The general rule regarding the taxation of expatriate personnel is that they are taxed on income from work performed in the country in which they are resident for tax purposes.
However, there are several exceptions that our expatriate tax specialists will bring to your attention.
There is an exception for taxation also in the country of the source of income, if the work has been physically performed there.
However, an exception to this exception applies, so that the final rule will be that the expatriate will only be taxed in his country of residence if the following requirements are met:
- Presence of less than 183 days in the source State, in the taxable year under consideration or in any consecutive 12-month period; and,
- Remuneration paid by a non-resident employer in the source State; and
- Remuneration not supported by a Permanent Establishment in the source State.
On the other hand, there is an exemption, in Article 7 of the Spanish Personal Income Tax Law (IRPF), which establishes the following regarding income received abroad by expatriate personnel who maintain their tax residence in Spain:
“Among other income, income from work received for work effectively performed abroad shall be exempt, subject to the following requirements:
1.º That such work is carried out for a company or entity not resident in Spain or a permanent establishment located abroad under the conditions established by regulations. In particular, when the entity receiving the work is related to the employee’s employer or to the entity in which the employee provides services, the requirements set forth in section 5 of Article 16 of the revised text of the Corporate Income Tax Law, approved by Royal Legislative Decree 4/2004, of March 5, 2004, must be complied with.
2.º That in the territory in which the work is carried out a tax of an identical or analogous nature to that of this tax is applied and that it is not a country or territory that has been classified by regulations as a tax haven. This requirement will be considered fulfilled when the country or territory in which the work is carried out has signed an agreement with Spain to avoid double international taxation that contains a clause for the exchange of information.
The exemption will be applied to the remuneration accrued during the days of stay abroad, with a maximum limit of 60,100 euros per year. Regulations may establish the procedure for calculating the daily exempt amount.”
Thus, the expatriate tax specialists, through this exemption, seek to solve the problem of double taxation in the case of income received by expatriate personnel for work performed for companies based in Mexico or permanent establishments of Spanish companies in Mexico. This would be the case, for example, of a Spanish worker who maintains his tax residence in Spain and provides his services to the Mexican subsidiary of the Spanish company with which he has a current employment contract.
Therefore, and as a conclusion, an expatriate tax resident in Spain will be fully taxed in Spain on income derived from work performed in Mexico if he/she has spent less than 183 days in Mexico and the remuneration has not been paid by a Mexican resident entity or by a permanent establishment of a foreign company in Mexico.
Likewise, In the case of a tax resident in Spain who has rendered services for a company resident in Mexico or a permanent establishment of a Spanish company in Mexico, the income received for this work will be exempt from taxation in Spain, up to a limit of 60,100 euros per year. All of the above regardless of which company has made the actual payment to the employee for the rendering of services. That is, it does not matter whether he has been paid directly by the parent company or by the subsidiary in Mexico, the important part being the company “for” which he has been rendering his services.
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