Postby DavidSearl » Mon Sep 21, 2009 1:56 pm
FROM DAVID SEARL
Yes, "retencion" is "withholding tax" and it is legally required in many situations where a company or a working professional pays for services rendered.
The basic rule is this: If a company, SL or SA, employs a person to provide some services, that person must submit a bill with IVA added on to it and "Retenciones" subtracted from it, as noted by Beachcomber. The company who is the payer then pays that 15 per cent into the Tax Agency in the name of the service provider.
When the service provider makes his "pago fraccionado", or quarterly tax declaration, he lists these credits as already paid tax. The service provider also pays the IVA, at 16 per cent, to the Tax Agency, as collected from his original payer. IVA, remember, is a zero-sum game. You, the service provider, are simply a tax collector.
Example: A real estate company hires David Searl to write advertising copy. David Searl, a professional writer, bills the company for IVA and "Retenciones". The real estate company pays the 15 per cent into the Tax Agency. David Searl pays the IVA into the Tax Agency. David Searl then writes a book and leases the distribution rights to his publisher. The publisher pays him royalties. There is no IVA on royalties, but a company is paying them to David Searl, so they must make "retenciones".
An individual professional may also be required to make withholding tax and IVA if he hires another professional to carry out some task that is related to the professional's business activities.
Example: David Searl uses a professional accountant to do his accounts. The accountant sends him a bill with IVA and withholding tax. So David Searl has to go to the bank each quarter with Form 110 and pay to the Tax Agency the miserable little "retencion" he has made for his accountant. (This always annoyed me because it was the only thing I had on the Form 110, but it had to be done).
Short version, Any company must do withholding tax. A professional must do withholding tax when his work is related to the professional or business activities of the payer.
So, who does not handle withholding tax? If a plumber does a job for a private home, there is IVA but no withholding tax. If he does a job for a restaurant installation, there should be withholding tax as well as IVA, even if the restaurant is not owned by a company but by one person, because the job is related to the business activity.
If my accountant does a job for me, there is withholding tax, because it is related to my business activity. If he does the tax declaration for a private citizen, there is no withholding tax.
I hope this helps. And, yes, I am amazed that so many people in business seem blissfully unaware of the whole system
I agree with you all that information is hard to come by in English. I do not find any in the AEAT, the Tax Agency, web site.
But whoever mentioned Real Decreto Legislativo 3/2004 del 5 de mayo and/or Real Decreto 439/2007 is heading in the right direction. Or Article 82, or 101, or 105 of Real Decreto Legislativo 40/1998
In fact, it is a little difficult even to look up a tax law because the entire law was first published in, say, 2004, and then amended in 2007, and modified at another time, and each of these appears separately, so it is not easy to find a complete law.
I actually had pretty good results from keeping it simple. I Googled, "Quien tiene que practicar retenciones?" and got good answers.
Yes, the 2009-2010 edition of You and the Law in Spain is now in bookshops, but this thread has made me realise that it is woefully short of explaining the withholding tax picture. There will be a more complete treatment next year, thanks to you all.
Good luck with it, David Searl
You and the Law in Spain
