Capitalizing unemployment benefits: what it is and how to apply. Requirements and obligations for capitalizing unemployment benefits.

If you are already receiving unemployment benefits and are thinking of starting a business as a way to secure employment, capitalizing your unemployment benefits (capitalización del paro) may be a great opportunity for you.

Below, we explain what it is, how you can apply, and what the requirements are. Everything you need to know to take advantage of this financial benefit and launch a project to set up a company or become self-employed.

What is the capitalization of unemployment benefits and what does it involve?

The capitalization of unemployment benefits is a measure approved by the Government to encourage and facilitate self-employment among unemployed people. It consists of receiving the entire outstanding amount of the unemployment benefit.

In other words, you receive everything you still have left to collect (or part of it) so that you can invest that money in starting an activity as a self-employed worker.

Ways of capitalizing unemployment benefits for self-employed workers

When we talk about the ways of capitalizing unemployment benefits, we are talking about how you can choose to collect the money that would normally reach you in convenient monthly installments. At present there are two equally valid options, which are designed to adapt as closely as possible to your situation and which you can opt for without any problem.

1. If your new activity requires a financial investment, you can finance up to 100% of the amount of your contributory unemployment benefit (prestación contributiva por desempleo) that you still had left to receive. And what if you don’t need all of it? In that case, you can take the percentage you need and collect the rest month by month in the form of an offset against your self-employed Social Security contributions, an option that will considerably ease your early days.

2. If you do not need any investment at all, you can allocate 100% of your capitalization to paying those monthly contributions.

3. Combination of unemployment benefit and contributions. Self-employed workers can also choose the option of capitalizing part of their benefit and receiving the rest in the form of relief (bonificación) on their contributions during the first months.

Who can apply for the capitalization of unemployment benefits?

Anyone in these circumstances who seeks to do any of the following may capitalize their unemployment benefits:

• Start an activity as a self-employed worker, whether individually, through a joint ownership arrangement (comunidad de bienes), or through a civil partnership (sociedad civil).

• Incorporate or directly join a commercial company such as, for example, a limited liability company (S.L.), a public limited company (S.A.) that is not an employee-owned company, etc.

• Incorporate or join, on a stable basis, cooperatives or employee-owned companies (sociedades laborales) as a worker member (socio trabajador or socio de trabajo).

Requirements for capitalizing unemployment benefits

The requirements and conditions for applying for the payment are as follows:

• Be a beneficiary of the contributory unemployment benefit as a result of the total and definitive termination of an employment relationship.

• Not be registered with Social Security or have commenced the economic activity.

• Have at least 3 monthly installments of the unemployment benefit still to be received. Beneficiaries of the benefit for cessation of activity (prestación por cese de actividad) must have at least 6 months still to be received.

• Not have applied for unemployment benefits in the last 4 years.

• Not have challenged your dismissal, since you will not be able to apply for capitalization until the case has been resolved.

• Not have combined self-employment with the unemployment benefit in the 24 months prior to the application.

• In the case of cooperatives, the member must have completed the probationary period, if one is provided for in the bylaws.

• Commence the activity within a maximum of one month from the decision granting the benefit, and always on a date after the application. However, once the application has been filed, you may commence the activity and register with Social Security before the decision on the payment.

Obligations after applying for the unemployment benefit

As for your obligations, you will have to:

• Commence the activity within a maximum of 1 month once the amount of the benefit has been received.

• Maintain the activity for 5 years for the payment to be exempt from Personal Income Tax (IRPF); otherwise, it is subject to tax.

• Submit the required documentation and the proof of commencement of activity requested by the National Public Employment Service (SEPE).

When can I apply for the payment?

The application for the capitalization of unemployment benefits must be made before the date of joining the cooperative, employee-owned company, or commercial company (as a member), or before the date on which the self-employed activity commences.

The application must be supported by evidence of the investment made to commence an activity within one month from receipt of the amount of the benefit. If this supporting evidence or documentation is not submitted, the SEPE (National Public Employment Service) may require you to repay the aid.

Where to apply

The application for the capitalization of unemployment benefits must be filed with the SEPE, through its online portal (sede electrónica), at an office in person by appointment, at any public registry office, or by administrative mail.

How to apply for the benefit

You can apply for it as soon as you are entitled to the unemployment benefit or at any time thereafter, provided that you still have at least 3 monthly installments left to collect.

Investments must be stated net of VAT, since the benefit does not cover input VAT.

You will therefore need to submit the following documents:

1. Application for payment for the capitalization of unemployment benefits.

2. Project report describing the activity to be carried out and the related investment.

The lump-sum payment of unemployment benefits for young people

Currently, men aged up to 30 and women aged up to 35 can capitalize 100% of their unemployment benefits as a lump-sum payment for the investment.

The investment covered includes the amount of the tax charges involved in commencing the activity, or for making a contribution to the share capital of a newly incorporated commercial company or one incorporated within a maximum of 12 months before the contribution.

In addition, it may be used for the costs of incorporating and launching an entity, as well as for the payment of fees and of specific advisory, training, and information services related to the activity to be undertaken.

People with disabilities

People with a disability of 33% or more may apply for 100% of the contributory benefit as a lump-sum payment.