Thursday, November 5, 2009

Avoiding income tax in Spain - part 1

Part 1 - why?

Foreigners in Spain are often very keen to avoid local taxes wherever possible and indeed to keep out of the system in its entirety if they can help it. This may partly be because tax avoidance by the locals is a national sport and also because everyone seems to get away with it. It's not often you hear about the law catching up with anyone.

Also there may be some double standards operating: perhaps people who paid taxes meticulously in their home country do so reluctantly in their adopted country because they don't see themselves as part of the society being financed by those taxes. At some level they are still on holiday in Spain and don't feel the need to become full citizens, for example by signing up for Spanish social security.

Of course the main reason, as ever in matters of human motivation, comes down to opportunity and thus temptation. In your home country you cannot help but become enmeshed in the state system and avoidance opportunities are few (unless you are an MP with homes to flip). By moving states, EU or otherwise, the chance to cut all ties and start over again often brings an opportunity. It's down to you to put yourself in the system and start paying and declaring. For some people it's like being a kid in the sweet shop when the owner has to go out the back to get something leaving the counter undefended. There is a massive invitation to stuff your pockets with confectionery and many succumb.

In future posts I will discuss some of the ways people try and avoid tax, whether as individuals or if they are starting a business in Spain, and the implications.

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