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Taxes analyzes the subjection of the payment by the employee of the interest on the company-worker money loan to income tax withholding

The Binding Resolution of the General Directorate of Taxes, V2846-20 of September 22nd, 2020, analyzes a case in which the consulting entity is going to make a loan to an employee, who only works for it. The worker will proceed to repay the loan granted and pay interest, applying the legal interest rate of the money.

In accordance with articles 75 and 76 of the RIPF, the interest paid by the employee to the company will not be subject to withholding.

The regulations state the following:

Art. 99 LIRPF

“(…).

  1. Entities and legal persons, including entities in the attribution of income, which satisfy or pay income subject to this tax, shall be obliged to make withholdings and payments on account, as a payment on account of Personal Income Tax corresponding to the recipient, in the amount determined by regulation, and to pay the amount to the Treasury in the cases and in the manner established. Taxpayers liable for this tax who carry on economic activities will be subject to the same obligations with respect to the income they satisfy or pay in the course of such activities, as well as individuals, legal entities and other entities not resident in Spanish territory, which operate there through a permanent establishment, or without a permanent establishment with respect to the income from work they satisfy.

(…).”

Answer from DGT

Since the payer of the interest is not obliged to withhold, according to articles 75 and 76 RIPF, the income (interest) paid by the employee (borrower) to the company (lender) will not be subject to withholding.

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