If you're self-employed in Spain and invoice other businesses, your invoices very likely include an income tax withholding line, in addition to VAT. This dual concept causes frequent confusion, especially among those invoicing for the first time.
What income tax withholding on an invoice is
It's an advance payment toward your annual income tax return, which your client (if it's a business or another professional required to withhold) deducts directly from the amount they pay you, and remits to the tax authorities on your behalf. It's not an extra tax you pay on top: it's a portion of your future income tax bill being collected in advance throughout the year, the same way withholding works for a salaried employee's payslip.
The general withholding percentage
The general withholding rate for professional activities is 15% of the invoice's taxable base (not the total including VAT). There's a reduced rate of 7%, applicable during the year you start your activity and the following two years, provided you hadn't carried out a similar professional activity in the year before starting.
How to calculate an invoice with VAT and income tax withholding
Both concepts are always calculated on the taxable base, but they work in opposite directions: VAT is added (the client pays it on top of the price) and withholding is subtracted (the client deducts it from the amount to be paid):
Total to collect = Taxable base + VAT − Income tax withholding
For example, with a base of €1,000, 21% VAT, and 15% withholding: 1,000 + 210 − 150 = €1,060 is what you actually collect, even though your invoice's taxable base is €1,000.
When withholding doesn't apply
Income tax withholding on an invoice only applies when the client is a business or professional required to withhold (obligated to keep accounts under their tax regime). If you invoice an individual (end consumer), no income tax withholding applies on the invoice, although VAT still applies as normal if your activity is subject to it.
Why withholding doesn't replace your quarterly installment payments
A common mistake is thinking that, if enough is withheld on your invoices, you don't need to file the quarterly income tax installment payment (modelo 130). In reality, the withholdings your clients apply can be deducted from the amount due on modelo 130, but if they don't cover the full estimated tax bill, you're still required to file the installment payment for the difference.
Calculate your invoice breakdown
Our VAT calculator helps you quickly work out the taxable base and VAT amount on any invoice; combine it with the withholding percentage that applies to your activity to know the exact net amount you'll collect.