Many wonder when and how much they will be taxed when transferring money or donating. A common misconception is that taxes only need to be paid on money transfers over 3000 €; however, that is not the case as all donations or transfers are taxable, no matter how big or small.
Section 618 of the Spanish Civil Code defines a donation as “…an act of liberality through which a person freely provides money or goods to the favor of another person, who in turn accepts.” Essentially, under Spanish law, when a person gives away a sum of money or item of property without receiving anything in return, they are donating. Section 619 goes on to say, “The transfer of assets to a person due to their merits or the services they provide to the donor is also considered a donation – as long as those assets do not constitute claimable debt, and the applicable taxes are lower than the value of the donated assets.”
The Spanish Internal Revenue Service (Hacienda) further establishes that whenever assets or money, including gifts, are given for free, there are taxes that must be paid. As per Hacienda, any transfer of money or goods is a donation and therefore the amount and value do not exempt a tax payment on the goods. The Spanish Civil Code does not specify a minimum amount either.
Types of Donations
For goods, there are two types of donations including movables and immovables. Movables are known as movable goods that can be easily transported from one place to another. Movables can be donated verbally or in writing, however, if donated verbally, the movable good needs to be handed to the other party in the moment for the donation to be considered valid. On the other hand, immovables are goods that cannot be transported from one place to another, rather they exist in a permanent location. Donations of immovable goods are only considered valid if they are made in the presence of a notary after signing a public deed.
Taxes on Donations
Any person who receives money or goods must declare it as a donation as part of their Donation and Successions Tax Return and pay the respective tax on the good within one month. Donation tax rates can vary because the legislation within the Spanish states differ. Rates vary from 7.65% for values below 8,000 €, and 34% for amounts above 200 €. However, any earnings accumulated since the donation at initial value are exempt from personal income tax (IRPF).
A common belief is that donations below 3,000 € are not subject to taxation. This is due to the fact that banks in Spain are not legally required to inform the treasury of cash withdrawals and deposits of less than 3000 €. However, upon any transfer, there will be taxes and Hacienda actually holds the right to claim tax on any amount for up to four years after the transfer.
Unequivocally there are lots of laws and restrictions set in place to protect goods, donors, and receivers. The European Court of Justice ruled in September of 2014 that Spanish authorities legally cannot charge different rates of donation tax for residents and non-residents. Discrimination against non-residents by paying more tax than residents is likely due to a refund of the difference.
As far as restrictions for donors upon donating go, donors cannot donate future goods. The donation must be made up of goods or sums of money that already make up part of the donor’s assets. Likewise, if the donor is in debt, they cannot donate; any donation made is considered fraud if prior debts have not been settled. Additionally, one cannot donate all of their goods. A donor must retain ownership with enough goods to sustain a reasonable quality of life. Donations also may not exceed the amount of money or goods indicated in the donors will. If a donation is made to multiple people at once, it must be divided equally amongst the recipients, unless the donor specifies otherwise.
Written in collaboration with Emily Olejnicki