I've been featured in the Spanish media a lot lately. The e-Residency Program of Estonia is making headlines there, as Spain consistently tops the rankings in both e-Residency applications and company incorporations in the Baltic country.
The New Spanish Startup Legislation
I remember skimming through the new Startup Legislation when it was launched in Jan 1, 2023. I was fully aware that with the prevailing business landscape and the lack of political resolve to drive meaningful transformation in the country's system, this law would likely yield minimal impact, and I was right. There were hardly any changes there that would significantly improve the Spanish startup journey or help Spanish entrepreneurs in general.
What I failed to realize was some changes that were aimed at something completely different: squeezing foreign entrepreneurs conducting business in the country through taxes.
Specifically, the new law specifies that directors of a foreign company managing their business from Spain may be considered by the Spanish tax office as a branch of the company with physical premises in the country (?!?!). There is no clear indication of exactly under which conditions (time, residence status, etc) that may happen, which obviously creates a scenario of uncertainty for foreign entrepreneurs who wish to visit the country.
If Spain wanted to attract talent and business with this new legislation... well, good job guys!
Imagine a German entrepreneur who, lured by Spain's "Startup Nation" charm, decides to work from the Canary Islands for just one week, only to find the local tax office deeming her business as Spanish and demanding taxes. If this scenario strikes you as absurd as it does to me, let's dive deeper into the matter.
This not only defies all rationality but also lacks any legal foundation within EU legislation or the tax treaties established among European nations.
Even more concerning is that this legislation positions Spain as a regressive nation that, failing to grasp the evolving dynamics of our global society, the expanding geographical autonomy, the potential of technology, and the innovative global paradigms for digital business, is attempting to enact laws counter to the very essence of progress.
It's no surprise then that the adoption of remote work in Spain is among the lowest in the EU, three times less than in the Netherlands or Ireland, and the lowest among its neighbors (France and Portugal). This is all related to our work culture.
Nomad VISAs: Squeezing digital nomads
Let's cut to the chase. All these Digital Nomad VISA schemes cropping up in nearly every corner share a simple agenda: snagging taxes from digital nomads.
Numerous countries have taken note of the thriving nomadic and location-independent entrepreneur trend as these individuals cross their borders. However, their understanding of "work" remains rooted in the 20th-century concept of a fixed "place of work," equating it with a physical location where tasks are completed. Consequently, they mistakenly assume that these individuals are operating within their jurisdictions without fulfilling tax obligations, a notion they view as not just wrong, but unequivocally unjust.
This intriguing scenario prompts the following question: If I'm a location-independent entrepreneur temporarily residing in the Canary Islands for a week, conducting online work with my laptop, can it be considered as working in or conducting business in Spain?
Where Does Remote Work Happen?
To anyone well-versed in the realms of remote work and online businesses, the resounding answer is a resolute NO. Here's why:
- The work has no inherent ties to Spanish customers, providers, or suppliers; any connection is purely coincidental.
- The physical location is immaterial. This person's not reliant on Spanish infrastructure beyond the Wi-Fi of a café or co-working space. Her work doesn't occur within a factory, warehouse, or office but thrives in the digital realm, with servers possibly situated in the US and team members scattered across Germany, France, and Brazil.
- She's not setting up long-term residence in the country, merely passing through. She's a temporary visitor, not a permanent resident.
- The kicker? She could be anywhere else, whether Thailand, Argentina, the Philippines, or Germany, and it would make no difference whatsoever (well, perhaps a slightly more unstable internet connection in the Philippines).
If this freelancer hops from Argentina to Bulgaria, with a Madrid layover, spending a few hours working at the airport, should Madrid be deemed her place of work? Should Spain lay claim to taxing her or her business?
I think we all agree that this isn't the case. But what if she's a digital nomad, staying in Spain for one day? And three days, or even a week?
Embracing the Future of Work and the Global, Digital World
You cannot solve a problem with the same mind that created it.
- Albert Einstein
Governments and public institutions have historically moved at a snail's pace in response to technological and social transformations. The COVID-19 pandemic caught us off-guard, thrusting us into the 'new normal,' which prominently features remote work. However, merely allowing people to work from home isn't enough. Remote work has existed long before the pandemic, yet only recently has it entered mainstream culture. But to truly support this evolving work landscape, we need comprehensive legislative changes, and we need them now.
Work is no longer confined to factories, warehouses, or office cubicles. The 9-to-5 grind has given way to a world where people work from their homes, cafes, airports, hotel rooms, and Airbnbs. Flexible hours have become the norm, enabling a balance between work and family life. Work happens anytime, anywhere, requiring nothing more than a laptop.
In this context, the physical location of employees no longer correlates with their place of work. Just as we've evolved our understanding of digital asset ownership (recognizing that copying is not equivalent to stealing), the 21st century demands new rules for determining the location of remote work.
Rethinking the Location of Work
So, where does the work of remote employees, digital nomads, freelancers, and online entrepreneurs take place? One might suggest it happens in the countries where the platforms they use are based. However, this oversimplification doesn't hold in a world where professionals use diverse platforms from various providers (Google, Slack, Zoom, Microsoft), alongside their own infrastructure, which may or may not be located where their business is registered.
Hence, the most sensible solution is to consider that the activity of these professionals occurs in the country of their business's registration or nowhere at all. The legal implications of this shift are substantial. No country should demand remote workers to obtain a 'VISA' to perform their jobs or threaten them with fines (can you envision Thai police raiding every Starbucks in Chiang Mai and Phuket?). Above all, countries like Spain should reevaluate outdated laws, such as the Startup Legislation, and embrace the inevitable change that's already upon us, rather than resisting it.