IRPF on Purchases
IRPF on Purchases
When we make a purchase that is subject to withholding tax (IRPF), we deduct withholding tax from the price agreed with our supplier. This tax is an income tax payment on account for the profits of our supplier. By making this deduction we are merely acting as tax collectors on behalf of the tax office, hence we pay that money at the end of the quarter. An example would look as follows:
| Purchase invoice - Rent | ||||
|---|---|---|---|---|
| Invoice | Our money | VAT - Tax office money | IRPF - Tax office money | |
| € | € | € | € | |
| Rent | 1,000 | -1,000 | ||
| VAT @ 16% | 160 | -160 | ||
| IRPF @ 18% | -180 | 180 | ||
| 980 | -1,000 | -160 | 180 | |
Our profit is only affected by the actual cost of the rent:
| Profit and loss account | |
|---|---|
| € | |
| Sales | 3,000 |
| Expenses | -1,200 |
| Profit / (Loss) | 1,800 |
However, the income tax withheld from our supplier becomes a creditor:
| Balance Sheet | ||||
|---|---|---|---|---|
| Profit | Bank | VAT Creditor | IRPF Creditor | |
| € | € | € | € | |
| Sales | 3,000 | 3,480 | 480 | |
| Expenses | -200 | -232 | -32 | 0 |
| Rent | -1,000 | -980 | -160 | 180 |
| 1,800 | 2,268 | 288 | 180 | |