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Taxation of Lottery Prizes

Taxation of Lottery Prizes Publicado: 19-12-2023

Christmas Lottery Day in Spain is approaching (22 December) and with it comes increasing doubts about the taxation of prizes won in the lottery.

I. Should the full amount of the prize obtained be taxed?

The Loterías y Apuestas del Estado organization awards prizes at Christmas which tax is taxed under the Personal Income Tax (IRPF), whether the individual is a Spanish resident in Spain or not. However, the first €40,000 resulting from the prize won in the lottery are exempt from taxation. Therefore, the special tax will only be applied when the prize exceeds that amount, never for an amount equal to or less than that, and in that case, the withholding percentage will be 20%.

For example, if a person wins the Christmas jackpot ("El Gordo") of €400.000 by owning a ticket, the first €40.000 would not be taxed, but the remaining amount, i.e. €360.000, would be subject to a withholding tax of 20%. In short, the winner would finally receive €328.000.

II. If I only have a share of one lottery ticket, does the same rule apply? 

It is very common for the tickets to be shared, so if the prize is jointly owned, the aforementioned exemption would have to be apportioned between all the co-owners according to the share corresponding to each one. It is important to note that the €40.000 exemption applies to a single lottery ticket, not to each participant, only the amount corresponding to the pro-rata share of €40.000 among all those who participate in accordance with their share of participation will be exempt. 

In that regard, let us suppose that a person has 1/10 part of a lottery ticket that has won a prize of €150.000. The tax-exempt part would come from dividing €40.000 between 10 shares, which would give an exempt limit of €4.000 per person and share. In short, the prize to be distributed to this person would be €15.000, of which €11.000 would be paid in full to this person and €4.000 withheld.

III. How is this payment of tax managed? 

The special tax, which is 20% of the amount of the prize that exceeds the first €40.000, will be subject to withholding by the paying entity. In other words, the beneficiary of the prize will bear the withholding tax at the time of collection.

Therefore, the general rule is that an individual who is the beneficiary of a lottery prize is not obliged to file a self-assessment tax return, or even to include it in their personal income tax return, as the prize will have been subject to the withholding at the time of receipt.

Only taxpayers who did not have such a withholding or those who have obtained a prize from the EU will have to file a self-assessment.

In the latter case, if the beneficiary is a company or a non-profit organization, the full amount of the prize will be subject to a taxation and must be included in the taxable base of the corresponding tax, deducting the amount of the withholding or payment on account that may have been made. 

IV. How are prizes won by non-residents taxed? 

Non-resident taxpayers without a permanent establishment who have won a prize are obliged to file from 136 on Non-Resident Income Tax in category of Special tax on prized from certain lotteries and bets. The obligation to file is quarterly. Nevertheless, if the amount of the prize is less than the exempt amount or the corresponding withholding has been made, the NonResident is exempt from filing. 

In this case, the paying entity will be responsible for making the withholding or payment on account, regardless of whether a double taxation agreement may apply. However, they will be entitled to request a tax refund when the agreement provides for a lower amount to be withheld, in which case the Non-Reident must file Form 210 from February of the year following the year in which the prize was won and for a period of 4 years.

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