Putting income tax withholding (retención) on your invoices

Terms used

• Retención — The retención is income tax your client holds back from your invoice and pays to the tax office on your behalf.
• IAE — The IAE is the activity tax register where your professional or business activity is classified under a heading.
• AEAT — The AEAT is Spain's tax agency, the Agencia Tributaria.
• NIF — The NIF is your Spanish tax identification number.
• Estimación objetiva — Estimación objetiva, or modules, is a simplified tax method where profit is estimated from fixed indicators instead of actual figures.

Key rules

• Standard rate: Professionals withhold 15% on invoices to businesses in Spain.
• New professionals: You can use 7% in the year you start and the next two years if you had no professional activity the year before.
• Reduced rate request: Your client applies 7% only after you give a signed written communication.
• No withholding: Invoices to private individuals and to clients outside Spain carry no withholding.

When you withhold

You withhold when two things are true: your work is professional, and your client is a business, professional or company in Spain acting in its activity. Professional work means activities under the professional headings of the IAE, such as lawyers, consultants, translators and designers. Some artistic and sports activities count too.

You show the retención as a line on the invoice. Your client keeps that amount and pays it to the AEAT for you. You then count it as tax already paid on your own return.

Which rate to use

The standard rate is 15%. If you are new, you can use 7% in the year you start and the next two calendar years. After that, go back to 15%.

To use 7%, you must meet these conditions:

• You carried out no professional activity in the previous year.
• Your activity falls under a professional IAE heading.
• You did not work for the same client as an employee in the year before you started.

The 7% is not automatic. Give each client a signed written communication saying you meet the conditions, with your name, NIF and the date. Do this at the start of each client relationship. The client keeps it and applies 7% on your invoices. Some clients also ask for proof of the date you registered in the IAE, so keep it to hand.

When you do not withhold

• Invoices to private individuals who are not acting as a business or professional carry no withholding.
• Invoices to clients outside Spain, including EU clients and non-residents, carry none.
• If your activity is a business activity (the business headings of the IAE rather than the professional ones), you generally do not withhold. Agricultural, livestock and forestry activities are exceptions with their own rules.
• If you are taxed under estimación objetiva (modules) in a non-professional activity, you do not withhold, but you must give your client a communication saying so. Professionals under modules whose activity is on the professional list still have withholding applied.

Use the decision, documents and checklist below to settle each invoice. If your activity sits on the edge between the two types, ask the AEAT before you issue your first invoice.

Choosing between options

Which withholding should you put on this invoice?

• 15% withholding: Your activity is professional, the client is a business or professional in Spain, and you do not qualify for the reduced rate.

• 7% withholding: You are in the year you started or the next two years, you did no professional activity the year before, and you gave the client your signed communication. It does not apply if you worked for that client as an employee the year before.

• No withholding: The client is a private individual, or is outside Spain, or your activity is not professional (for example under modules, with a communication given to the client).

Check the client first, then the activity, then whether you are in your first three years without professional activity the year before.

Documents you need

• A signed written communication to each client saying you meet the conditions for the reduced 7% rate, with your name, tax ID (NIF) and the date. You write and sign it yourself, and the client keeps it.

• Proof of the date you registered your professional activity in the activity tax register (IAE). Some clients ask for it before they apply 7%.

Checklist

• Check that your activity is under a professional heading of the activity tax register (IAE) and that the client is a business, professional or company in Spain.

• Leave withholding off invoices to private individuals and to clients outside Spain.

• Confirm you did not carry out any professional activity in the previous year before you ask for 7%.

• Give each client a signed written communication with your name, tax ID (NIF) and the date, at the start of the relationship.

• Show the 7% withholding line on your invoices in the year you start and the next two years, then switch to 15%.

Frequently asked questions

Do I put withholding on invoices to clients outside Spain?

No, you do not charge withholding when you invoice clients outside Spain, such as non-resident or EU clients. Withholding is for clients that are businesses or professionals acting in Spain.

Can I use the 7% rate if I worked for the same client as an employee?

No, the 7% rate is not available if you worked for that same client in an employment relationship in the year before you started. In that case the client applies 15%.

What rate applies after the reduced 7% period ends?

After the reduced period ends, the rate on your invoices goes back to 15%.

Do I add withholding to invoices for private individuals?

No, invoices to private individuals who are not acting as a business or professional carry no withholding. Only invoices to businesses, professionals or companies in Spain do.