Today we would like to talk about a tax aimed at the self-employed and SMEs: form 123. It is well known that self-employed people have different and often complicated taxes and tax duties. They do not have a company that can help them manage all the paperwork, so the situation can become a bit stressful for this type of worker.
Although we always recommend the assistance of an agency when you are self-employed or an SME, we would like to briefly explain what model 123 is and how it works. So, the next time you read about this tax or hear your accountant mention it, you will know what it refers to. Let’s get started!
What is form 123?
Form 123 is a type of tax, a declaration that the self-employed and SMEs must make in order to pay all withholdings generated by income from Personal Income Tax, Corporation Tax and Income Tax. It applies to all those who do not reside in Spain but have income from capital gains and certain income in the country. This regulation is based on Order EHA/3435/2007, of 23 November. It approves self-assessment forms 117, 123, 124, 126, 128 and 300 and establishes measures for the promotion and extension of the electronic filing of certain self-assessments, annual summaries and informative tax returns.
An example of an entity that must pay this tax is a company that distributes dividends or an entrepreneur who pays interest on non-bank loans. The amounts paid and withheld in the previous quarter are declared and calculated depending on the applicable withholding rates. At the end of the year, form 193 (annual) must be filed, listing those who receive the income declared on form 123.
Income from movable capital exempt from withholding must also be declared. The result will simply be €0 and you will have to tick the negative declaration box. If, in the period being declared, you have not paid any income from movable capital, you are not obliged to file the form.
It must be filed when there is a payment of interest on credits or loans that are not from banks, capital yields, distribution of dividends, etc.
Withholdings on urban rental income (form 115) and on income from work or economic activities (form 111) are the most popular in the activity of the self-employed and SMEs. However, we must not forget that there are other types of income that require a withholding tax to be withheld and declared later to the tax authorities (income from movable capital and income).
But what is an income? It is all the income that comes from the assets of the company or self-employed person that is considered as movable assets, but which is not used for their economic activity (interest, dividends, rents, etc.). They are of an asset nature because they are not related to the economic activity carried out by the taxpayer.
We have already mentioned who is obliged to file form 123, but, as in almost all cases, there are exceptions:
If the person receiving the income is an IRPF taxpayer:
- Those that must be declared on form 126. Those that have been obtained for the consideration derived from accounts in any financial entity.
- Those that must be declared on form 124. Those obtained from the transfer, reimbursement or amortisation of financial assets.
- Those to be declared on form 128. They come from capitalisation operations and life or disability insurance contracts.
If the individual receiving the income is a taxpayer of Corporate Income Tax or Non-Resident Income Tax and is permanently established, in addition to the above:
- Those to be declared on form 115 (from the leasing or subletting of urban property).
- Those to be declared on form 117 (obtained from the transfer or reimbursement of shares or holdings in collective investment institutions).
What is the filing deadline?
Form 123 has 2 filing deadlines: quarterly or monthly. The first (quarterly) is for taxpayers of small and medium-sized companies and independent professionals. The second (monthly) is for companies that are considered large (with a volume of operations greater than €6,010,121.04).
The quarterly form must be filed within the first 25 calendar days of the months of April, July and October. For the fourth quarter of the year, the filing shall be made until 31 January of the following year. If the last day of the filing period falls on a Saturday or a non-business day, the period shall be extended to the following business day.
In the case of the monthly return, the filing shall be made within the first 25 calendar days of each month following the month to which the return corresponds. The exception is the month of December; it may be filed until 31 January of the following year. There is another exception: the return for July may be filed between 1 August and 25 September immediately thereafter. Again, if the last day of the deadline is a Saturday or is not a working day, it is extended to the following working day.
The quarterly filing calendar would be as follows:
- First quarter: 1 to 20 April.
- Second quarter: 1 to 20 July.
- Third quarter: 1 to 20 October.
- Fourth quarter: from 1 to 30 January of the following year.
If you have any doubts about the taxes you have to pay and the dates, we have created this tax calendar for companies and the self-employed 2023.
Form 123 must be filed electronically, using the digital certificate of the company or self-employed person, by accessing the Tax Agency’s electronic headquarters. If the form is to be paid and this is done with a bank account, it must also be processed electronically. If payment has been made by another method, you can go to any office where they can give you a receipt with the Complete Reference Number (NRC). This number is used to fill in the form and submit it online.
How to fill in form 123
If you are familiar with forms 115 or 111, you may not find it very difficult to fill in this form correctly. Even so, don’t worry, because we are going to explain it step by step. One reassuring fact: the structure of the tax forms is always the same (identification, accrual, settlement, complementary and payment).
The complication or ‘fear’ of the tax forms comes from the settlement section. This is made up, in the case of form 123, of 8 boxes in which it is included:
- Box 01. Total number of taxpayers or taxable persons who have obtained income or income from movable capital.
- Box 02. The result of all the withholding bases and payments on account.
- Box 03. The total amount of withholdings and payments on account made during the period declared.
From box 4 onwards (including this one), the rest only have to be filled in if there is a receipt of income from movable capital on which a payment has been made to accounts prior to 1999. In addition, in 2018 they must have been subject to definitive withholding and regularisation. Let’s continue:
- Box 04. This is the total sum of the payments on account made in years prior to 1999.
- Box 05. Subtract the corresponding withholdings and payments on account made in years prior to 1999, provided that this difference has a positive sign.
- Box 06. Withholdings and payments on account and regularisation are added together (boxes 3 and 5 are added together).
- Box 07. This is the amount of previous returns, for the same concept, year and period. It only has to be completed in the case of a complementary return.
- Box 08. This is the amount remaining from the sum of boxes 06 and 07.
The total of all the information from each quarterly return of form 123 is included in the annual summary: form 193.
Now we know that form 123 is a tax that must be filed whether you are an individual or a legal entity, as well as by other entities. It is the amount that the Treasury is obliged to withhold or pay for Personal Income Tax, Corporation Tax and Non-Resident Income Tax. It is related to income from movable capital and other income.
It is presented through the distribution of dividends (monthly or quarterly) or the payment of interest (if it is a bank loan). These 2 are the most common concepts if we are talking about income from movable capital. It is important to remember that this form does not include income that must be included in forms 115, 117, 124, 126 or 128.
It is very important to remember a key element for filing this form: the deadline for filing is January. If it is not filed on the indicated date, the Inland Revenue could open a penalty file and force you to pay interest for late payment.
We know that taxes, in addition to being varied, are complex and it is not always clear to us whether we should pay them or not due to exceptions and/or conditions. That’s why at Blegal we work to ensure that self-employed professionals, SMEs and other entities can be sure that their taxes and other obligations are handled with the utmost care and attention. We have more than 30 professionals at your disposal, both online and in person.
Whatever legal, tax or labour problem you have, you can count on us. If you have any doubts about your situation or just want to ask us a question, please contact us – our team will be happy to help you!
Photo by Recha Oktaviani on Unsplash
