EOR (Employer of Record)
Is it legal in Spain?
The answer is no and in this post we will explain why it is illegal in Spain and the alternative to hire local employees from a foreign company without the need to create a subsidiary in Spain.
First, we will define the figure of the EOR as advertised by the many international companies that carry out this type of business:
The EOR incorporates local employees with contracts that comply with current regulations in force. It pays the required salaries, taxes and allowances. Supports the human resource needs of employees in the country. Although the EOR is in charge of managing the human resources and payroll of employees in the country, foreign companies are in-country, foreign companies are responsible for managing the day-to-day work of those employees.
In fact, they advertise setting up in Spain without assuming a risk for the organisation.
This premise, under the EOR model in Spain is wrong and can be considered illegal.
According to Spanish labour law, the transfer of workers must be carried out through temporary work agencies (ETT), which must be authorised to do so.
EORs are not considered temporary employment agencies, so the legislation is clear in this respect. In order to be able to assign workers, they must be set up by a temporary employment agency (ETT) and the work must be carried out on a temporary basis and by entities authorised to do so.
In recent times, the labour authorities have been carrying out labour inspections with serious consequences for both the employer company in Spain and the company receiving the employees, so don’t take a gamble and rely on local professionals.
WHAT IS MY ALTERNATIVE AS A FOREIGN COMPANY?
As a foreign company wishing to hire a teleworker, you may not want to assume the costs and obligations of setting up a subsidiary or establishment in Spain. This need not be necessary if it is done through a foreign entity with a NIF (NUMBER OF TAX IDENTIFICATION) in Spain, for the sole purpose of hiring resident employees.
Advantages of this modality
The use of the foreign entity with a TIN gives companies wishing to expand internationally the opportunity to have more time to assess whether such expansion is necessary and the best way to carry it out.
This legal alternative to the EOR also allows the company to have a worker hired directly with its non-resident TIN without assuming more obligations than those derived from such hiring before the Tax Agency and Social Security. In other words, for example, it will not be necessary to file Corporate Tax in Spain.
For this, it is always advisable to have a local partner such as AC ADVISORS to assist the foreign company in legal, labour and tax matters in Spain, as well as the preparation of payrolls, tax payments and employee withholdings, social security, etc.
In short, the company saves time and money compared to the alternative of opening a branch or subsidiary in the foreign country and the barriers to entry into new markets are reduced, as well as the risks of legal non-compliance through EOR structures that are legal in other countries, but not in Spain.
How to obtain the NIF of a non-resident entity?
The procedure is very simple and registration with the Spanish authorities can be obtained fairly quickly.
To do so, it is necessary to have different documents accrediting the existence and details of the company and the passport of its representative, both of which must be apostilled.
Once we have the different documents, it is necessary to obtain the tax identification number (NIF) as a foreigner before the tax authorities, both for the representative and for the company.
The last step is to obtain the company’s Digital Certificate in order to be able to continue with all the procedures before the Spanish authorities and register the company with the Social Security, so that the resident worker can be hired without any further complications.