15% withholding tax for subcontractors: posting and accounts payable

What withholding tax is and when it applies in supplier invoices

Withholding tax on supplier invoices is a prepayment mechanism of the supplier's personal income tax. The paying company acts as withholder: deducts the withholding rate from the amount to pay, remits it to the tax agency on the freelancer's behalf and gives the professional an annual withholding certificate (Spanish form 190).

It applies when two conditions meet:

1. The supplier is an individual freelancer performing an economic activity in section two (professional activities) or three (artistic and sports) of the Spanish IAE, or agricultural, livestock or forestry activity.
2. The paying company is required to withhold: any company or entrepreneur paying income subject to withholding.

Withholding doesn't apply when the supplier is a corporate entity (SL, SA), even single-shareholder. Nor in certain activities classified as commercial in section one of the IAE (goods sales, transport, construction in many cases).

This information is illustrative. The withholding obligation depends on the activity nature and the supplier's IAE classification. Consult your tax advisor.

Withholding tax rates in 2026

Supplier situation	Withholding rate	Withholding base
Professional activity (general)	15%	Gross consideration, excluding VAT
New professional (1st and 2nd calendar year)	7%	Gross consideration, excluding VAT
Agricultural, livestock, forestry (general)	2% or 1%	By activity type and product
Movable-property income (rental of movable goods)	19%	Rental amount
Real-estate rental (if subject to withholding)	19%	Rental amount excluding VAT

Current rates under Spanish IRPF Law and RD 439/2007. Can change by general budget law. Consult your tax advisor.

Anatomy of a freelance invoice with withholding: numerical example

A graphic-designer freelancer issues an invoice for branding services:

Concept	Amount
Fees (taxable base)	EUR 2,000.00
VAT 21%	EUR 420.00
Subtotal before withholding	EUR 2,420.00
Withholding tax 15% (on taxable base)	−EUR 300.00
Total payable to supplier	EUR 2,120.00

The company remits EUR 300 to the tax agency quarterly (form 111). The freelancer receives EUR 2,120 and declares EUR 2,000 gross on their personal income tax return, deducting the EUR 300 already withheld.

Correct posting in the journal

The most common AP error is to book only the net paid (EUR 2,120) as expense. The real expense is the gross (EUR 2,000); the withholding (EUR 300) is a liability to the tax agency, not a lower expense.

Entry at invoice receipt and approval

Account	Description	Debit	Credit
621 / 623	Independent professional services	2,000.00
472	Input VAT	420.00
410	Payables for services		2,120.00
4751	Tax agency - withholdings and prepayments		300.00

Entry at payment to the supplier

Account	Description	Debit	Credit
410	Payables for services	2,120.00
572	Bank		2,120.00

Entry at quarterly Spanish form 111 payment

Account	Description	Debit	Credit
4751	Tax agency - withholdings and prepayments	300.00
572	Bank		300.00

Account numbers correspond to the Spanish General Accounting Plan (PGC 2007). Your chart of accounts may differ. Consult your accountant.

Key differences between VAT and withholding tax in the AP cycle

Dimension	Input VAT	Withholding tax
Nature	Indirect tax on consumption	Prepayment of supplier's direct tax
Who finally pays it?	The end consumer (company if not deducting)	The freelancer (offset on their tax return)
Impact on expense	No impact if deductible	No impact: expense = gross base
Accounting account	472 Input VAT (asset)	4751 Tax agency withholdings (liability)
Filing form	303 (quarterly) or SII (monthly)	111 (quarterly) + 190 (annual summary)
Appears on supplier invoice?	Yes, mandatory	Yes, mandatory to show rate and base
Affects the amount to pay?	Yes (VAT is paid to supplier)	Yes (deducted from total to pay)

Spanish form 111: which info comes from the AP cycle

Spanish form 111 is the quarterly declaration of withholdings and prepayments on work income, economic activities and prizes. In AP, withholdings on freelancers are declared under income from economic activities.

To file form 111 correctly, the AP system must keep accumulated quarterly:

• Number of recipients (distinct freelancers withheld).
• Withholding base (sum of withheld invoice bases).
• Total withheld amount (sum of withholdings applied).

If the AP system doesn't break out freelance invoices from other supplier invoices, preparing form 111 is a manual filter-and-sum process. With 20 active freelancers and 50 invoices/quarter, that's 2-3 hours of unnecessary work.

Four common AP errors with withholding tax

1. Paying the gross to the freelancer by mistake

If EUR 2,420 is paid instead of EUR 2,120, the company has overpaid by EUR 300. The freelancer has received money that belongs to the tax agency. The fix requires the supplier to return the excess or to deduct it from the next invoice, with documented return.

2. Not withholding because "the invoice doesn't show it"

The withholding obligation falls on the payer, not the invoice issuer. If the freelancer doesn't include withholding on their invoice but the activity is subject, the company must withhold anyway. The supplier's omission doesn't release the payer. Consult your tax advisor when in doubt.

3. Computing the withholding on the VAT-inclusive total

Withholding is computed on the taxable base (fees), not on the total including VAT. 15% on EUR 2,420 would give EUR 363 instead of EUR 300: 21% error.

4. Not separating account 4751 from account 410

If withholding is booked as a lower amount on the payables account (410) instead of opening 4751, the balance sheet shows lower debt with the supplier but doesn't reflect the real debt with the tax agency. When preparing form 111, there's no source data and it has to be rebuilt from bank payments.

Withholding and three-way matching: how it affects matching

In three-way matching of supplier invoices, withholding tax has a specific impact: the amount to pay (net of withholding) never equals the PO amount, which reflects the gross service cost.

The matching engine must compare the invoice's taxable base against the PO price, ignoring withholding as a variance variable. If the matching system compares total to pay against the PO amount, it will always flag a fictitious 15% variance on every freelance invoice.

Correct configuration: matching verifies taxable base vs PO price; payment verifies the net transferred to the supplier is base + VAT − withholding.

Real case: engineering services company, 22 subcontractors, 88 invoices/quarter

A civil engineering company with 22 freelance engineers received between 80 and 100 invoices per quarter. Preparing form 111 required exporting all supplier invoices to Excel, manually filtering the freelance ones, summing bases and withholdings, and reconciling with bank payments: 4 hours per quarter for the admin lead.

After tagging the 22 subcontractors as "professional freelancer" in the supplier master:

• The system automatically applies withholding when processing each invoice.
• The payment order is generated for the net without manual intervention.
• Form 111 summary exports directly from the system: 12 minutes instead of 4 hours.
• A case was detected where a subcontractor had issued an invoice without withholding being an obligated professional: the system flagged the anomaly and the company applied the correct withholding before payment.

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Frequently asked questions on withholding tax in AP

Does a subcontractor under SL have withholding tax?

No. Corporate entities (SL, SA, cooperatives) are not subject to withholding tax on their professional service invoices. Withholding applies only to individual freelancers performing professional or artistic activity. Consult your tax advisor for specific cases.

What if the freelancer proves more than two years of activity to apply 7%?

The reduced 7% rate applies only in the year of activity start and the next two. The freelancer must communicate it expressly to the payer in writing. Without that communication, the general 15% applies. If the payer applies 7% without communication, they take the risk of the difference. Consult your tax advisor.

Does withholding tax appear on Spanish form 303 for VAT?

No. They are completely separate forms. Form 303 declares output and input VAT. Form 111 declares withholdings on freelancers and employees. An AP system must feed both forms independently from each invoice's data.

What happens if I forget to withhold for a quarter?

If the company doesn't withhold when required, the tax agency can claim the non-withheld amount plus interest and, in repeated cases, a fine. The company cannot recover the withholding from the freelancer retroactively if they already paid the gross. The fix requires a supplementary form 111. Consult your tax advisor on any incident.

Do payments to foreign freelancers have withholding tax?

Non-resident freelancers in Spain providing services on Spanish territory may be subject to non-resident income tax (IRNR), which has different rates from IRPF. If the freelancer resides in a country with a double-tax treaty with Spain, the rate may be lower or zero. This is a particularly complex area. Consult your tax advisor before paying.

Is form 190 mandatory even with only 2 freelancers?

Yes. Form 190 is the annual summary of withholdings and must be filed before January 31 of the following year, regardless of the number of recipients. It includes details per freelancer: tax ID, name, gross income and withholdings applied. This information is illustrative. Consult your tax advisor.

Conclusion

The 15% withholding tax on freelance invoices is an obligation of the payer, not an option. The error of not withholding or posting incorrectly generates a hidden liability with the tax agency that surfaces at the worst time: an audit or an ex-officio settlement.

The good news is that the process is fully automatable: identify the supplier as a professional freelancer in the master, capture the withholding from the invoice, apply the correct entry and accumulate the form 111 base. None of these steps requires manual intervention if the AP system is well configured.

Related articles: automatic three-way matching, touchless accounts payable, Spanish form 303 and received invoice reconciliation.