Illustration by Capitoni
- In 1991, singer Lola Flores announced that she “didn’t know she had to do it” when accused of not declaring her taxes.
- Hacienda is the common name for the ‘State Tax Administration Agency’ (AEAT).
- Regional tax rates across Spain’s autonomous communities are not equal, with Catalunya having the highest.
- Taxpayers have the option to decide if they want to send 0.7 percent of their personal income taxes to social causes or the Catholic Church (or split it 50-50 between the two).
So you managed to earn €22,000 or more last year here. Great job. Now the Declaración de la Renta is waiting for you. For many residents of Spain, May is the time of year to start filling out the income tax declaration (AKA La Renta) for the previous tax year, which has to be submitted by the end of June. It is not necessary for salaried workers earning less than €22,000 to complete a declaration as long as they have a single employer and those whose income is less than €8,000 a year do not need to fill in a declaration at all, so every cloud has a silver lining. Nonetheless, the tax law keeps changing. For instance, this year, a new decree states that Spanish residents must declare all the assets that they own outside Spain if they are worth more than €50,000.
It is said by some that without tax avoidance the economic crisis would be over. This issue has become pertinent in recent times by an impressive number of stories about corruption and hidden accounts in tax havens that have surfaced in the Spanish media. Trying to avoid paying taxes is an issue for all classes, but is particularly scandalous when undertaken by those with great fortunes, such as the long list of Spanish politicians, celebrities and even members of the royal family that have (allegedly) been involved with or related to cases of hiding wealth abroad.
For example, tennis player Arantxa Sánchez Vicario and opera singer Montserrat Caballé were accused of avoiding taxes by pretending to live in Andorra. Nevertheless, Switzerland still seems to be the wealthy Spaniard’s favourite tax haven, especially for sheltering money gained through corrupt means. In just one recent example, Luis Bárcenas, the former treasurer of the Partido Popular, was caught in a controversial scandal of political corruption thanks to his Swiss bank account, said to hold around €22 million.
Although an exact calculation of all the money not declared to the taxman here is impossible, the Tax Justice Network estimates that tax avoidance represents 22.5 percent of the Spanish economy, meaning that around €82 billion never make it to Hacienda.
SPANISH TAX SYSTEM
Although the overall Spanish tax system is quite complicated, it is easiest to think of it in the three tiers of government: the central government, autonomous regional governments and local municipalities. The Spanish Government has taxation agreements with other countries including the UK, so British citizens only get taxed once. However, if you are American, you will have to file two tax returns,
since the US bases tax on nationality, not residence.
It is estimated that 19,525,000 tax declarations will be submitted this year. Of these, 14,935,000 will be done by taxpayers entitled to a tax rebate (worth a total of €10.7 billion), while 4,100,000 declarees will have to pay extra tax to the government (totalling around €6.5 billion).
Still confused? Click here to read an article by British accountant David Cook, which explains the practical ins and outs of submitting your Spanish income tax return.