Cash limits on payments

Spanish Law Tuesday, January 29, 2013
Cash limits on payments

Anti-Fraud Laws continue to make the Spanish news.  One of the most recently implemented measures is the cap on cash payments. At first glance, this can seem to be straight forward legislation that should not be hard to implement:

  1. Residents are no longer allowed to use cash to pay for items or services over €2,500
  2. Non-residents  are no longer allowed to use cash to pay for items or services over €15,000

Both of these restrictions apply only if you are purchasing from a business, shop or professional service and do not apply to private individuals.

Some people will already have discounted this legislation as being unlikely to apply to them in the near future. However, the law deserves closer inspection as there are wider implications that both residents and non-residents should be aware of. What comes as a surprise to people is that it refers not only to the deposit part of a larger payment you might choose to make on a house or car or other expensive item, but the cost of the item in total.

So, for example, if you wanted to make a deposit on a new build property you could be in breach of the new legislation unless the deposit is paid through a bank transfer or with a credit card. Here are two case studies to illustrate the impact this might have:

Case study 1: Mr and Mrs. P are residents in Spain and want to buy a second hand car. They’ve found one for sale on the forecourt of a local garage (considered a business) and have agreed to pay the total cost in three instalments over three months. As each instalment is below the €2,500 resident limit on cash transactions they believe they are within the new law to make each payment in cash.

Wrong – it is not each individual instalment that must be below the €2,500 threshold, but the total cost of the car itself. The fact that the car is costing €7,000 in total means no part cash payment is permitted.

Case study 2: Mrs. A is visiting San Pedro on holiday. She sees an off-plan property, falls in love with it and wants to secure it with a deposit of €2,000. As this is below the €15,000 stipulated for non-residents she believes that she is operating within the law.

Wrong – the price of the property is €150,000 in total and this is the defining amount which means that the deposit cannot be paid in cash because she is purchasing it from a property promoting company and not a private individual. If the property was a second-hand resale being purchased from its owner (a private individual) there would not be a problem paying a deposit in cash.   

As with many of the new laws which are being introduced, the complexity can be baffling and unfortunately, we might all need to ‘think again’ before making that purchase. The penalties for breaching this law are particularly severe, 25% of the cash payment in fines, which are enforceable on both parties up to five years after the cash transaction takes place.

The government is encouraging people to ‘inform’ where a cash payment has been paid. Whistleblowers have been promised immunity if they inform the tax office that they have been party to an exchange of funds above the cash limit within three months.

Do you have any doubt?

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