Withholdings and 130 Form
The doubts that are raised regarding the obligatory nature of the IRPF fractional payment 130 form and the obligation to apply withholding or not to income invoices by a self-employed professional are repeated.
Let us start from a situation that often arises among our clients, and in which you can see yourself reflected. This is a freelancer who develops a professional activity related to those in section 2 of Royal Legislative Decree 1175/1990, of September 28, such as the collection in group 763, that is Computer programmers and analysts.
Does that self-employed person must always make his income invoices with withholding?
Yes, but only when he bills a Spanish company or freelancer. In the rest of the cases, billing to companies or businessmen from EU countries or third countries, or billing to Spanish or foreign individuals, he does not have to make the invoice with withholding, because these clients are not taxpayers of personal income tax in Spain.
What withholding should he apply?
The generic withholding percentage is 15%, but there is a reduced percentage of 7% that can be applied by those self-employed who begin their professional activity (without having exercised another professional activity in the last 12 months) in the beginning exercise and in the 2 following. Let’s put some examples to make it clearer.
Example 1. Self-employed who is the first time that he registers for a professional activity in September 2019: he can apply 7% for 2019, 2020 and 2021 years.
Example 2. A self-employed person who first signed up for a professional activity in 2017 and applied 7% until it ceased in January 2019. Now in September 2019, he resumes the same professional activity. Does he have to apply 15% because in the last 12 months he has developed a professional activity?
If we apply the general rule, the answer should be yes, but there is the following exception, if you resume the same activity that allowed you to apply the 7% withholding you can continue to apply it until the term you originally had. In this case, you can continue to apply 7% until 31/12/2019.
If instead of resuming the same activity, you start another different professional activity, yes you would have to apply 15%.
Does it have any tax advantage to retain 7% and not 15%?
The advantage is not fiscal, but financial. That is, your invoices go with 7% withholding benefits you in that the amount you charge for each of them is higher, which offers you more liquidity during the year. Let’s go with a simple example. If the service you offer has a cost of € 200.00, and you apply VAT at 21% less withholding at 15%, the amount you charge amounts to € 212.00, but if the withholding is 7%, the amount you charge amounts to € 228.00.
Does a professional who retains 7% tax the same as another who retains 15% in Personal income tax (IRPF)?
Yes, the average tax rate (ATR) that corresponds to it according to the IRPF tables will be applied, and if both have the same net return (income minus expenses), they will be taxed for the same amount. If we imagine that you both have to pay € 500.00 per Annual personal income tax (renta), and the one who holds 15% has been withheld € 300.00 (15% of € 2,000.00 of income) you will only have to pay € 200.00 in Annual personal income tax, while the one who retains 7% has been retained € 140.00 (7% of € 2,000.00) so he will have to pay € 360.00 in renta.
When is it mandatory to submit 130 form if I carry out a professional activity subject to withholding?
The tax rule establishes that if in the previous year more than 70% of your income was subject to withholding, you have no obligation to submit 130 form. But what happens to the professionals who start the activity and do not know to predict where their income will come from: if from individuals, from Spanish companies, from foreign companies, etc.
In these cases, the rule does not require the submission of 130 form, and the self-employed person may be in the first fiscal year without submitting 130 form and billing only to individuals, so that they will not be contributing anything through Personal income tax, which means that when making the Annual income tax he will have no payment on account and will not have to pay all the taxes at once.
For this reason, we advise our clients that if they anticipate that they are going to bill individuals or foreign companies, billing without withholding, submit the 130 form quarterly, and thus contribute to IRPF, avoiding significant disbursements in Annual income tax (renta).
On the other hand, it is always mandatory to submit 130 form when any business activity of those related in section 1 of Royal Legislative Decree 1175/1990, of September 28, is carried out, although you also exercise a professional activity subject to retention. In these cases, when submitting the 130 form you will have to pay as a fractional payment 20% of your quarterly net return (income less expenses), and to that amount, we subtract the withholdings that have been practiced on the invoices issued by your professional activity.