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Non-resident artists and athletes; Problems in calculating withholding taxes

If you are a sportsperson or an artist performing abroad, then you may have to pay tax in more than one country for the income obtained. If you are a non-resident sportsman, sportswoman or an artist in Spain with income generated here, you may have to pay tax in Spain. Basically, this taxation simply means that the national payer withholds the correct amount as non-resident income… that's it; Subsequently, those mechanisms fixed to avoid double taxation described in the corresponding double taxation agreement, will offset this withholding against the tax in the respective country of residence.

Calculating withholding taxes of non-resident artists and athletes

However, in too many cases this aspect is not included in the agreements made between artist and promoter; this may have unpleasant consequences in terms of taxation. The relevancy of this issue is hereafter viewed by an example:

"Let’s suppose there is an agreement between a singer “X” resident in a foreign country and a Spanish promoter who wants to engage “X” for performance of a concert in Spain. It is mutually agreed that an advance payment of 5.000 euros being the artist's fee, with issuance of the relative invoice, will be executed. According to the double taxation agreement between Spain and that foreign country, a withholding tax of 19% must be levied on income from artists' work performed in Spain by a non-resident".

In this case, the correct withholding tax would be 950 euros (5.000 euros gross plus 19%), so the receivable amount by the artist would be 4.050 euros, while 950 euros would be paid to the tax department, as withholding tax. However, in those cases where the terms are not correctly disclosed, and the artist is credited with the full amount of 5.000 euros, then the tax department may assume that these 5.000 euros are the net amount and raise this amount to gross, as taxable income for the withholding tax. In other words:

If the aforesaid 5.000 euros are assumed to be net, then the gross amount would be:

Under this assumption, the taxpayer (the Spanish promoter is obliged to draw the withholding) is the one to prove that the withholding was actually 950 euros and not 1.172,84 euros, with the subsequent cost that this entails (penalties, surcharges, fees for managing the claim...).

As far is this example is concerned, the amounts may be irrelevant, but imagine the scenario by fixing higher values. The damage could be more than significant! Therefore, when contracting with non-resident artists, there are two issues that must be taken into account:

  1. Review the withholdings applicable to the engagement, thoroughly.

  2. Incorporate these aspects in contracts and invoices.

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