INTRODUCTION

The Spanish banking system is as efficient as any in the world but, as one would expect, it has some different practices and procedures. Bank charges are high so care has to be exercised when transferring money across international boundaries. While there are no restrictions on the amount of money coming into or going out of Spain, it is monitored by the government. It is no longer possible to ‘hide’ interest payments in offshore accounts. Money laundering is tightly controlled in the UK but less so in Spain. It is not possible to obtain a 100 per cent mortgage on a property from a Spanish provider.

SPANISH BANKING

Banking in Spain is fragmented. There are about 150 different banks. They serve different markets and have different functions. Clearing banks, savings banks, lending banks, cooperative banks and some foreign banks of French, German or British parentage compete with each other. These banks have many branches but naturally some of the smaller outlets do not offer a full range of services.

The Spanish banking system has some unusual procedures but it is efficient, and usually staffed by friendly, hard working, multilingual people capable of offering a customer some of the most up-to-date services including telephone and internet banking. Credit or debit plastic cards are accepted for the purchase of consumer goods or for obtaining cash from an ATM (hole in the wall cash dispenser) of which there are many.

In selecting a Spanish bank it makes sense that some staff should speak English and that it has access to services such as mortgages and investments. It should be a main branch thus preventing delays in foreign transactions.

Bank accounts of residents and non-residents are distinguished from each other. A nonresident account is called cuenta extranjera and a cheque book (talonario) is marked cuenta en euros de no residente. Different tax regulations apply but the banking operation for a non-resident account is exactly the same as for a resident account.

A current account (cuenta corriente) pays a low rate of interest – practically nothing (0.1 per cent). A resident will have 15 per cent of interest earnings withheld and paid to the Spanish tax authorities – less than practically nothing – and a non-resident should declare any liability to the tax authorities back home. Yet this account will incur some of the highest bank charges in Europe irrespective of the currency involved. Write a cheque and a charge occurs; transfer a payment and a charge occurs. With the exception of some free banking, charges occur every time a transaction takes place. Spanish banking is expensive!

Deposit accounts exist. They pay different rates of interest depending on the amount invested, the time period fixed in advance and the currency in which they are held. Again a resident will have 15 per cent of the interest withheld by the bank to cover income tax. The bank gives a receipt and the amount is deducted from income tax liability upon completing an annual tax return.

Free banking

The use of a credit or debit card on motorway tolls is free of charge. So too is a cash withdrawal from an ATM on a debit card, provided it is within a bank’s computerised system. There are two computer ‘ring mains’ in Spain – Servis Red and Tele Banco. All Spanish banks ‘plug into’ one or the other. It is not the brand of card that determines the charge, but the computer system completing the transaction. Using the wrong one attracts a charge of up to 2€ per transaction. No other transaction is free unless you are receiving a pension from the Spanish state system.

Al portador

Some tradesmen, among others, prefer a cheque (talon) made out to al portador (cash) as there is no record of who cashes it. It is a system of understating earnings for tax avoidance. Payment of services by this method usually ‘forgets’ WA (VAT) from the charge so both parties benefit from the transaction. The use of personal cheques is less frequent in Spain than in most European countries. It is a country that prefers cash or credit cards. Post-dated cheques can be cashed immediately irrespective of the date and if a cheque is written with insufficient funds in the account, it is still possible to collect a partial amount up to the value of the available funds.

Bank statements

Anyone with a Spanish bank account will come across the practice of small, frequent statements. Monthly statements are not issued. After one or two transactions a statement is issued detailing any cash withdrawal, standing order or direct debit. A person with 12 normal transactions per month can expect four letters and probably ten to 14 slips of paper. A special account, for say a monthly mortgage payment, can expect two slips transferring money in and another two making the payment out. Do not be tempted to throw these slips away; in fact it is advisable to keep them all for at least two years as they are often the only receipt from a service provider. They are proof of payment for items such as car tax and are required for completion of an annual tax return (mortgage payments, bank fiscal statement and the payment of local taxes – IBI).

Letras

A letra de cambio is defined as a bill of exchange or a letter of credit (a written order directing a specified sum of money be paid to a specified person on a specified date) and is often used to make staged payments for a new house bought off plan. This peculiarly Spanish practice is used for staggered payments so a number of letras are made out for a purchased item. For example if a computer is purchased for 1200€ it may be paid by signing 12 letras, of 100€ each, one to be paid each month. The seller will make out the letras with amount, date, buyers’ bank, etc and they will be signed by the purchaser. The seller will send each letra, on the due date, directly to purchasers’ bank where it will be taken directly from the nominated account. Once signed, a letra is effectively cash. If the goods are faulty or if the letras are made out to the wrong person too bad! If a bank holds a letra then payment is expected irrespective of the circumstances. A custom exists of purchasing other people’s letras. In the case of a builder for example, he will sell all the letras to a bank or other institution at a discount in return for immediate cash.

Domiciling a payment

In other countries it is simply called a direct debit. In Spain it is called domiciliacion de pagos or the domiciling of payments where the word domicile means home. It is used to pay electricity, water or local tax bills. It is useful for non-residents, who do not spend the whole year in Spain, ensuring services are not terminated for non-payment.

Savings tax directive

The EU’s Directive on the taxation of savings income in the form of interest payments came into effect in 2005. EU Member States automatically exchange information on savings income, reporting all interest payments made. Luxembourg, Austria, Belgium, Switzerland, certain Caribbean territories as well as the Channel Islands and Isle of Man will, for a transitional period, levy a withholding tax on interest payments made to EU citizens. In the UK the Inland Revenue is reviewing people evading tax by using offshore bank accounts. A number of banks have already complied with the Revenue’s request for cooperation.