Advances (pagos a cuenta): what they are and how they're computed

One of the most confusing things when starting out: why do I pay tax every month if the return is annual? The answer is anticipos (advances, or payments on account). They're not a new tax: they're advances on what you'll owe at closing. Here it is, simply.

What is an advance?

An advance is a payment on account of the annual tax. The State doesn't want to wait until year-end to collect it all at once, so you pay month by month. At closing you total what you advanced and subtract it from the final tax: pay too much and there's a credit; too little and you pay the difference.

IRPF: how the advance is computed

For labour income, the monthly advance is computed by applying the annual IRPF scale “monthly-ized” — that is, divided by twelve. The decree puts it this way:

Decree 148/007 sets it out as:

«El monto del anticipo se determinará, aplicando a los ingresos del mes … la escala de rentas para la determinación de las alícuotas y deducciones … mensualizada. A tales efectos se dividirán entre doce, las referidas escalas anuales.»

In English: The advance amount is determined by applying to the month's income … the income scale for setting rates and deductions … monthly-ized. To that end, the annual scales are divided by twelve.

IRAE: monthly advances and a minimum payment

IRAE is also advanced month by month. In the ficto regime, the monthly advance is the estimated annual IRAE divided by twelve, but never below a minimum monthly payment set by decree. Each advance's date comes from DGI's calendar: for these taxpayers there's a single monthly date, the same regardless of your RUT's last digit:

At year-end: the balance

The annual return computes the real tax for the year and subtracts all the advances paid. The result is the balance: to pay (if you under-advanced) or in your favour (if you over-advanced, which can mean a refund). That's why advancing accurately during the year pays off.

In short: advances are monthly prepayments of IRAE or IRPF that are subtracted from the real tax at closing. They're not an extra cost: they're the same tax, paid bit by bit. Tributo shows each advance in your calendar with its estimated amount. When in doubt, your accountant.