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Black Money in Spain

- Updated: 19/11/2012

Up until relatively recently avoiding the payment of taxes has been regarded as almost a national sport by most Spaniards, and they have traditionally looked upon those Foreigners who diligently pay their due taxes with a bit of bewhilderment.

Black Money in Spain

On property transactions

To be honest avoiding tax is not easy unless you blatantly break the law and do not declare everything you should - something that your lawyer will not recommend you do. Black money on property is basically a tax avoidance scheme and as such is illegal as you are defrauding the tax office. However, this is still very popular in most property transactions.

It is true to say that for many years, under declaring the true selling price of a property was common practise. However, all this created was a large vicious circle of tax evasion. The first buyer who allowed the selling price to be under declared helped save the seller a tidy sum on capital gains tax. But when it came to that buyer becoming a seller, the gap between the original declared selling price and the new selling price was much bigger than it should have been. This meant that the current seller, if they declared the true total price, would be paying capital gains tax on a higher profit, even though in reality they paid more for the property than the tax man is seeing. So the only person the current seller has helped is the original seller. OK the current seller probably got away with paying IVA on a lower amount, but with property IVA at around 7% and capital gains tax at 35%, who had the better deal?

So now the current seller under declares the current selling price so as not to get stuck with a higher capital gains tax bill than they should have, and so continues the illegal vicious circle.

The simple answer to all of this is DO NOT ACCEPT AN "UNDER DECLARED" PRICE FROM THE SELLER. If they will not sell to you under these circumstances then we suggest you do not proceed with the sale.

Unscrupulous Businessmen and criminals have recently cottoned onto this as a way to launder money gained by Illegal means and even forged Bank notes, and this has resulted in the Government keeping a much closer eye on Property Transactions and the money that is exchanged.

In Employment

'Black Money' is also used to avoid paying taxes with regards to how small businesses pay their Employees. You may find that some small businesses pay their employees cash in hand to avoid paying tax and other deductions, which will leave the employee without Social Security protection or Healthcare. Similarly, you may finds that other small businesses legally pay their Employees their full financial entitlement, and pay the relevant deduction, but put in place 'Nominas' which are basically deductions that are taken off your gross salary where tax allowances can be taken for both Parties (so both employer and employee benefit by paying less taxes) - Such Nominas can include things such as Meal Break, Travelling Allowances or petrol costs.

With Tradesmen

A Builder or a Plumber and other tradesmen should by law provide you with a Factura for the services that they provide. It is common for them to quote you a price, and then when you ask for a Factura to be told that a Factura is extra or to be offered as discount if a factura is not required. Be clear from the outset that you will require a facture as this is always useful if you should have a problem with any of the work that has been undertaken. In some cases, if you are a Business or Registered Autonomo you can claim back any resulting IVA that is charged on this Factura.

However, a law passed by the Government on October 30th 2012 came into effect on November 19th, which made cash payments of all sums over 2,500 illegal when at least one of the parties in the transaction is acting in a proffessional or commercial manner. Click >> HERE << for further details.