Employment income from ships: when it is not taxed in Spain if the resident is from the United Kingdom
The Dirección General de Tributos (DGT) has issued a relevant criterion regarding Spain's taxing power concerning the employment income of natural persons residing in the United Kingdom who perform their duties aboard ships.
What the DGT has resolved
The inquiry focused on determining whether income obtained by a worker residing in the United Kingdom, whose employer is a Spanish company but whose work is performed aboard a ship, must be taxed in Spain. The DGT has determined that it is not appropriate to apply paragraph 3 of Article 14 of the Convention between Spain and the United Kingdom.
The reason is that the operation of the ship is not carried out by an enterprise of either of the two Contracting States. Since there is no international traffic under the terms of the Convention, paragraph 1 of the aforementioned article must be applied. This establishes that employment remuneration can only be subject to taxation in the State of residence, unless the employment is exercised in the other State. Given that the work is not carried out in Spanish territory, the income is not subject to taxation in Spain.
What this means for you
This criterion has a direct impact on tax residents in the United Kingdom who receive salaries from Spanish companies for work performed on ships. If the operation of the vessel is unrelated to companies from Spain or the United Kingdom, the power to tax that income rests exclusively with the United Kingdom.
For Spanish companies acting as shipping agencies that pay these incomes, it is fundamental to correctly identify the nature of the ship's operation to avoid undue withholdings or erroneous interpretations of the Double Taxation Convention.
What should be done
It is necessary to analyze the ship's operating structure and the worker's tax residence to determine the correct application of the Convention between Spain and the United Kingdom. Each situation requires an assessment of whether or not international traffic exists according to the applicable regulations. It is recommended to evaluate the documentation proving tax residence and the location of the service provision to ensure compliance with Law 58/2003 General Tax Law.
Frequently asked questions
- Why is paragraph 3 of Article 14 of the Convention not applied?
- Because the operation of the ship is not carried out by an enterprise from Spain or the United Kingdom, which prevents considering that international traffic exists under that assumption.
- What happens if the work is physically performed in Spanish waters?
- The criterion is based on the fact that the work is not performed in Spanish territory; if the service were performed in Spain, the taxing power could change.