so whatever isn't set aside each month is due in one go the following June. And since the company doesn't file Form 190, that salary won't appear in the Tax Agency's pre-filled data: the company should give the employee an annual pay certificate.

So the conversation with the employee has to happen before signing: their monthly net will be higher than a colleague's at a Spanish company, and part of that net isn't theirs. The sensible approach is to set aside a reasonable percentage every month and use the 60/40 split payment option when the return is filed.

If the employee is moving from abroad and elects Spain's inbound-worker regime under Article 93 of the IRPF Law — the "Beckham Law", a flat 24% up to €600,000 — the withholding analysis is the same, with one difference in form: if there were an obligation to withhold, it would go through the non-resident Forms 216 and 296, not 111 and 190, and the annual return is Form 151 rather than the ordinary one. The Form 149 clock is running: six months from the start date shown in the Spanish social security registration or in the document keeping the home-country system, such as the A1 (Art. 116 IRPF Regulations).

4. Permanent establishment: less fear, more design

Permanent establishment is the ghost in every one of these conversations, and it needs sizing properly.

A permanent establishment means the foreign company pays Spanish non-resident income tax on the profit attributable to what it does here. It can arise in two ways: a fixed place of business through which the company carries on its business, or a dependent agent who habitually concludes contracts on the company's behalf — and, under treaties that have adopted Article 12 of the Multilateral Instrument, who plays the principal role leading to their conclusion. The reference point is Article 5 of the OECD Model, but what decides is Article 5 of the bilateral treaty that applies.

On the teleworker's home, the November 2025 update to the Commentary on Article 5 (paragraphs 44.1 to 44.21) finally gives a workable test. If the person works from home less than 50% of their time over a twelve-month period, the home normally isn't a place of business of the company. Above that threshold, it still isn't one automatically: the question is whether there's a commercial reason for that person to work from Spain — being close to customers, suppliers or partners, developing business here. Retaining talent or saving on office space aren't, on their own, a commercial reason in the sense of the Commentary. And a full-time teleworker in Spain is always above 50%, so in the cases we see, everything turns on the commercial reason.

Contrary to what you'll often read, the relevant question isn't where the employee lives. It's what they do. A designer, a developer or an executive assistant working for the organisation in Berlin, Cork or Lyon, with no Spanish customers and no authority to bind the company, rarely raises an issue. Someone who finds and negotiates with Spanish customers does, even if the final signature happens abroad — and writing "has no authority to sign" in the contract isn't enough if, in practice, they settle the terms and head office just rubber-stamps them.

Which means permanent establishment isn't avoided with clauses. It's avoided with facts in order: contracts genuinely approved at head office, a clear trail of who decides, no premises or home presented as an office, no business cards with a Spanish address. And it's analysed role by role, before the first payslip. If the role is commercial in the Spanish market, the right conversation probably isn't how to avoid an establishment but whether it's time for a subsidiary.

5. The contract: what you sign besides the contract

A Spanish employment contract for someone working from home needs, at a minimum:

6. What about the EOR?

An Employer of Record solves a fast start and has its place. But the company should know what it's buying.

First, an EOR doesn't transfer permanent establishment risk. The establishment depends on what the person does for the foreign company, not on who signs their payslip. If the employee negotiates with Spanish customers, the problem exists with or without an EOR.

Second, depending on how it's structured, an EOR can amount to unlawful assignment of workers under Article 43 of the Workers' Statute. If it isn't an authorised temporary employment agency, for that reason; and if it is, because agencies can only place workers to meet temporary needs (Art. 6.2 of Law 14/1994), not to fill a permanent role. Both the EOR and the client company are jointly liable (Art. 43.3 Workers' Statute).

Third — and this is what we're seeing most right now — companies leaving the EOR to hire directly. In that transition we expressly recognise the employee's seniority from the EOR period in the new contract. It's the right thing for the employee and it closes the main route for an unlawful-assignment claim. Resetting seniority to save on a future severance payment is false economy.

7. Timing and cost, without the gloss

Timing. With corporate documents in order, the realistic route takes four to seven weeks: one to three for the power of attorney, apostille and sworn translation; two to three for the NIF, TGSS registration and employee registration. The person can't start working from Spain before they're registered, unless they're covered by an A1 or an Article 16 agreement. If someone writes to us mid-month wanting to start on the 1st of the next month, the honest answer is the start of the month after.

Cost. Employer social security in 2026 runs at around 32% of salary: 23.60% common contingencies, 5.50% unemployment on a permanent contract, 0.20% wage guarantee fund, 0.60% vocational training, 0.75% Intergenerational Equity Mechanism, plus the occupational accident rate (1.50% for office staff, which is the assumption here). On a €45,000 gross salary, that's roughly €14,500 a year on top for the company, plus the 6.50% deducted from the employee's pay. They're paid monthly in arrears, within the following month. The contribution base is capped at €5,101.20 a month; above it, the solidarity contribution applies, and the Intergenerational Equity Mechanism goes up in 2027.

One of those ten companies decided not to come to Spain at all — not because of our fees, but because once contributions and set-up were added up, the total cost of a Spanish role exceeded their budget. That's a perfectly rational decision, and we'd rather they make it before signing than after the first contribution bill.

Before the first payslip

Reduced to a checklist:

  1. Role duties in writing: customers, suppliers, negotiation, signing authority.
  2. Applicable social security legislation determined (Art. 11, 12, 13 or 16 of Regulation 883/2004) and, where relevant, an A1 or exception agreement applied for.
  3. Power of attorney with the notary's statement of representative capacity, apostille (or consular legalisation) and sworn translation.
  4. Non-resident NIF, CCC and employee registration before day one.
  5. Contribution payment channel sorted.
  6. Withholding position fixed and documented, and the employee told what it means for their tax return.
  7. Contract, remote-work agreement, collective agreement identified, home workstation assessed.
  8. If the employee is moving from abroad: Form 149 within six months.

Our view, after ten cases in eight weeks: for a company with one, two or three employees in Spain who work for the home organisation and don't sell into the Spanish market, registering directly as a non-resident employer is the right structure — cheaper than a subsidiary and cleaner than an EOR in the long run. The day one of those people starts closing business with Spanish customers, the question stops being about payroll and becomes one of corporate structure. Better to ask it yourself before the Tax Agency does.