A fixed-term contract is an indefinite-term contract. Therefore, the minimum 2% withholding tax for contracts with a duration of less than one year is not applicable.
For the DGT, in the case of discontinuous permanent employees, since they have a permanent relationship with the company for an indefinite period, the amount of the withholding will be determined in accordance with the general procedure for labor withholdings, and the 2% minimum withholding rate rule does not apply.
As you know, if your company has employees with a contract of less than one year, a minimum withholding rate of 2% must be applied to their payroll. In practice, this may occur in the case of temporary contracts, internship contracts and agreements with trainees.
In addition, it should also be noted that the quantitative limit excluding the obligation to withhold for employment income set out in Article 81.1 of the Personal Income Tax Regulation is not applicable when this minimum withholding rate is applied.
Discontinuous permanent employees and withholding rate
Your company has several discontinuous permanent employees and when calculating their salaries you have applied the IRPF withholding rate to them as to any other employee (the general procedure of article 82 of the IRPF Regulation): that is to say, according to the income forecast that they are going to have during the calendar year, you should know that you are correct, although some of the discontinuous permanent employees complain that you should only withhold 2%.
In this regard, the DGT in its CV 0040-23, dated January 16, 2023, has stated that the 2% withholding rate only operates as a minimum rate in contracts or relationships lasting less than one year and provided that the rate resulting from the general procedure is lower. In addition, it should also be noted that the quantitative limit excluding the withholding obligation for earned income included in Article 81.1 of the Personal Income Tax Regulations (RIRPF) is not applicable when this minimum rate is applicable, as established in paragraph 3 of the same article: “(…) shall not apply when (…) the minimum withholding rates referred to in Article 86.2 of these Regulations apply”.
In accordance with the aforementioned, since the case in question is one of discontinuous permanent employees, which implies the existence of a permanent and indefinite term relationship with the company, the amount of the withholding will be determined in accordance with the general procedure of article 82 RIRPF, the minimum withholding rate rule of 2% of article 86.2 not being applicable -since it is not a contract or relationship of less than one year duration- and the limit excluding the obligation to withhold contained in article 81.1 of the RIRPF being operative.
A fixed-term contract is an indefinite-term contract. Therefore, it is not appropriate to apply the minimum withholding of 2% foreseen for contracts with a duration of less than one year.
For more information, please contact Labor consulting.