How are Christmas lottery prizes taxed?

Every year on December 22nd, the Christmas lottery is celebrated, which is subject to personal income tax (IRPF) at a fixed rate of 20%. This same tax rate is applied to prizes from the ONCE, the Red Cross, and certain regional lotteries.

The origin of this special fixed 20% tax rate came into effect on January 1, 2013, subjecting it to taxation by SELAE (Sociedad Estatal Loterías y Apuestas del Estado).

The established regulations for these prizes, regardless of their nature at the time of collection, will bear a withholding tax that is practiced by SELAE or the paying organization of the prize, meaning, the prize is received net of the corresponding tax.

It is important to note the existence of an exemption for the first €40,000.00. This means that for prizes below this figure, there is no need to pay tax, and for prizes above this amount, tax is only due on the excess over €40,000.00.

Example:

Prize: Christmas Lottery Jackpot: €400,000.00 gross, we will pay 20% tax on €360,000.00 (€400,000.00 - €40,000.00). As a result, the paying entity will apply a withholding of €72,000.00, and therefore, we will receive €328,000.00 net of taxes.

Special mention should be made of shared participations or prizes. In these cases, it is important to remember that the exemption of the first €40,000.00 is also distributed among the different people or entities receiving the prize. It is highly advisable to claim prizes at banks where collectors are identified with the name, surname, and ID of each of the people with whom the prize has been shared. The negative effect of not properly reporting this is that there is a risk that the tax authority could consider the money received as a donation and may claim the taxation for the gift tax. Hence the importance of its correct communication.

Lastly, I would like to make a brief comment about non-resident citizens who have been awarded and have collected the prize with the withholding tax. If this is your case, contact your trusted advisor so that they can help you request and manage the return of the 20% withholding of the prize and the application of international double taxation deductions that may be applicable according to the agreements between Spain and your country.