When we rent premises to be used in a business activity ( office, garage, warehouse, shop….) tax regulations puts the tenant under the obligation to withhold part of the payment due to the owner, called retention, and pay it directly to Spain’s Tax Agency in concept of owner’s own tax.
With this obligation, the administrations ensure that the tax for the incomes that the rent represents for the owner is paid.
This is not optional but an obligation of the tenant. (This means that if we, as registered business, failed to declare and pay this retention we would be liable to pay it later with interests and charges: The Tax Agency will claim it from us, not from the owner. )
It is of great importance that the autonomo, or company, that rents for business purposes understands the mechanics of this tax.
What should the invoice look like?
The rent retention in Spain in 2016 is the 19% of the agreed rent and it should be reflected in the invoice that the owner provides monthly to the tenant.
line 1. Agreed Rent. 500€
Line 2. IVA (21%). 105€.
Line 3. IRPF(19%). -95€
Line 4. Total 510,00€
Related: What to include on an invoice
Confusion Clarified. Let us take it in parts!
This way of presenting the breakdown of the invoice leads to confusion in many minds.
It may suggest that the IVA is not paid in the end because it is canceled out with the negative amount.
Maybe this way will present the issue clearer:
Line 1 Agreed Rent. 500€
Line2 iva (21%). 105€
Until this point it looks like any other invoice in which you find the IVA added to the price.
This is what you would expect to pay. You also know that the IVA paid at this point can be offset later with the IVA that you yourself add to your prices.
Then you will withhold part of the payment.
Line 3 IRPF(19%). -95€
Line 4 Total. For Owner: 510€
This is not a saving or discount.
We have to clear the amounts that we kept withhold every quarter and pay 285€ ( 95€ x 3) in behalf of the owner.
What we paid after all was 605€ each month.(510€ to the owner and 95 to the tax man)
But wait. After the IVA is offset, at the end of the year, and deducted from our IVA liability, you can see that the cost of our rent is 500€ per month. Precisely what we agreed in the contract. The universe balances up.
the Owner’s Tax, not ours.
This money is withheld from the payment due to the owner, so it is essentially his, not ours.
It is his tax that is paid. This is not a rental tax or income tax that we pay.
This helps to answer the question ” why do I have to pay tax every quarter even when I make no profit?” Well, in such case we do not have to pay tax indeed.
This also explains why we can not postpone the payment of this retention. The Tax Authorities do not grant a postponement of this liability. Basically, they reason ” if you had the funds to pay the rent, then pay us too”. (We only have to pay the rentention of the months that we actually paid rent for).
There is a case in which rental invoices do not need to have retentions: if the premises are owned by a company in the real estate rental business they are not obliged to include it. (therefore we would not expect it in the invoice neither would be obliged to withhold part of the payment).