Form 115: The Commercial Rent Withholding Tax Many Businesses Forget

When a freelancer or small business rents the premises where they set up shop, there’s a tax obligation that gets overlooked more often than it should: rental withholding tax. It isn’t a new tax or an extra fee — it’s a portion of personal income tax (IRPF), or corporate tax if the landlord is a company, that the tenant must withhold from the rent invoice and pay to the tax authorities on the landlord’s behalf. That withheld amount is declared quarterly on Form 115, and many businesses starting from scratch — or moving premises without professional advice — simply miss it.

When do you need to file Form 115?

The general rule is straightforward: if your business activity requires you to keep accounts under the Commercial Code, or if you’re taxed under direct estimation (normal or simplified) or a regime that calculates income as the difference between revenue and expenses, and you pay rent for urban premises where you carry out your activity, you must withhold tax on that rent and declare it. The withholding rate that applies to commercial premises leases is the standard rate currently in force for this type of real estate capital income, applied to the gross rent paid, excluding VAT.

In practice, it works like this: if the monthly rent is €1,000 plus VAT, you don’t pay the landlord the full €1,000. You pay the rent minus the corresponding withholding, and that withheld difference is exactly what you pay to the tax authorities each quarter via Form 115, on account of the landlord’s IRPF (or corporate tax). The landlord, in turn, deducts that withholding when filing their own tax return. The form is filed within the first twenty calendar days of April, July and October, and during January for the fourth quarter of the previous year.

Exceptions: not every rental carries withholding

This is where most of the confusion lies. Withholding doesn’t apply, among other cases, when the annual rent paid to the same landlord for the same property doesn’t exceed a reduced amount set by regulation, intended for very small or occasional leases. Nor is there withholding when the landlord is exempt for being registered under certain business tax (IAE) headings related to property leasing or trading, and meets the requirements for that exemption — common among REITs (SOCIMIs), large property portfolios, or companies whose business is professionally leasing real estate. If the landlord is an individual who rents out a single property with no other real estate activity, the obligation to withhold normally does apply. It’s always worth asking the landlord to confirm in writing whether or not they’re exempt, because if you withhold too much or too little due to a misclassification, the problem can end up being yours, not theirs.

The link to Form 180, and what happens if you don’t file

Form 115 is the quarterly return, but every January you also need to file Form 180, the annual summary: it lists, landlord by landlord, the total rent paid and withholdings made throughout the previous year. It’s the full picture that the tax authorities later cross-check against what the landlord declares, so any mismatch between your Form 180 and the landlord’s return tends to trigger automatic requests for clarification.

Failing to file Form 115, filing it late, or not paying over the withholding you’ve collected has real consequences. Because these are amounts withheld from a third party and not paid over, the tax authorities treat it more severely than a simple delay: penalties start as a percentage of the amount not paid and can increase if there’s financial harm or if the correction isn’t made voluntarily, on top of the surcharges for late filing when it’s filed without a prior request from the authorities. The most common mistake isn’t usually deliberate avoidance but simply not knowing: businesses that start paying rent with no one telling them that expense comes with an obligation to withhold and declare.

At Zythos Business, we review our clients’ lease agreements from day one to check whether withholding applies, calculate the correct amount quarter by quarter, and make sure Form 115 and its annual summary, Form 180, are always filed on time and match what the landlord declares. That way, the freelancer or small business can forget about the tax side of their rent and focus on what actually grows their business.