Royalty payers may use the certificate of residence from the year of accrual

The application of treaties to avoid double taxation within the scope of Non-Resident Income Tax (IRNR) requires precise accreditation of the tax residence of the payment beneficiary. A recent resolution from the Directorate General of Taxes (DGT) clarifies the timing and validity of the documentation required to exempt withholding in the payment of royalties.

What the DGT has resolved

The query concerned whether, to apply international treaties, it is valid to use a tax residence certificate corresponding to the year in which the income is generated. The DGT has determined that this is possible.

The criterion establishes that the obligation to withhold on royalties arises at the time the income becomes due or, failing that, at the time of payment if it occurs earlier. Since the obligation to withhold arises when the recipient's residence must be proven, the certificate of residence is the key element. The administration confirms that these certificates are valid for one year from their date of issuance, which allows their use to justify the exemption in the year of accrual.

What this means for you

For entities resident in Spain that make royalty payments to non-resident beneficiaries, this resolution provides legal certainty in the management of their tax obligations. The main impact lies in document management and compliance with withholding regulations:

• Temporal validity: It is confirmed that the certificate of residence issued in the year of accrual is sufficient to prove resident status to the Administration.
• Timing of the obligation: The need to prove residence is linked to the moment when the income is due or the payment is made.
• Application of treaties: It allows for the correct application of the benefits of double taxation treaties, avoiding undue withholdings in the IRNR.

What should be done

When making royalty payments to non-residents, it is necessary to verify the validity of the documentation provided by the beneficiary. It must be ensured that the tax residence certificate has been duly issued and that its issuance date covers the period when the income is due or the moment of payment. It is fundamental to evaluate each operation and the documentation received to ensure compliance with current regulations and avoid contingencies during tax inspections.