How do withholding taxes for non-residents in Spain work?

You may not be aware of it, but companies or self-employed individuals with self-employed workers under their charge are obliged to withhold or make payments on account on the income paid to them. If your company pays income from work to a non-resident, you will have to apply the fixed withholding tax of 24%, but there are exceptions. However, there are exceptions. Do you want to know more about withholdings to non-residents in Spain? Then stay until the end!

What happens if your employee is considered a non-resident for tax purposes in Spain? 

The reasons why an employee may be considered as a non-resident for tax purposes may be diverse. For example, he/she may be in the territory temporarily, may perform sporadic work in Spain or may have just arrived in the country and has not exceeded the period of 183 in the same year.

If you meet any of these features you will be considered as a non-resident in tax terms. Then, you will be subject to Non-Resident Income Tax (IRNR) instead of Personal Income Tax (IRPF).

If your company pays the earned income of a non-resident worker in Spain, you will be obliged to pay the non-resident withholding tax by means of a Form 216.

Thus, the percentage that would apply to such fixed withholding tax is 24%, with the exception of IRNR taxpayers who have tax residence in another EU Member State, or are from Iceland and Norway. In this case, 19% would apply.

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Why should companies and self-employed individuals withhold through Form 216?

You see, there are other reasons, besides declaring the withholding of a taxpayer, for which the Form 216 must be used without being considered as a taxpayer of the Non-Resident Income Tax. They are the following:

Prior filing of Form 247

This refers to those employees who are not IRNR taxpayers, but who acquire such status because they move to another country. 

They may request the withholding in accordance with the regulations applicable to non-residents for the year in which it is foreseen that they will acquire the condition, without the need to be in it.

However, in order to do so, the interested party is required to file a Form 247 reporting the trip abroad and to provide a certificate signed by the employer stating that the requirements have been met.

After filing this form, a certificate from the Tax Agency should be received within 10 days at the taxpayer’s address, which must be given to the employer. From the moment this certificate is issued, withholdings must be made to the employee.

Beckham Law

Those taxpayers to whom the special tax regime corresponding to workers posted to Spanish territory regulated by Article 93 of the Beckham Law applies, may opt to be taxed under the IRNR. 

Of course, this would be while maintaining the condition of taxpayers for Personal Income Tax.

Once the request for the application of this special regime is accepted, the Tax Agency sends a certificate to the interested party’s address detailing the fiscal years in which he/she will be entitled to benefit from it. 

Then, it must be delivered to the employer in order to apply the corresponding withholdings according to the non-resident regulations that must be made through Form 216.

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What are the exceptions that apply to withholdings for non-residents in Spain?

However, even if the employee is a non-resident, there are certain cases where the non-resident withholding is not required, while in other cases the employee may choose to recover a large part of the withholdings that have been applied.

The following are some of the situations where these cases may occur:

Optional regime

Workers with low incomes and who are residents of other EU countries, Norway or Iceland, may be covered by the Optional Regime for individuals resident in the EU and the European Economic Area. This will allow them to recover a large part of the withholding tax paid.

It is important to mention that workers must have a total annual income (obtained abroad and in Spanish territory) that is less than 90% of the personal and family minimum that they would receive if they were taxed under the IRPF. In addition, at least 75% of their income must come from Spain and be taxed under the IRNR.

How to apply?

In order for workers to opt for such regime, they must fill in the application form established by the Tax Authorities for such cases. Then, they will have to present it from May 2 of the following year (they have four years to present it from that date) to the one that has borne the withholdings.

Likewise, the Treasury Department will have six months to resolve the application that has been filed. If it does not do so, it is understood that the application was rejected due to administrative silence.

What happens after the application is accepted?

If this is the case, the tax authorities will have to calculate the amount to be returned. This will be the difference between the withholding tax paid by the employee and the amount that would have been taxed on the salary earned in Spain had the employee been subject to personal income tax. 

This would allow the employee to be taxed at a nominal rate well below 24% or 19%.

Cross-border workers

Another case that may occur is that your company is located in an area near the borders of France or Portugal and you have workers from those countries on your payroll. If so, the cross-border workers regime may apply to them.

In these cases, cross-border workers will be all those who, residing in another country, have moved every day to work at your company in Spain and, after the working day, return to their home in the other country.

If this is the case, as established in the double taxation treaties signed with France and Portugal, your company will not have to withhold any withholding tax on the employees, since they will be taxed on all their income in your country.

As an important fact: in the case of Portugal, no maximum distance is required between your company and your employee’s residence from the border. However, in the case of France, there must be a distance of less than 20 km from the border.

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Are you up to date with your company’s tax affairs? Keep up to date with business trends with the TAS Consulting blog, where we upload content every week. If you need a complete advice to decide what is best for your company, do not hesitate to contact us at tasconsultoria@tas-sl.es and schedule an appointment with our professionals. We are 100% committed to the success of your company.