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Assistance for the unemployed to become self-employed – the pago único

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One of more generous forms of assistance that exists to help the unemployed start their own business is the conversion of unemployment benefit rights into a single capital sum.

This scheme is very popular and attracts tens of thousands of applications each year. The destruction of employment in Spain caused by Covid 19 has made the scheme all the more relevant and attractive.

First, a little background to unemployment benefits:

To benefit from the Spanish unemployment benefit scheme (prestación por desempleo or more simply el paro) a person must have been employed for over 360 days. The amount of benefit that a person is entitled to depends on their average salary during the 180 days prior to unemployment and the number of years they were employed, and the number of children.

Each year of employment provides approximately four months of unemployment benefits and the maximum amount of unemployment benefit is arrived at when a person has been employed for six years.

How much can be received for the pago único ?

The pago único is a scheme whereby the future monthly unemployment benefit payments are capitalised into a single payment.

The maximum number of payments a person can receive for unemployment benefit is 24 months and, for a person without children, the maximum amount of about 1.125€ per month. Having two or more children increases the monthly benefit to just over 1.411€ per month.

Consequently the maximum amount that can be received for the pago único is 24 x 1.411€, just over 33.864€.

A person who was employed on minimum pay with no children would have an entitlement of 1.125 per month (based on 12 months/year) so the pago unico would be 27.000€.

What are the conditions for entitlement to the pago único ?

  • Demonstrate that the new business needs the capital generated by the pago único. This is done by providing a business plan. The investment can also be in the form of new company capital.
  • Be entitled to receive unemployment benefit for at least three months.
  • Not to have claimed the pago único in the previous four years.
  • Not to have already commenced a self-employed activity. The self-employed activity may commence at any time after having filed the request for the pago único and must start within a month from having received notification of entitlement.
  • Not having claimed against the previous employer for the reinstatement of employment.
  • Planning to start a self-employed activity or set up a company to trade.

How is the pago único applied for and what is the process?

Most applications are presented to SEPE ( Servicio Público de Empleo Estatal) which is the national employment service although other organisms involved with the employment system will also accept delivery of the application.

A two page form has to be completed and submitted with a description of the future self-employed activity.

What are the pago único payment options ?

You can receive a single payment to finance the new business or in the case that the new business does not need a capital injection you can opt to receive the payments monthly also offsetting monthly social security contributions.

Is the pago único compatible with the tarifa plana ?

The tarifa plana allows the newly registered self-employed to pay a much reduced monthly social security contribution starting at 60€ per month for the first year with lesser reductions applying in the second year and third years. The reductions are more generous for individuals living in small towns (less than 5.000 inhabitants) and other collectives.

The tarifa plana is available to individuals who have claimed the pago único.

Income tax payable on the pago único

100% of the amount received is exempt from income tax as long as the business activity is carried on for at least five years.

Spence Clarke & Co specialises in the provision of Spanish tax, legal, audit and accountancy services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.