When we rent premises to be used for a business activity (office, garage, warehouse, shop….), the tax legislation obliges the tenant to withhold part of the payment due to the owner, called retention, and pay it directly to the Spanish Tax Agency in the concept of Owner’s Income Tax.
With this obligation, the administrations ensure that the tax on the income that the rent represents for the owner is paid.
(This means that if we, as a registered company, did not declare and pay this withholding, we would be liable to pay it later with interest and charges: The Inland Revenue will claim it from us, not the owner. )
It is very important that the autonomo or company that rents for business purposes understands the mechanics of this tax.
What should the invoice look like?
The withholding tax is 19% of the agreed rent and this should be reflected on the invoice that the owner issues to the tenant on a monthly basis.
line 1. Agreed Rent. 500€
Line 2. IVA (21%). 105€.
Line 3. IRPF(19%). -95€
Line 4. Total 510,00€
Related: What to put on an invoice
Confusion cleared up. Let us take it in parts!
This way of presenting the breakdown of the bill causes confusion in many people’s minds.
It may suggest that the IVA will not be paid in the end because it will be offset against the negative amount.
Perhaps this is a clearer way of presenting the issue:
Line 1 Agreed Rent. 500€
Line2 iva (21%). 105€
Total 605€
Up to this point it looks like any other bill where 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 later be offset against the IVA you add to your prices.
You will then retain part of the payment.
Line 3 IRPF(19%). -95€
Line 4 Total. For Owner: 510€
This is not a saving or a discount.
We have to settle the amounts we have withheld every quarter and pay 285€ (95€ x 3) on behalf of the owner.
What we ended up paying was 605€ each month (510€ to the owner and 95€ to the taxman).
But wait. After the IVA is settled, 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. Exactly what we agreed in the contract. The universe is in balance.
The owner’s tax, not ours.
This money is deducted from the payment due to the owner, so it is essentially his, not ours.
It is his tax that is being paid. It is not a rent or income tax that we pay.
This helps to answer the question “why do I have to pay tax every quarter even if I make no profit? Well, in this case we do not have to pay any tax at all.( not our tax anyway)
This also explains why we cannot postpone the payment of this withholding. The tax authorities will not allow you to defer this liability. Basically, they argue that “if you had the means to pay the rent, then pay us”. (We only have to pay the withholding for the months for which we actually paid rent).
Exceptions
There is one case where rental invoices do not have to show retentions: if the premises are owned by a company in the property rental business, they are not obliged to show them. (Therefore, we would not expect it on the invoice and would not be obliged to withhold any part of the payment).