Don't get trapped by Spanish tax penalties

When I first got interested in Spain and bought a holiday flat here (in Valencia) I never even thought about annual tax returns. Nobody told me about non resident tax returns and I didn't know to ask. I blithely went years without submitting a return until a few years ago when I had been a resident for a year or so and had some income to declare. I sold the Valencia flat in 2006 and there were no nasty consequences.

Some clients have not been so lucky. One had a nasty shock recently when they tried to recover the 3% capital gains tax retention taken by Agencia Tributaria when they sold an apartment in Spain. The amount of the retention was 3.000€ and despite making the proper claim for release of the money, the client was told that they had to produce tax returns for every year they had owned the property. It is possible to catch up taxes in these situations and do Form 210 returns in arrears and that is what they will have to do.

It is not just non-residents tax that can come back to bite you. Another case we are currently dealing with involves an autonomo who had been invoicing their clients for years without making quarterly or annual returns. Correcting this will be difficult as there are quarterly business tax and IVA returns to catch up and annual "renta" declarations. Worse of course there are penalties and interest payable on late returns.

The system is complicated and circumstances vary but this is the sort of extra expense that can be incurred:

late return penalty - less than 3 months late 5% surcharge

less than 6 months late 10% surcharge

less than 1 year late 15% surcharge

more than a year 20% surcharge

PLUS interest on amount owed - 5% in 2009 - for amounts paid more than 1 year late

If there is no tax to pay then the fine is a flat 100€

These are all assuming that the returns are made late by the taxpayer voluntarily(they have four years to do so), not because the citizen has been caught out by the Tax Office and ordered to pay tax. In this case the bill rises depending on the gravity of the offence uncovered:

Not serious: 50% extra payable on all interest and penalties

Serious: 100%

Very serious: 150%

The penalty for returns with no tax to pay rises to €200 if not made voluntarily.

Finally another consequence of not making Spanish tax declarations that can trap the unwary is that documentation gets lost. This makes it much harder to complete the returns and in particular difficult to claim any deductions that might have been allowed if things had been done on time.

If you have back tax issues or think you might have they are best tackled sooner rather than later however grim the prospect seems.