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V2831-20 22 September 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · retención

Withholding tax rates must be adjusted when extending employment contracts of less than one year

A query was raised regarding whether the minimum withholding tax rate of 2% should be maintained after a six-month employment contract is extended for another six months. The Directorate-General for Tax (DGT) ruled that the extension requires an adjustment of the withholding rate, although the 2% minimum rate remains applicable if the total extension period is also less than one year.

The question raised

Applicable withholding tax rate on the income paid.

The DGT's ruling

The extension of an employment contract is a circumstance that requires the regularization of the withholding tax rate in accordance with the Personal Income Tax (IRPF) Regulations. The minimum rate of 2% for contracts with a duration of less than one year remains applicable following regularization, provided that the extension is also for a duration of less than one year.

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