Invoice with withholding tax

There are cases in which it is required to withhold for PIT purposes. In other sectors, such as construction, it is applied as a guarantee. Certain professionals and entrepreneurs must apply PIT withholdings when issuing invoices. PIT is a tax levied on individuals, which includes professionals and entrepreneurs. Withholding is a tax concept that involves guaranteeing payment of a tax obligation. PIT withholding refers to the advance payment, which affects both employees and self-employed workers and entrepreneurs for their income. In this section we will only refer to the withholdings that apply to invoices from professionals and entrepreneurs.

When is withholding tax levied on an invoice?

Withholdings on account of PIT must only be applied to invoices by those entrepreneurs or professionals registered in the second and third sections of the Tax on Economic Activities (IAE).

These are professional and artistic activities that only apply withholdings when invoicing other professionals or entrepreneurs. When invoicing private individuals, no withholdings may be applied.

Withholding tax on self-employed invoice: rates to be applied

The general withholding rate to be applied to invoices is 15%. However, new self-employed persons may apply 7% during the first three years of activity, provided that they have not been registered as self-employed in the previous year.

Self-employed persons registered in the following activities must also apply withholdings:

  • Pig fattening and poultry farming activities: 1%.
  • Agricultural and livestock activities (except pig fattening and poultry farming): 2%.
  • Forestry activities: 2%.

Tax obligations for invoices with withholding tax

Withholdings applied to invoices must be declared by filing form 130 every quarter.

Only those who apply withholdings to more than 70% of their invoices are exempt from filing this form.

The withholding tax must be clearly shown on the invoice, itemised, together with the other taxes (such as VAT).

The 15% withholding tax is calculated from the taxable base and subtracted (unlike VAT, which is added).

Accounting of an invoice with withholding tax

The General Accounting Plan provides for the accounting of withholdings and payments on account. Account 473 “Withholdings and payments on account” is reserved for this purpose.

Model rental invoice with withholding tax

When renting business premises, the landlord must apply withholdings to the invoices issued to the professional or entrepreneur who, as tenant, has rented the premises for his activity.

In such cases, the withholding that is applied is 19% and the professional or entrepreneur must declare it through form 115.

Withholding taxes on invoices in the construction sector

In the construction sector the withholding is an advance payment and is not linked to PIT or any other tax, but to a guarantee that the client withholds from the contractor.

In such cases, the withholding may or may not be subject to VAT. If the work has been delivered, no VAT is levied. However, if the work is in progress, VAT must be charged as if it was an advance payment.

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