We explain what an invoice with withholding tax is, the applicable withholding rates and the tax obligations of the issuer and the recipient of the invoice.
We provide you with an example of an invoice with withholding tax and a downloadable invoice template with withholding tax.
Issuing invoices is an essential task for the correct recording of income and for the fulfillment of certain tax obligations. These tax obligations include the impact of VAT and the application of withholdings by the payer. These withholdings are applied as an advance payment of Personal Income Tax (IRPF) or Corporate Tax (IS) .
Therefore, those responsible cayman islands email list for issuing and accounting for invoices, both issued and received, must know:
A withholding invoice is a document that certifies the completion of an operation subject to IRPF withholding . It includes the percentage of withholding applied and the amount of the withholding. This amount is deducted from the amount to be paid by the issuer of the invoice, and the recipient must pay this amount to the Tax Agency using the corresponding tax form.
When should tax withholding be included on an invoice?
The obligation to include tax withholding in an invoice is established in article 99 of Law 35/2006 , of November 28, on Personal Income Tax.
This article specifies that payments on account may consist of:
In general, invoice withholdings are applied in the following situations:
Provision of professional services: when a self-employed person provides professional services to another company or professional.
Real estate rental: leasing of premises or properties for business or professional activities.
You may also be subject to withholding taxes on income from movable capital, receipt of prizes of €300.51 or more, payments on account of capital gains, but in these cases no invoice is issued.
Types of withholdings applicable to invoices
There are different types of personal income tax withholdings that can be applied to invoices, depending on the concept of the transaction and the nature of the issuer and the recipient.
Withholding on professional income: this type of withholding is applied to self-employed persons who provide professional services to other companies or self-employed persons. The applicable withholding rate is 15%. In the event that a business activity is started, the withholding percentage will be 7% in the year in which it is started and in the following two years. Form 111 is used to pay withholdings from professional activities, work income, agricultural and livestock activities and prizes to the AEAT.
Withholdings on income from leases or subleases of urban properties: the withholding percentage applied is 19%. They are paid to the AEAT using form 115.
Withholdings applicable to specific sectors:
1% withholding: poultry farming and pig fattening activities and some business activities under the objective estimation regime.
2% retention: forestry, agricultural and livestock activities (except the above).
How the process of applying withholdings to invoices works
To explain more clearly how withholdings on invoices work, we will answer some key questions:
Who applies the withholding? The withholding is applied by the issuer of the invoice, that is, the self-employed person or company that provides the service or makes the sale.
Who pays the withholding? The withholding is paid by the recipient of the invoice, that is, the company or professional who pays for the service or purchase.
How is the withholding tax calculated? The withholding tax amount is calculated by applying a percentage to the taxable base of the invoice. The percentage varies depending on the type of transaction.
Where is the withholding tax paid? The invoice recipient must pay the withholding tax to the Tax Agency using Form 111 or 115. The payment period is quarterly or monthly.
