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 Taxes in Spain. To withhold a tax rate (percentage) of a Spanish invoice received and to deposit the amount withheld at the end of each quarter at the Inland Revenue in Spain is an obligation that all entrepreneurs and companies should give special attention.  We have an obligation to retain the amount even so the person issuing the invoice does not state the same on the invoice.

We are often approached by clients of our Spanish accountancy firm, Arcos & Lamers Asociados, your Multilingual Spanish accountancy firm in Marbella, who have difficulty in understanding the concept of the “withholding tax in Spain”; when they should, and when they should not, withhold. For this reason Arcos & Lamers would like to give some basic guidelines which we hope will help to remove this dilemma.

What do we mean by Spanish Withholding Tax?

When Spanish companies or entrepreneurs, who are tax resident in Spain, receive an invoice which includes an amount to withhold, they need to understand that they are not being taxed, but that the person who has issued the invoice is the one who should make an advance payment of his/her future Personal Income Tax and that the companies/entrepreneurs are the channel through which the Spanish Inland Revenue will ensure the advance payment, by making them responsible for retaining the stipulated amount, and depositing it correctly in form and on time.

Who needs to include a Withholding tax rate on their invoices?

All individuals (not companies) who exercise a professional activity, such as lawyers, economists, accountants, solicitors,  notaries, architects and translators, for example, are obliged to issue their invoices with an amount to be withheld by the receiver of the invoice.

It must be taken into account that, in order to qualify to withhold, the professional should be acting under his own name and not under a legal entity, such as a Limited Company (Spanish S.L. or S.A.), which is not required to withhold any amount on its invoices.

What tax rate to apply?

At present the Spanish Tax-Law states that a rate of 2l% of the gross amount (amount prior to Spanish Vat) should be applied

Example of an Invoice subject to Withholding Tax:

Fees:                                      100,00.- Euros

+ Vat @ 21%                           21,00.- Euros

Total Fees after Tax:           121,00.- Euros

- Withholding Tax @ 21%       21,00.- Euros

Total to be paid:                   100,00.- Euros

The amount of 100,00.- Euros will be paid to the supplier of the service and 21,00.- Euros Withholding Tax should be paid directly to the Inland Revenue at the end of the quarter through declaration 111.

Please do not hesitate to contact our accountancy firm in Spain now! Your initial advice is free

Sara Duarte, accountant in Marbella

Marbella, December, 2013