Capitalise your unemployment benefit in Spain: rules and risks

You have lost your job, you have a business idea or a trade you want to practise on your own account, and someone has told you: “capitaliza el paro”. The idea is attractive, because it turns months of benefit into start-up capital, but it comes with conditions, a sequence of steps that allows no mistakes and a risk of repayment you need to know about before signing anything.

What it is exactly

Capitalisation, or pago único (lump-sum payment), is a way of collecting the contributory unemployment benefit: instead of receiving a payment each month, the public employment service (SEPE) pays you the amount you have left in one go, for you to use to:

• Start an activity as a self-employed person (autónomo): initial investment and start-up costs.
• Join as a working member (socio trabajador) a worker cooperative (cooperativa de trabajo asociado) or a worker-owned company (sociedad laboral), or contribute capital to one.
• In some forms, pay your Social Security contributions during the start-up, instead of receiving the money.

It is not for covering personal expenses or just any project: the amount must be related to the activity you declare.

1. Check the benefit and applicable option
2. Prepare the project plan and budget
3. Apply before starting the activity
4. Keep the decision and justify the use of funds

Who can do it

The general requirements, which you need to check for your case with the SEPE, are:

You cannot capitalise if you have already started the activity on your own account and are already registered as self-employed before applying, apart from any deadline exceptions the regulations provide. That is why the order matters so much.

How much you can get

The amount is, in general, the value of the benefit you have left to collect, up to a maximum that depends on the form chosen and on what you justify investing. It does not always equal 100%: the percentage and the rules for combining it with payment of contributions have changed over the years, so ask the SEPE for a simulation for your case.

An example with illustrative figures. You have 240 days of benefit remaining (8 months) and you receive 52 euros a day of gross benefit.

• Benefit remaining: 240 × 52 = 12,480 euros.
• If you are granted 100% as a lump sum, you receive about 12,480 euros at once.
• If you collected month by month, it would be eight payments of about 1,560 euros.

This is an order of magnitude: the real amount may be adjusted for withholdings, contributions and the form chosen.

The order of steps you cannot change

This is where people lose the right. Follow this order:

1. Define the activity: what you are going to do, whether as self-employed or as a member, how much you will invest and in what.
2. Book an appointment with the SEPE and submit the lump-sum application before starting the activity and before registering with the tax authority and Social Security.
3. Provide the documentation: a plan or budget for the investment, and the documents the SEPE asks for (for example, for a company, the deed or the articles of association).
4. Wait for the resolution. It usually takes weeks; there is no fixed deadline.
5. When it is granted, start the activity: register in the RETA (self-employed Social Security scheme) and with the tax authority, or join the company, within the period set by the resolution.
6. Collect and justify. The SEPE may ask you to prove how the money was used: invoices, contracts, registrations.

If you register as self-employed before they reply, you run the risk of having the capitalisation refused because you have already started the activity. The regulations allow a short period after starting in certain cases, but it is not a route to rely on by default.

What you lose and what you must maintain

Capitalising has a price:

• You use up whatever benefit you had left. The monthly payments you collect in one go are not collected again. If the business fails, there is no safety net to fall back on, apart from the new right you build up with your contributions as a self-employed person if you opt for cessation-of-activity protection.
• You must keep the activity going for the time set by the resolution. If you give it up earlier, the SEPE can demand repayment, in whole or in proportion.
• You must put the money to real use. If you do not justify the investment, repayment can be requested.
• You cannot repeat it for a period of years.

Before you sign, ask for the resolution in writing and read the obligations section.

And taxes?

In general, the lump sum is exempt from personal income tax (IRPF) when it is used for the intended purpose, under article 7.n of the tax law, subject to conditions. If they are not met, it may be taxable. Check with an adviser or the Tax Agency how it affects your case, because the limits and requirements have been changed at different times.

Capitalise or combine

There is another route: combining (compatibilizar) the benefit with starting the activity on your own account for a maximum time set by the General Social Security Act, without a lump sum. You keep collecting your monthly benefit while you start up, under its own conditions.

If your business needs to buy equipment or make a heavy investment from the start, capitalising usually fits better. If your problem is covering costs while invoicing gets going, combining may be more prudent. Before choosing, work out your expenses for the first six months.

Mistakes that cost you the right

• Registering before applying. The classic mistake.
• Not budgeting the investment. If you do not explain what you will spend the money on, the application gets complicated.
• Capitalising with no plan for when it runs out. A year later you can be without benefit and without enough income.
• Mixing the money with personal expenses. Keep invoices and receipts.
• Not knowing about the contributions. Registering as self-employed means contributions from the first month, with whatever reductions apply.

Common cases

I want to open a business, but I do not know yet how much I need. First make a budget: what you will buy, what licences you need, how long you can last without income. The application usually asks for a plan with the intended investment. Without numbers, it is hard for the SEPE to accept the purpose of the money and, above all, hard for your business to start on solid ground.

I am going to join a company as a member. Capitalisation can be used to contribute capital to a worker-owned company, a worker cooperative or other formulas, with particular conditions: you must be a working member and your contribution must meet the requirements. Provide the articles of association or the incorporation project.

I have already registered as self-employed. This is the difficult case. If you started the activity before applying, the regulations allow a short period in some cases, but the SEPE can refuse the application. Book an appointment immediately and ask whether you are still in time.

I receive the subsidy, not the contributory benefit. A means-tested subsidy cannot be capitalised. But you can combine the subsidy with certain forms of employment; ask the SEPE what options you have.

My activity will be a franchise or an existing business. The investment may be admissible if it is justified and the activity is new to you. Provide contracts and budgets. In business transfers, the SEPE may be stricter about the justification.

Questions that come up often

• What about the self-employed contribution during the first year? There are reductions and reduced rates for new self-employed workers, with their own conditions. Ask your gestoría (administrative adviser) or Social Security to tell you the ones in force on the date you register.
• Can I capitalise and also collect benefit for the time I have left? No: capitalisation uses up the part of the benefit you receive as a lump sum. Some combinations of partial lump sum and payment of contributions are possible depending on the form.
• What happens if my business closes early? Check the obligation to keep the activity going and the one to repay. Talking to the SEPE before closing avoids surprises.
• Can I work for an employer at the same time? It is possible in some cases, but it must be reported and not every situation is compatible. Take advice before accepting a job.
• What if a new job comes up before the resolution? Tell the SEPE: it can affect the application.

Checklist before submitting the application

1. I check that I receive contributory benefit and how much I have left.
2. I define the activity and the investment budget.
3. I gather the documents: ID, the benefit resolution, budgets, articles of association if it is a company.
4. I book an appointment with the SEPE and submit the application before starting the activity.
5. I do not register for anything until I have the resolution, unless the SEPE tells me otherwise.
6. I keep a copy of everything I submit.

What I would do

First of all, I would do the sums: how much benefit I have left, how much I really need to get going and how much I have in savings. Then I would book an appointment with the SEPE so they explain which form applies to me and what documents they ask for, without registering for anything. With the plan written down and the budgets, I would submit the application, and until the resolution arrived I would not sign contracts or issue invoices. And if in doubt, I would look at the option of combining. A good business plan is worth more than the benefit money.

Where to go next

To find out how much benefit you have left and how much you can collect, how long you can claim unemployment benefit. If you doubt whether you qualify given how your employment ended, see unemployment benefit after resigning and disciplinary dismissal and unemployment benefit.

Before deciding, work out how much you would receive month by month with the paro table by salary.