Exclusion of IGIC from the IRPF withholding base for leases

The Directorate General of Taxes (DGT) has issued a relevant ruling for lessors and lessees of urban real estate in the Canary Islands. The issue focuses on determining whether the Canary Islands General Indirect Tax (IGIC) should form part of the base upon which the Personal Income Tax (IRPF) withholding is applied.

What the DGT has resolved

After analyzing current regulations, specifically the Personal Income Tax Regulations (RIRPF), the advisory body has determined that for the calculation of the 19 percent withholding on income from the leasing or subleasing of urban real estate, said percentage must be applied to all amounts paid to the lessor, but excluding the indirect tax.

Consequently, the IGIC must be excluded from all amounts paid to the lessor at the time of calculating the corresponding withholding. The indirect tax does not constitute an integral element of the IRPF withholding base.

What this means for you

This ruling has a direct impact on the tax operations of those working with real estate in the Canary Islands:

• For legal entities: Those entities obliged to perform the withholding must ensure that the 19% calculation is carried out solely on the taxable base of the rent, without adding the IGIC amount.
• For lessors and lessees: It is necessary to adjust the payment and withholding mechanics to avoid errors in tax settlements, ensuring that the IRPF withholding is not applied to an amount inflated by the indirect tax.

What should be done

In light of this pronouncement, it is necessary to verify the billing and withholding procedures applied in current lease contracts in the Canary Islands. It is fundamental to ensure that the calculation base for the IRPF withholding is correct to avoid possible contingencies with the Tax Administration. Since each contractual situation may present particularities, it is recommended to assess the application of this ruling in each specific case.