The black economy in Spain has always been a large percentage of the economy as a whole and there has been a long history of people running legal businesses or working for legal businesses but not paying the correct tax.
The Spanish black economy was estimated to amount to around 17% of the total economy of Spain in 2018.
Many people claim that it is impossible to make a living in Spain without getting involved in the black economy to some extent or the other. They claim that as everybody does it then the “extra” tax that you have to pay if you do things properly makes you uncompetitive and un profitable.
How does Spain’s black economy work?
Common tactics include:
- Having staff that are not on the books and are paid in cash
- Not putting all transactions through the till
- Not declaring those transactions that are made in cash
- Buying products and stock from other businesses that act in this way
It is always amazing how quickly people who move to Spain adopt this practice, even if they would never dream of doing this back in their home country. Just because this is common practice does not make it legal!
What are the penalties for taking part in Spain’s black economy?
The consequences of getting caught not paying the correct taxes and getting involved in the black economy can ruin a business.
It can be “assumed” by the tax authorities that any undeclared income has been earned in the current year if they discover it, meaning that you may end up in a higher tax bracket that you may otherwise have been in (as well as having fines and interest levied).
Certainly, if you get caught you are likely to have a tax inspection every year for the foreseeable future (assuming that you are not closed down or prosecuted for tax evasion), which will be a major headache and an added administrative nightmare.
Unsurprisingly the tax authorities in Spain are clamping down on the black economy as a way of trying to increase the amount of tax paid and therefore helping the economy as a whole. Getting involved in the black economy is not worth it.
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