Wednesday 12/8/21
USE OF MONEY

Rules, limits to use cash in Spain and avoid a tax investigation

In order to limit the possibilities of committing fraud or money laundering, the Spanish Ministry of Finance has imposed very strict rules that regulate the use of cash in Spain

Euro banknotes money. Photo: Pixabay
Euro banknotes money. Photo: Pixabay

As in many other technologically advanced countries, the general use of cash is declining in Spain.

The use of credit cards for small payments in daily life and bank transfers is increasingly widespread. However, there are still many operations that are carried out with cash, especially small payments.

In order to limit the possibilities of committing fraud or money laundering as much as possible, the Ministry of Finance (Hacienda) has imposed very strict rules that regulate the use of cash in Spain.

These rules establish, for example, when a bank must notify the authorities of a suspicious transaction and when the authorities must start an investigation.

Spanish banks are required by law to notify the Tax Agency (Agencia Tributaria) of some cash transactions when a certain limit is exceeded. And the Treasury will then initiate an investigation to clarify the origin of the money and verify that it has not been obtained illegally.

The general rules for the use of cash in Spain are as follows:

Payment limit of 1,000 euros

The most important rule is that the cash payment has been limited by law to a maximum of 1,000 euros since 11 July 2021.

This applies both to payments between private persons and professionals.

Any payment for a good or service that costs more than a 1,000 euros must therefore be made through a payment system that allows the origin of the money to be traced, for example, by credit card or bank transfer.

Failure to comply with this limit allows the authorities to impose a fine equivalent to 25% of the operation. The tax authorities may demand the payment of the penalty from both the payer and the recipient of the money.

The good news is that in some cases this amount can be increased up to 10,000 euros. But the payers must prove that they are not residents of Spain and that the operations are not related to professional or business activities. In other words, foreign tourists can make cash payments for a greater amount than 1,000 euros, if necessary.

More than 3,000 euros in banknotes

Spanish banks are in permanent contact with the Treasury and also notify the income of cash into bank accounts when they exceed a certain amount.

When the deposit of money in the account is made in banknotes or coins and exceeds 3,000 euros, the bank is required to notify the tax authorities.

The Treasury then will open an investigation to clarify whether the origin of the money may be in any illegal activity.

Constant cash inflows into bank accounts

Banks are also required to notify the tax authorities in the case of clients who make periodic deposits of cash in their bank accounts.

This can happen to people who, for example, during the financial crisis withdrew their money from the bank and now decide to put it back into their accounts little by little. Banks must notify the Treasury of these movements, regardless of the amount.

Be careful with 500-euro banknotes

The use of 500-euro banknotes are always under the magnifying glass of the Spanish authorities, as they are the favorite method of criminal groups to hoard large amounts of undeclared cash.

Its high value means that in a small volume of banknotes there can be millions of euros. That is why it is relatively easy to use them in crimes such as money laundering and tax evasion.

The Central Bank of Spain stopped issuing 500-euro banknotes in January 2019 and banks are obliged to notify tax authorities of any cash income or withdrawals involving 500-euro notes.

Of course, having 500 euro bills with you or depositing them in your bank account does not mean that you have committed a crime. But it is convenient to have proof of its origin.

Bank transfers of more than 10,000 euros

Bank transfers are also on the rise in recent years.

This is a payment method that the authorities like, because they are always registered by the bank and therefore can be traced.

It should be noted that Spanish banks are obliged to notify the Treasury of all operations that exceed 10,000 euros, including bank transfers between private persons, which will be investigated.

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