Entities must withhold 19% on fan prizes if they exceed 300 euros

The Directorate General of Taxes (DGT) has clarified the tax treatment of withholdings that must be applied at the time of awarding prizes, clearly differentiating between the beneficiary's status as a fan or a professional.

What the DGT has resolved

The tax authority's criteria establish two main scenarios depending on the applicable tax and the nature of the winner:

• In Corporate Tax (IS): If the beneficiary is a legal entity participating as a fan, the entity awarding the prize must apply a 19% withholding as long as the prize amount exceeds 300 euros. However, if the prize derives from an economic activity inherent to the entity, there is no obligation to withhold under IS.
• In Personal Income Tax (IRPF): When the beneficiary is an individual and the prize originates from a livestock activity, the paying entity is obliged to apply a 2% withholding.

What it means for you

For companies that organize contests, raffles, or prize activities, this criterion implies a direct responsibility in correctly determining the type of withholding. It is not enough to know the amount of the prize; it is essential to identify whether the beneficiary is acting merely as a fan or if the prize is linked to the exercise of an economic or professional activity.

An error in the classification of the winner could lead to an incorrect application of the withholding rates provided in the Corporate Tax Law and the Personal Income Tax Law, affecting both the tax settlement and the responsibility of the entity making the payment.

What should be done

Entities making payments in the form of prizes must verify the tax status of their beneficiaries before proceeding with the payment. It is necessary to distinguish whether the recipient is an individual or a legal entity and whether the prize constitutes income derived from their habitual economic activity or if it is a fortuitous event. It is recommended to document the nature of the prize and the status of the winner to justify the applied withholding in the event of an inspection.