Spain is robbing British expats, says former tax chief

Telegraph

2 days ago

The former head of Spain's tax office has accused officials in the country of 'robbery' against British expats.
Ignacio Ruiz-Jarabo said the Spanish Tax Agency (AEAT), which he oversaw from 1998 to 2001, had created a 'fiscal hell' that put off international investors.
He told The Telegraph of how wealthy foreigners who moved to the European nation to take advantage of a lucrative tax scheme faced retrospective investigations into their finances.
The tax rules, dubbed the 'Beckham law' after Sir David Beckham utilised them during his time at Real Madrid, charge foreign workers a flat 24.75pc tax rate on Spanish-sourced income up to €600,000 (£517,000) per year for six years.
It is far lower than the progressive tax rates of up to 47pc paid by Spaniards. Dividends, interest and capital gains generated outside Spain are generally exempt from tax under the regime.
But users of the scheme who have high incomes risk being caught up in tax audits that target the wealthy in Spain, Mr Ruiz-Jarabo said.
'There isn't a special focus on foreigners, [but] there is more of a focus on high earners and business people because they are bound to have more assets.
'Many of the people who have been certified have a few years later received a tax inspection denying their [tax] position as expatriates. This situation produces legal insecurity.'
He said he knew of cases where the authorities targeted foreigners with financial audits, regardless of their status under the tax scheme.
'This is robbery to expatriates that have been unfortunate enough to be on the receiving end of these inspections.'
He claimed as a result, foreigners and native Spanish taxpayers are threatened with huge tax bills and fines as much as three times the size of alleged unpaid taxes.
Mr Ruiz-Jarabo said Spanish officials were incentivised to target wealthy expats because of a bonus structure that rewards those who collect the most tax.
In 2019, the last year for which data is available, a €95m (£82m) bonus pot was set aside to incentivise raising €150bn of income tax and VAT revenue. The bonus system has been criticised for encouraging arbitrary investigations and confiscations.
Taxpayers in Spain appealed 30pc of tax audits in recent years, according to figures provided by the Spanish government. It said less than 1pc of taxpayers using the 'Beckham law' had been the subject of tax audits. AEAT conducts around 27,000 tax assessments per year, according to official sources.
Between 2020 and 2023, courts ruled totally or partially in favour of AEAT in 77pc of those cases. This compares with a rate of around 85pc for appeals won by HMRC during the same period.
Last year, there were approximately 275,000 British people living in Spain. It is not known how many have used the country's flat tax rules for foreigners, which were introduced in 2005.
The scheme requires that applicants have moved to Spain for work purposes, having obtained a contract with a Spanish company. They must not have been a tax resident in the country in the five years previously.
'Fiscal hell for Spaniards and foreigners'
Mr Ruiz-Jarabo also criticised the proposed 100pc levy on the sale of Spanish properties to non-EU buyers.
'It is a completely unfair system this proposal of 100pc tax on foreigners purchasing property. It is an aggression against the freedom of movement of capital, it goes against the values of the European Union to put this type of barrier against the movement of capital.
'It is telling investors this is not a safe place to invest. It can only be understood from a radical Left ideology that those with money to invest should be seen as suspicious. It does not bode well for Spain's economy if it is implemented.'
Madrid lawmakers are expected to vote on the proposal in the second half of this year. The levy could represent the latest blow for Britons who live and holiday in Spain.
The ruling Spanish Socialist Workers' Party also wants to charge 21pc VAT on stays of less than 30 days – more than double the rate paid by hotels.
Growing anti-tourist sentiment in Spain has already seen cities like Malaga and Madrid capping new licences for holiday lets, while Barcelona will ban them completely by 2028.
Mr Ruiz-Jarabo said laws defending taxpayers in Spain had suffered 'mutilations' under Pedro Sanchez, the country's socialist prime minister, causing a 'fiscal hell for Spaniards and foreigners alike'.
Official sources at the Spanish government said: 'Spain is an attractive and welcoming country for British businesses and citizens just as the United Kingdom continues to be a key partner and point of reference for Spanish companies and consumers.
'The Spanish Tax Agency is a prestigious, transparent institution, internationally recognised organisation and fully aligned with the highest standards expected of a modern tax administration.'