Social Security repayments for new businesses


A Supreme Court ruling in December 2019 has created a valuable opportunity that allows recently set up businesses to reclaim social security contributions.

In 2014 the Government introduced measures to stimulate the creation of new businesses. One of these measures was to grant the newly self employed a substantial reduction in their contributions for the first few years of business. Over the years the rules have been tweaked with changes improving benefits and others reducing them.

The main condition has remained that the individual must not have been self-employed during the two years before setting up business.

According to the 2017 rules , the reductions were:

  • For the first 12 months, contributions were reduced to 50€ (from typically 260€/month). From 1.1.2019, contributions were reduced to 60€ per month (from typically 283€/month).
  • Next 6 months (months 13-18), a 50% reduction
  • Next 6 months (months 19-24), a 30% reduction
  • For males under 30 and females under 35, the next 12 months (months 25-36), the 30% reduction continued.
  • For those over 48 years old commencing business, the rules are slightly different.
  • More generous reductions are available to those setting up a business in towns with less than 5.000 residents.

However, not everyone wants to set up business as self-employed (autonomo). Many prefer, for whatever reason, to set up their new business as a company. Director/shareholders of companies engaged in a business activity are required to register under the self-employed social security regime and their monthly contributions are higher at around 370€/month.

When the legislation originally emerged in 2014, we thought that the reductions would apply equally to new businesses set up as ordinary self-employed and also to new company business set ups.

The Social Security department did not agree and rejected all claims for reduced SS contributions by directors of newly set up businesses. This made no sense to us – a new business is a new business regardless of its format.

Unfortunately the Courts agreed with the Social Security office, which argued that as the law did not mention company directors then the reductions should not apply.

This sad state of affairs continued until a judgment was issued by the Supreme Court on 3 December 2019, which happily reversed the rulings of all the lower courts. The Supreme Court decided that on the contrary, as the law did not exclude company directors, then the reductions in fact did apply. Additionally, the Supreme Court argued, very sensibly, that the whole point of the regime was to stimulate business creation and it did not matter the form of the business that was created.

The Supreme Court ruling opens the door for director/shareholders who established a new business to reclaim the over payment of social security contributions.

General Spanish law allows persons to file a repayment claim within 4 years so director/shareholders of new companies created after 2016 now have the chance to file a repayment claim. Claims could be as high are 5.000€ or 6.000€ for the under 30/35s and interest will also be repayable. As the reduced social security contributions in the 2014 version of the regulations applied for 18 months it should also be possible to make a smaller repayment claim for business created in 2015.

Time is of the essence so call us if you want more information.

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.