Contractors’ Questions: How to freelance from Spain if I can’t be an ‘autonomo’?

Contractor’s Question: I aim to live in Spain in January next year, without the need for a visa because although I’ve been living in the UK for the past three decades, I have a European passport

I intend to keep working via an agency as a UK limited company for my client in London but currently, it's the typical set-up -- my limited company invoices the agency, which pays the invoice and charges the end-client.

From reading around, it’s advisable to set myself up as an ‘autonomo’ in Spain and to invoice the agency or end-client. But unfortunately, they say they will only pay me through my UK ‘Ltd,’ and only into a UK bank account. I’ve been told I’ll forfeit the contract if I refuse.

I’m not looking to duck any tax liabilities, rather I simply want to retain the client and operate legally -- have them pay me via my UK limited company, but be set up in Spain in a way that gives me health insurance in-country. Please advise me of any ways forward.

Expert’s Answer: You’ve clearly read up on the possibilities of contracting abroad by retaining your existing UK customer but moving to Spain! As a result, yes, you are correct; the best route would be for you to be an ‘autonomo’ in Spain, bill the client or agency, and settle your taxes and social security in Spain.

A client is king situation

Unfortunately, your client and agency are not allowing this option, and in this instance, it seems the client is king, indicating that commercial considerations must trump tax ones.

From a professional standpoint, I am afraid I have to disagree with their refusal -- because they seem to want to impose a UK solution on you when you will not have any UK tax liability, by you living in Spain, and working remotely.

The first bite of your tax cherry...

As you are resident in Spain, your company will create a permanent establishment there and be subject to Spanish corporation tax. You will have to argue with HMRC and the Spanish tax authorities over who has the first bite of your tax cherry!

Ultimately, you will probably end up paying the full rate of UK corporation and any excess liability in Spain, but this cannot be guaranteed. HMRC typically seeks corporation tax on a company situated in the UK even though it may not have a UK trade! Keep in mind, what is in discussion here (the usage of a UK limited company in Spain) is not illegal. It is just inconvenient for you, and perhaps expensive to create a permanent establishment abroad.

A potential solution

You might want to consider a route that will save you a good deal of grief. Namely, try to have your client agree to your interposing a management company between the agency and you. In this way, your client could be paying to a limited company (which they seem to want), and the management company could pay you gross of any deductions besides their fee into Spain, and set you up as an ‘autonomo’ if you have not already done so.

I think you will agree that this will give you a much simpler structure that more closely meets your needs in Spain and enables you to close down your UK company if you have no further need for it. Best of luck and let us know if you need our backing in this interesting situation!

The expert was Kevin Austin, managing director of overseas contracting experts Access Financial.