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Take care with Letras
For example, when you buy a car on installment’s, you might sign 24 letras of
€180 each, one to be paid each month. The auto dealer may send each letra directly to your bank, where it will be paid directly from your account, a system often used. Or you can go round and pay it yourself in person each month. The letra that you sign is a personal debt, so you want to be cautious.
And you want to make sure the letra is paying for what you think it is paying. There have been cases where someone selling property insisted that the buyer pay in letras, but had them made out to him personally and not to the company selling the property So our buyer paid the let ins, which the seller’s agent was converting to his own use, and the poor buyer wound up having to pay for the property again, as the company had never received any money
In another case, a man working for a company signed letras for a piece of machinery The company went out of business but the man had to finish paying for the machinery, as he had signed the letras.
In yet another case, a man signed letras to pay for his new computer. He sent the computer hack to the company because it was defective. The company made no problem, but the distributor who had sold him the computer went out of business, having already disposed of the letras to a bank.
The bank now held the bills of exchange and expected payment from the signer. Our buyer’s only recourse was to bring a lawsuit against the bankrupt distributor, because the computer company had received no money from him, hence could not return it to him, and the bank had made a deal in perfectly good faith to purchase the letras from the distribution company.
This practice of purchasing other peoples’ letras is quite legal and normal. The bank or other institution buys them at a discount, because they will have to wait for payment, and the company accepts this in return for immediate cash. In the case above, however, it leaves our purchaser out in the cold.
Another useful service available from your bank will be the dorniciliación de pagos or the “domiciling of payments”.
The word “domicile” simply means home, and the domiciling of a payment is a standing order at your bank to pay your electricity bill, for example, or your IBI. This service is very useful for people who do not spend the whole year at their property in Spain, as it assures payment of necessary bills while they are away.
You fill up a form at the bank. A copy goes to whoever is sending the bill and the bank keeps another copy as their authorization to pay out directly from your account.
The disadvantage, of course, is that a bill may be paid which you do not want to be paid. The electric company or the tax authorities may make an error, which you would normally protest and refuse to pay. The bank will pay it unless they notice something terribly wrong.
The idea of domicilzacion also applies when you are investing in Spain. This sort is a bit different, however. This official “home account” is one through which all your foreign transactions must pass. When you bring foreign exchange into Spain to make your investment, it comes into the officially domiciled account, and when you wish to repatriate your profits, you also do it through the same account. The Dirección General de Transacciones Exteriores can thus keep an eye on all cash movements related to your investment.
Investing in Spain
One of the simplest ways to invest in Spain, whether you are a resident or not, is with bank deposit certificates for varying periods of time. These pay different rates of interest depending on the amount invested, the time period fixed and the currency in which they are held. An official resident may now hold his deposit certificates in any currency he likes.
With interest rates down at last in Spain, however, you will not achieve a very high rate of return on your investment.
An official resident will also find that the bank withholds 18 per cent of the interest to cover income tax. You get a receipt for this and when you go to pay your Spanish income tax, you deduct this prepaid tax from any income tax you may owe.
If you are not a resident, you may hold these deposit certificates in any currency and no tax will be withheld. The problem of withholding tax is one of the knottiest facing EU negotiators, who are trying to convince all member states to impose a 15 per cent withholding tax on bank interest.
You can also, resident or non-resident, purchase shares in Spanish companies on the Bolsa, or stock exchange, and you can purchase Spanish government bonds.
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