Leasing companies may invoice without withholding tax if they meet RIS requirements

The management of urban real estate leases by companies may benefit from a treasury relief measure: the exemption from the obligation to apply withholdings for Corporate Income Tax (IS). However, the application of this benefit is not discretionary and requires strict compliance with current regulations.

What the DGT has ruled

The Directorate General of Taxes (DGT) has clarified that there is no obligation to apply withholding tax on income from urban real estate leases as long as the lessor meets the requirements established in Article 61.1.i) of the Corporate Income Tax Regulations (RIS). For this exemption to be valid, two fundamental conditions must be met:

• Activity classification: The company's activity must be classified under headings of the IAE (Economic Activities Tax) that expressly authorize the leasing of real estate.
• Resulting quota: When applying the rules of group 861 to the cadastral value of the property, the resulting quota cannot be zero.

Furthermore, the tax authority points out that the lessor is responsible for proving this compliance to the lessee so that the latter can proceed without making the corresponding withholding.

What this means for you

If your company manages urban real estate, this criterion allows you to avoid the 19% withholding that acts as a payment on account of Corporate Income Tax (IS), improving cash availability. However, it is fundamental to understand that the possibility of invoicing without withholding is not a commercial management option, but a consequence of the nature of the activity and the value of the properties. If the company owns various properties, the application of the exemption will depend on whether each of them meets the aforementioned heading and cadastral value requirements.

What you should do

It is necessary to perform a technical analysis of the company's activity and the cadastral file of each leased property. You must verify whether your activity headings allow leasing and whether the calculation of the cadastral value under the rules of group 861 yields a quota other than zero. Once compliance is confirmed, the company must inform its lessees so that invoicing can be carried out without the usual withholding. It is recommended to assess each contract individually to ensure that the application of the exemption is correct and to avoid contingencies with the Administration.