15% withholding tax for subcontractors: posting and accounts payable
Guide by the ininvoice team · automated invoice reconciliation.
When a company pays a freelancer or subcontractor performing a professional activity in Spain, it must withhold 15% withholding tax (7% in the year the activity starts and the two following years, under Law 35/2006 on personal income tax), pay it to the tax agency via Spanish form 111, and pay the supplier only the net. The withholding doesn't reduce the accounting expense: the expense is the gross amount; the withholding is a liability to the tax agency.
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:
- 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.
- 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 general, in business activities classified in section one of the IAE (goods sales, transport, construction in many cases) taxed under direct estimation; certain business activities taxed under the objective (modules) method carry a 1% withholding.
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 (year of start and the two following years) | 7% | Gross consideration, excluding VAT |
| Certain business activities under the objective (modules) method | 1% | Gross consideration, excluding VAT |
| Business activity under direct estimation | No withholding | — |
Rates under Law 35/2006 on personal income tax and its regulation. They can change; 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) |
Is your company a builder or does it work with subcontractors? The construction accounts payable page gathers what is specific to the sector. See accounts payable for construction
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.
Automatic withholding tax handling
ininvoice detects the withholding on the self-employed invoice and checks that base, VAT, withholding and total add up; the entry and form 111 stay in the ERP or with your adviser. Request a walkthrough with your invoices.
Withholding and three-way matching: how it affects matching
In automated 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.
Constructed example (synthetic data): 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.
Which checks each invoice from those 22 subcontractors needs:
- Check that the withholding is calculated on the taxable base and that the total adds up: base + VAT − withholding.
- Match the base against the PO price, line by line.
- Pay the net amount, not the total including VAT.
- If an obligated professional invoices without withholding, hold the invoice before payment and ask for a corrected one.
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 predictable: identify the supplier as a professional freelancer, check that the withholding on the invoice is calculated on the taxable base, book the correct entry and accumulate the form 111 base. An AP system can do the checking; a person approves each invoice, and the entry and form 111 are prepared in the ERP or by your adviser.
Related articles: automatic three-way matching, AP automation with no manual keying, Spanish form 303 and received invoice reconciliation.
Automate withholding tax handling
ininvoice detects the withholding on freelance invoices and checks that base, VAT, withholding and total add up; the entry and form 111 stay in the ERP or with your adviser.
Try it with your own invoices · no implementation fee