10

Employee working remotely from Spain - healthcare and tax implications

I've inherited an employee who moved to Spain to work. 

He's raised the concern about healthcare with this comment "To get a public health care in Spain, I need to work in Spain or be a freelancer. However, another way to access it is through the S1 form.This form certifies I work in another country than I live and I get a right to access the health care in both countries (within EU countries). The S1 form is issued by the social security authority in the country where I work (UK)."

Is anyone aware of what the best method of him being covered for healthcare is and what (if any) implications this would have? The company who process our payroll have suggested guiding him towards the EHIC scheme and can't see any issues with tax either from his perspective or the company's.

Although he's employed by a UK company he's Lithuanian if that makes any difference?

25929 views
  • Hi Meg, it looks like you have inherited a mess and it will probably be tricky to solve.

    From what I understand from your post he is an employee of the UK company and he works, and is resident, in Spain. Normal EU legislation is that social security is payable in the country where work is carried out. Applying this principle, if he works in Spain and is resident in Spain, your company should have registered as an employer with Spanish social security and should have paid both employer and employee social security contributions to the Spanish system.

    The S1 form applies to people living in one country and working in another - therefore this does seem to not be the case of your employee.

    An alternative, before he relocated to Spain would have been to apply for temporary posted worker status via UK social security, with a view to keeping him in the UK system for up to 2 years, with full access to the Spanish system during the temporary assignment. This is via the A1 form (old E101 form).

    It will be difficult to retrospectively change the situation, and I suspect that now you have two "simple" solutions available :

    1. Register your company as a Spanish employer for Social Security purposes and set up a Spanish payroll via a subcontracted service provider. Most large nternational payroll bureaux can offer this service, plus basic employment law advice
    2. Find a Spanish body-shop and transfer his employment contract to this local company, who will bill you for the services of this person (with a mark-up). You will also probably need to give him guarantees concerning future dismissal rights, recognising length of service etc.

    As a longstop, he could set up his own business and invoice you, thereby transferring the risks to himself. He will need to charge you an amount at least equal to his salary plus employer's contributions, plus medical and pension contributions.....plus mark-up to cover professional accounting advice and administrative fees.

    I suspect that your company may not have fulfilled its employer's reporting obligations with respect to Spanish declaration of the person's taxable earnings, and you will probably need to look at this as well. You should also consult with your pension and life insurance providers to see if he is excluded under your current contracts.....if he isn't you could be in for some nasty surprises in the event of a claim

    Finally, you will almost certainly need to familiarise yourself with Spanish employment to avoid having costly problems if in the future it it comes to dismissal/redundancy (Spain is not cheap in this area)

    The take-home message for others is that taxation, social security and employment law is driven principally by territoral jurisdiction - i.e. where work takes place, Furthermore in the case of employment law the national law of the employer is superimposed on local employment law (you must comply with both ,and therefore the better of both will always apply). Before agreeing for someone to "change countries" don't just assume you can simply retain their UK arrangments and that you will not have any overseas statutory obligations as an employer.

  • In reply to Ray:

    Thanks Ray, that's a super helpful response even if it does make me want to hide (and possibly cry)

    In the meantime I've just had an email that indicates he hasn't declared this as a permanent move - would that have any impact on what steps we would need to take (FWIW I think this is a legitimate non-declaration even if it's not the right thing, as I understand his partner's work is due to return to the UK in the future).
  • In reply to Meg:

    Hi Meg - don't cry yet

    Tax and social security laws generally don't care about declaration - administrations will measure the reality of the situation. For example, if he has been present in Spain for more than 183 days, there is a near certaintly that automatically have created a Spanish tax presence. For social security purposes, in the absence of A1 or S1 forms, the automatic assumption is that local social security must be paid if a significant continuous presence has occurred. If you can quietly get him out now, you won't remove the risk, but you will limit it. The longer you wait the greater the liklihood of being caught out - particularly if he seeks medical treatmant via the Spanish social security system, where he will alsmost certainly be required to provide a Spanish Social Security number if he wants to benfit from the same rights as a local.....

  • In reply to Ray:

    He definitely won't leave the country as his partner is there. He's still within the 183 days timeframe.

    Let's hope he doesn't suddenly get ill as that would just add a whole new dynamic to this (!)

    Would you be able to recommend a company who could guide me through this at all as tbh I really don't understand it very well and I'm somewhat limited by only working a couple of days a week.
  • In reply to Meg:

    Employment Conditions Abroad (ECA) would be my first point of call

    Depending on the solution you take, you might also need a spanish legal practice - when I've not been able to get personal recommendations I have used the IUS LABORIS network of legal firms over the years and never been disappointed. My own company has used PWC (not cheap) for many years to cover its needs for about 1.000 people on international mobility - but the service/cost level is probably overkill for your needs (we can get economies of scale)
    Good luck and keep us posted? this one looks "fun", and a great learning opportunity :-)
  • In reply to Meg:

    Hi Meg,
    As Ray mentioned PWC fees might be an overkill. You may consider reaching out to MCN Associates (http://www.mcn-hr.com/) they are compartively cheaper.and will be able to help you.

    Regards
    Raj
  • In reply to Raj:

    Thanks Raj
  • In reply to Ray:

    Do you have any recommendations of a Spanish 'body-shop'?
  • Arranging a freelance/self-employed contract seems to be the quickest and easiest solution. Some more information in the links below:

    www.limitconsulting.com/.../

    www.tas-consultoria.com/.../
  • In reply to Wan See:

    No recommendations, but most of the international temp agencies would proably be able to help