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TAXES

Tax evasion in Spain: What are the penalties and prison sentences?

Spain takes tax fraud very seriously and there can be severe consequences if you're found out. Read on to find out what the fines and possible jail sentences are for tax evasion.

Tax evasion in Spain: What are the penalties and prison sentences?
What are the penalties for tax fraud in Spain? Photo: Tim Gouw / Unsplash

You have to be careful in Spain when it comes to declaring your taxes. Whether you knowingly or unwittingly leave out payments or earnings, it may be considered tax fraud and you will be penalised accordingly. 

Many people get paid under the table, or ‘work in black’ as it’s called in Spain: business owners do it, self-employed workers as well, and multinationals certainly do.

According to The State of Tax Justice 2021 international report, Spain loses €6.3 billion a year from tax evasion committed by multinationals and big fortunes.

More than 90 percent of Spaniards believe there is a lot or quite a lot of tax evasion in Spain, the latest data from Spain’s Centre for Sociological Research suggests, with 34 percent of respondents considering it unfair as it results in some people having to pay more to cover for those who don’t.

You may be tempted to do the same, but it’s not worth the risk unless you want to face heavy fines or even jail time. Keep in mind as well that 80 percent of Hacienda’s tax evasion team focuses on catching out ‘small fry’ autónomos whilst 20 percent focus on the ‘big fish’.

So, what are the penalties and possible prison sentences for tax evasion in Spain?

Minor offences

Tax fraud (evasión fiscal) in Spain is considered be minor if you don’t declare up to €3,000. In this case, you could be subject to a fine of €1,500.  

There are other types of tax fraud that can land people in trouble too, such as wrongly declaring company or self-employed expenses or claiming tax deductions that don’t apply.

More serious offences  

The infraction is considered serious if you defraud the government out of €3,000 or more. In this situation, the fines will be 50 to 100 percent of the amount that you didn’t declare.  

READ ALSO: How does Spain know if I’m a tax resident?

Criminal offence

The Spanish Penal Code states that a crime is committed against the Public Treasury if “you defraud the state, regional or local Public Treasury, you avoid the payment of taxes, withhold amounts, retain income, improperly obtain funds or enjoy tax benefits that you shouldn’t be”, if the defrauded amount exceeds €120,000.

This means that if you try to hide €120,000 or more from the Spanish government, you won’t only be punished with fines, but a jail sentence is possible too.

If found guilty, you could be sentenced to between one and five years, as well as a fine of one to six times the amount you defrauded.  

In addition to the prison sentence and fines, you will not be able to obtain public aid, benefits or social security incentives during a period of three to six years. 

READ ALSO: What can I deported from Spain for?

Very serious criminal offences  

The penalty may be more serious if the amount defrauded exceeds €600,000 or the fraud has been committed within a criminal organisation. This could land you in prison for between two to six years and a fine of two to six times the fee defrauded.

Fines for submitting mistakes on your tax declarations

There are several fines you must pay if you submit your tax declaration with mistakes, file it when it’s incomplete or add in false information. This ranges from €150 for minor mistakes and incomplete data to €250 for more serious mistakes. 

If the incomplete or inaccurate data corresponds to those mentioned in articles 93 and 94 of the Ley General Tributaria, then you will be subject to paying a fine of €200 for each set of data that contains mistakes. 

Keep in mind

Regardless of the amount defrauded, if you regularise your tax situation, meaning that you declare the correct amount and you pay back what you owe, it’s most likely you will not have to face any penalties.  

However, you must make sure you do this before the tax authorities find out. Once you’re already being investigated for a fiscal crime, you may be fined or convicted, even if you have paid up.

READ ALSO: What are Spain’s new rules and limits on cash payments?

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TAXES

Spain’s deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain's Deputy Prime Minister and Labour Minister, has called for a freeze on variable mortgage rates amid news that Spain's biggest banks have enjoyed a bumper year of record profits.

Spain's deputy PM proposes freezing mortgage rates

Yolanda Díaz, Spain’s Labour Minister and the ideological force behind sweeping labour market reforms, has called for a freeze on variable rate mortgages following news that some of Spain’s biggest banks reported billions in record profits last year.

On Wednesday, BBVA reported a 2022 profit of €6.4 billion, the largest profit in its history. Driving this profit, the bank’s interest margin grew by a whopping 30.4 percent, commission income by 12.3 percent, and loans by 13.3 percent.

Banco Santander posted an annual net profit of €9.6 billion, up 18 percent from 2021 and higher than forecasted by analysts polled by financial data firm FactSet.

READ ALSO: Banco Santander posts record profit as rates rise

Given these record-breaking profits, especially against the backdrop of a prolonged cost of living and inflationary crisis in Spain, Díaz has said the government must act decisively to “freeze mortgages” and “moderate profits.”

“The crisis cannot be an excuse to earn more,” she said, adding that the rise in the Euribor rate is “very serious”, with the average increase (estimated to be €258 per month) “impossible to bear” for normal Spaniards.

Euribor is the interest rate most often used to work out mortgage payments and calculate both variable and fixed rates.

READ ALSO: What the Euribor rise means for property buyers and owners in Spain

It is anchored to the interest rate set by the European Central Bank (ECB), and, as we are now seeing, quite responsive to global economic events. By the end of January, the rate had risen to almost 3.4 percent, the highest level since December 2008.

“While the rise of the Euribor will increase the average mortgage payment by €250 per month, BBVA’s profits grow by 38 percent to reach €6.4 billion, the largest in its history. The crisis cannot be an excuse to earn more. Freeze mortgages, moderate profits,” Díaz wrote on Twitter on Wednesday January 31st.

Banks respond

Unsurprisingly, Spanish banks are not exactly keen on Díaz’s idea. BBVA President, Carlos Torres, said “I trust what will happen is that the benefits of a market economy continue to be defended”. 

Torres also tried to remind people of the “negative years” that BBVA has endured, with “many billions of negatives”. 

It remains to be seen how persuasive Spaniards or the Spanish government find this comparison, or whether Díaz’s Twitter idea will translate into policy.

Windfall tax

Díaz’s call for a mortgage rate freeze is in line with the Spanish government’s approach to the excess profits of banks and energy companies. In July, the Spanish government introduced a temporary windfall tax on excess profits in order to fund some of the extraordinary measures it was implementing to help the most vulnerable in Spanish society deal with the cost of living crisis.

The government in July introduced a draft bill to slap a temporary 4.8 percent charge on banks’ net interest income and net commissions in 2023 and 2024 to fund measures to ease cost-of-living pressures. Between the new taxes on banks and energy companies, they should generate around €7.0 billion for the state coffers in 2023 and 2024. 

However, in November the ECB published a non-binding legal opinion that suggested Madrid undertake a “thorough analysis of potential negative consequences for the banking sector” of the tax.

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