Invoice Withholding for Self-Employed Professionals: Key Points to Know

Learn about invoice withholding for self-employed professionals, including rates, requirements, and tips to stay compliant with tax authorities.

Invoice Withholding for Self-Employed Professionals: Key Points to Know

As a self-employed professional, you have to report your income to the tax authorities and pay income tax. However, not all self-employed (Autonomo) individuals need to withhold personal income tax (Include retenciónes) on their invoices. This requirement only applies to those classified as professionals, specifically those engaged in activities listed in the second and third sections of the Economic Activities Tax (IAE).

Invoice Withholding Requirements:

  • General Rule: Professionals must withhold 15% of each invoice for personal income tax.
  • New Registrations: If you’re newly registered in the RETA, the withholding rate is reduced to 7% for the first three years.
  • Specific Activities:
    • Pig fattening and poultry farming: 1%
    • Agricultural, livestock, or forestry activities: 2%

Remember, these withholdings only apply when invoicing a company or another self-employed person, not when invoicing private individuals.

Ensuring Compliance:

At the end of each year, request withholding certificates from your clients to verify that the amounts paid and declared by them match what you have declared. This helps avoid discrepancies between your issued invoices and what your clients report in their tax returns.

Addressing Discrepancies:

If there’s a mismatch between the invoices you’ve issued and what your clients have reported, it could be due to your client either not declaring all invoices or not paying them. This can trigger an inspection by the tax authorities. In such cases:

  • The tax authorities will notify you to verify that all invoices have been collected and declared.
  • If you have properly collected and declared the invoices, the focus will shift to your client, who will be required to settle any discrepancies along with applicable surcharges and penalties.

Final Tips:

When starting to work with a new client always inform clients your invoices include a withholding and advise them to inform their accountant.

Add a note to the email to remind the client each time you send an invoice.

Regularly check and reconcile with your clients to ensure the amounts on the withholding certificates match what you have to declare. This proactive approach can help prevent issues with tax authorities and ensure smooth compliance.

By staying informed and diligent, you can navigate the complexities of invoice withholding and maintain a clear and compliant financial record.

If you aren’t getting this information from your Asesoria then maybe it’s time to switch book with us today for a consultation.

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