If you're a UK limited company owner planning to move to Spain on the Digital Nomad Visa, deciding whether to apply as an employee with an A1 certificate or as self-employed (autónomo) is a crucial step.
While both paths come with distinct responsibilities, business owners who hold a significant percentage of shares in their company are generally required under Spanish law to apply as self-employed. Choosing this route not only ensures legal compliance but also helps you avoid potential tax and social security problems.
This guide will explain why applying as self-employed is the better option for business owners and outline the pros and cons to help you make an informed decision.
Why Business Owners Should Apply as Self-Employed
Under Spanish law, if you own a significant share (usually over 25%) in a company, you are considered to have control over the business. This control makes you ineligible to legally classify as an "employee" for the purpose of Spanish tax and social security systems.
You might be thinking, "I own a UK company, not a Spanish one—why should this concern me?" While it's true that we don't know what will happen in the future, it's no secret that Spanish tax authorities have a reputation for conducting thorough and aggressive inspections. With this in mind, exercising caution would be a wise approach.
Before 2023, when the Digital Nomad Visa (DNV) was introduced, it was less common for business owners to relocate and manage their companies from Spain. Of course some did, but they usually operated discreetly. Fast forward to today - we’ve observed that the majority of UK company owners are submitting applications as employees with A1 certificates. In some cases, the UGE (Unidad de Grandes Empresas, the Spanish government department responsible for approving DNV applications) now requires confidential company documents, such as contracts and tax returns, as part of the application process for business owners. This raises concerns, as sharing such sensitive information could potentially be passed on to tax authorities.
If this happens, applying as an employee could lead to complications, audits, and even penalties.
By applying as self-employed, you align yourself with the legal framework, reducing the risks of running into administrative issues later down the line. It also opens up access to Spain's social security system, which offers healthcare and other benefits for you and your family.
Now, let's dig deeper into both scenarios to understand why self-employed status is the better choice for business owners.
Applying as an Employee with A1 Certificate
Since the Digital Nomad Visa was introduced in 2023, most UK business owners have applied as an employee using an A1 certificate. But is it truly the best option? Here’s a closer look at how it works and why it might not be the ideal choice for entrepreneurs.
Key Benefits
Quarterly vs. Annual Tax Payments
The self-employed are required to pay their taxes in advance on a quarterly basis, while employees working for foreign companies with no payroll setup in Spain pay taxes once a year. If you apply as an employee of a company located out of Spain, the Spanish tax authorities have no way of making the foreign employers deduct and withhold tax monthly or quarterly. This means your annual income tax from salary earnings is paid in a lump sum each June as part of the Declaración de la Renta.
Lower Initial Social Security Payments
By obtaining an A1 certificate, which lasts up to two years minus one day, you can continue paying UK National Insurance instead of Spain's social security contributions. This may be cheaper in the short term, depending on how much you choose to pay yourself. [Keep in mind we say "may"—if you're subjected to an inspection and end up owing back payments for social security, it most certainly won’t be.]
Key Disadvantages
Compliance Risks for Business Owners
If you own a significant portion of your company, Spanish authorities might question your "employee" status, as their tax system treats such cases differently. This could lead to penalties, increased scrutiny, and hefty retroactive payments for taxes or social security.
Certificate Duration Limitations
The A1 certificate, which allows you to avoid Spanish social security contributions, only lasts for two years minus one day. After that, you would need to apply as self-employed anyway. Starting with self-employed status from the beginning avoids this disruption.
Shorter Residency Renewal Period
When applying as an employee, your initial Digital Nomad Residency will normally be fore two years. On the other hand, self-employed applications usually get three years, saving you from the hassle of early renewals.
Applying as Self-Employed (Autónomo)
For business owners, applying as self-employed simplifies compliance with Spanish laws and minimizes long-term risks. Here’s a closer look at what this involves and its advantages.
Key Benefits
Compliance and Peace of Mind
By applying as self-employed, you meet Spanish legal requirements for business owners holding a significant share in their company. This helps avoid issues with tax authorities, ensuring you can live and work in Spain without legal worries.
No Waiting
One of the most common complaints in the Digital Nomad Visa Spain Facebook group is that HMRC is taking a long time to emit A1 certificates. If you apply as self-employed, you don't need to wait. All you need to include with the application is a pledge to sign up as autónomo once approved.
Longer Approval Period
Self-employed Digital Nomad Visa applications often come with a three-year initial residency approval, as opposed to two years for employees. This means less frequent renewals and a more stable living situation.
Social Security Coverage
Spanish social security contributions provide access to a robust healthcare system for you and your family. While contributions start at around €87 per month for the first year, they ensure healthcare benefits and future eligibility for pensions and unemployment benefits.
Cap on Social Security Costs
From the second year onward, social security payments are capped at €590 per month, regardless of your earnings. For high earners, this can represent a very small percentage of income.
No Requirement For Private Healthcare
If you’re applying with an A1 certificate but don’t receive the rare S1 certificate simultaneously, you’ll need to obtain private health insurance and include proof of it with your application. However, if you’re applying as self-employed, this requirement doesn’t apply.
Key Disadvantages
Higher Administrative Burden
Self-employed individuals in Spain are required to file multiple tax returns, including quarterly income tax. These filings make it necessary to hire a gestor (accountant), which typically starts at €80 per month.
Initial Costs
While social security contributions start low, they increase significantly from the second year. Additionally, ongoing gestor fees and the effort to ensure compliance with Spain’s strict tax rules can add some stress to your financial planning.
Quarterly Tax Payments
Self-employed individuals must make quarterly income tax payments, calculated as a minimum of 20% of earnings after deductible expenses. This means you’ll need to budget carefully and manage cash flow more actively.
Tax Considerations
Whether you apply as an employee or self-employed, your total tax liability will largely depend on your income and deductions. For business owners, applying as self-employed ensures you meet Spanish legal obligations while also giving you access to benefits like healthcare and a pension. To see how tax and social security contributions could impact you financially, sign up for a tax consultation.
Final Thoughts
For business owners holding a significant share in their company, applying as self-employed for Spain’s Digital Nomad Visa is a smart choice. This approach avoids complications with tax and social security authorities and offers the added benefits of longer residency approvals and access to Spain’s comprehensive healthcare system. While it involves more administrative work upfront, the long-term benefits of compliance and peace of mind far outweigh the drawbacks.
Before making your decision, consult with a tax professional such as ourselves or immigration advisors such as Move To Spain Guide to ensure your application process is smooth and compliant. But for most limited company owners, starting as self-employed is the clear path forward to set yourself up for success in Spain.