Spanish authorities claim he owes them €3.7m in unpaid taxes.
Prosecutors said 28-year-old Sanchez avoided paying tax by “simulating” the transfer of his image rights – worth €983,000 – to Numidia, an offshore shell company in Malta.
The Arsenal forward is said to have hidden the existence of Numidia, which he owned a 99% stake in, to avoid paying €587,677 in 2012 and €395,766 in 2013.
Sanchez admitted the wrongdoing to the Spanish court via video link from London and is understood to have already paid the money back.
However, to avoid a high-profile court case and prosecution similar to his Barcelona alumna Lionel Messi, Sanchez may be forced to pay a hefty fine.
Spain, football and tax avoidance
Last July, Argentinean footballer Messi and his father were sentenced to 21 months in prison by a Spanish court for tax fraud over €4.1m the pair squirrelled away in tax havens in Belize and Uruguay between 2007 and 2009.
Another Barcelona player Neymar and his father are also facing a two-year prison sentence and a $10.6m fine on corruption charges related to alleged irregularities during his transfer from Brazilian club Santos to Barcelona in 2013. Both have denied any wrongdoing.
Also last month, a group of 12 European newspapers, including El Mundo Deportivo, accused football legends Cristiano Ronaldo and Jose Mourinho of dodging millions of dollars in tax by channelling money to offshore tax havens such as the British Virgin Islands.
The Dutch newspaper NRC, alleges that Ronaldo moved €63.5m to the British Virgin Islands (BVI) at the end of 2014, while another claims that Mourinho moved €12m into a Swiss account owned by a BVI-based company.
Both Ronaldo and Mourinho have denied the claims.
The allegations are based on 18 million documents of leaked data, which according to the media outlets reveal widespread corruption at the heart of the sport.
The European Investigative Collaborations (EIC) consortium said it plans to release more details from the leaked documents under the banner “Football Leaks”.