B Law & Tax
22 September 2023

Tax advisor: Work Retention Rates in 2023: Significant Changes and Substantial Reductions

In the fiscal revenue report for the month of July, it is observed that tax revenues reached
40.910 billion euros, representing a 4.3% increase compared to the same month in 2022.
This increase is primarily attributed to the strong performance of salary and professional
activity withholdings, which experienced a 10.4% growth in July and an 11.2% increase
year-to-date (10.4% in the private sector and 12.9% in public administrations.

The retention rate in July was lower than in previous months due to the increasing impact of
the reduction in tax rates on lower incomes. This resulted from certain modifications in salary
withholdings. Despite the slowdown in job creation, increases in average salaries exceed
those of the previous year, leading to an increase in the effective rate of the Personal
Income Tax (IRPF) and, consequently, an increase in salary withholdings.

Reductions in Work Withholdings in 2023
Changes in work withholdings have been introduced through Law 31/2022, dated December
23, which is the General State Budget Law for the year 2023, along with various decrees.
Among the notable modifications made to work withholdings are the following:

  • The exclusion limits for applying withholdings based on the taxpayer’s
    personal situation for income from work paid from February 1, 2023, have been
    raised. Likewise, if the taxpayer earns a total of less than 35,200 euros per year (previously 22,000 euros), the maximum amount subject to withholding will be calculated by applying a 43% rate to the excess over the total income, taking into
    account the personal minimums exempt from withholding according to their situation.
  • The withholding percentage on income from the creation of literary, artistic, or
    scientific works has been reduced from 15% to 7% when the gross income from
    such activities in the immediate previous year is less than 15,000 euros and
    represents more than 75% of the total gross income from economic activities and
    work obtained by the taxpayer in that year.
  • The withholding rate on intellectual property rights is reduced from 19% to
    15%. However, a 7% rate will be used when it applies to income from work that
    meets these conditions, or when it relates to income from economic activities of
    individuals starting a business, or in the case of advances related to the assignment
    of copyright that will be paid over several years.
  • The minimum withholding rate applicable to income from work derived from a
    special employment relationship for artists working in performing arts,
    audiovisual, and music, as well as individuals performing technical or auxiliary
    activities necessary for the development of such activities, is reduced from 15% to
    2%. The withholding rate will be 0.8% for income obtained in Ceuta and Melilla, and
    during the year 2023, for income generated on the island of La Palma by individuals
    residing on the same island. This adjustment will come into effect from January 26,
    2023.
  • The withholding rate for the following professional activities is reduced from
    15% to 7%
  • – The 2nd Section (IAE) headings 851, 852, 853, 861, 862, 864, and 869.
    – the 3rd Section (IAE) groups 01, 02, 03, and 05.
    – Provision of services in performing arts, audiovisual and musical activities, or
    technical and auxiliary services related to the aforementioned activities,
    provided that the income for the previous fiscal year is less than 15,000 euros
    and represents at least 75% of the total income from economic activities and
    employment income.

 

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