In order to process payroll in Spain it is not necessary to have a Legal Entity established, there is an alternative through requesting a tax id for a non-resident company without permanent establishment. After registering your company in Spain you will receive:
- A nonresident tax ID
- A employer social security number
Both numbers are required to be able to hire an employee in Spain and process the payroll.
Although the process is simple, there are a number of issues to consider when you are looking to set up your business in Spain, one of the main ones is to determinate when the foreign company creates a permanent establishment in Spain (due to the consequences it has for VAT and corporation tax).
According to Spanish legislation the constitution of a permanent establishment would depend on the type of services performed and the level of authority the employee has. Therefore, it would be necessary to examine whether the functions performed by the said employee are complementary to the activities carried out by the foreign company or whether that person acts in the name and on behalf of the foreign company.
Non- resident companies without a permanent establishment in Spain do have to comply with local labor laws and social security contributions. Labor law in Spain is highly regulated through the Worker´s Statute and collective bargaining (collective labor agreements) which regulate the employment conditions in a specific area or economic sector.
In terms of social security Spanish law, in general all employees working in Spain are subject to Spanish social security system and the employer must make the employer / employee contributions (Note that inbound expats according to EU regulations and international social security agreements signed by Spain may keep home-country social security contributions and regimes). In general terms, employer rate is around 30% and employee rate is around 6.35% (type of contract, length, employees category can have an impact on the social security contributions percentages).