Anyone drawing contributory unemployment benefit in Spain (the benefit earned through previous social security contributions) who decides to set up on their own has three paths in front of them, and only one of them is really chosen: the other two close by themselves if nothing is done in time. The decision is not taken at the gestoría, the administrative agency that files the paperwork, on the day you register; it is taken before, and there is one rule worth remembering: the default route, the one that happens if you ask for nothing, is almost never the best.
This guide compares the three routes with the deadlines and exclusions that are written into the law, and explains why choosing one rules out the others for a while. The detail of each is in its own guide: the lump-sum payment, compatibility and suspension.
The three routes, in one table
| Lump sum (pago único) | Compatibility | Suspension | |
|---|---|---|---|
| What you do with what is outstanding | You receive it in one go, at present value | You keep receiving it month by month while you invoice | You freeze it |
| When it is requested | With a date before the activity starts | Within the fifteen days after the start | It is not requested: it happens by default |
| Duration | A single payment, plus, where applicable, the monthly payment of contributions | A maximum of 270 days, or whatever was outstanding if less | Until you stop, within the time limit |
| What it requires | A project report and a use of the money that can be proved | Not falling within any of the legal exclusions | Nothing |
| What happens to the entitlement | It is extinguished: everything has been paid | Whatever is not used stays suspended | It resumes if you stop in time |
| In income tax | Exempt, subject to a five-year condition | Employment income, with two payers | Nothing this year |
Where each one is written
It is worth knowing, because public information circulates cross-references that do not agree with each other, and because each rule has its own small print.
- The lump-sum payment rests on article 296.3 of the consolidated text of the General Social Security Act (LGSS), which allows the present value of the outstanding amount to be paid in one go, and it is developed in article 34 of Act 20/2007 on the Statute of Self-Employed Work (the LETA) and in Royal Decree 1044/1985, which remains in force to the extent it is not contradicted.
- Compatibility is in article 33 of Act 20/2007: receiving the monthly benefit while working on your own account, for a maximum of 270 days, applying within fifteen days of the start of the activity.
- Suspension is in article 271.1.d) of the General Social Security Act, which suspends the entitlement while you carry out self-employed work lasting less than sixty months; and extinction, for going beyond that time, is in article 272.c).
Why choosing one closes the others
This is not a recommendation: it is in the rules, with specific time limits.
- Whoever uses compatibility cannot later ask for the lump sum: rule 4 of article 34.1 of Act 20/2007 excludes from capitalisation anyone who, in the twenty-four months before the application, has combined self-employed work with the contributory benefit.
- Whoever receives the lump sum cannot later use compatibility: article 33.2 excludes from compatibility anyone who has used that right or obtained the lump sum in the immediately preceding twenty-four months.
- Whoever receives the lump sum for the full amount extinguishes the benefit: that is what article 5 of Royal Decree 1044/1985 says, and it also prevents a new entitlement from being recognised until the time over which the benefit would have run has passed.
- Whoever registers as self-employed without asking for anything and lets the fifteen days go by loses compatibility, with no extension and no chance of putting it right, and had already lost the lump sum, because that application had to come before the activity started.
Article 33.2 excludes from compatibility anyone whose last job was self-employed, and anyone who registers as self-employed and signs a contract for their professional activity with the employer they worked for immediately before becoming unemployed, or with a company in the same group. The second is exactly the case of someone who leaves a company and goes back to invoicing it: it has to be looked at before signing anything, because it cannot always be undone.
The arithmetic of the decision
With the rules clear, the choice is decided by three figures: how much is outstanding, how much has to be invested and how many days of benefit remain. Let us look at three profiles, with invented round figures that serve only to show the mechanism.
| Profile | Situation | Route that usually comes out best |
|---|---|---|
| Heavy investment at the start | 14 months left at €1,100, and €12,000 needed for building work, equipment and stock | Lump sum: it turns future benefit into capital today |
| Slow start, no investment | 10 months left at €1,100, a service activity with no entry cost and low invoicing in the first months | Compatibility: the full benefit comes in while invoicing grows |
| Uncertain project | 18 months left at €1,300 and no knowing whether the business will work | Suspension: it keeps the entitlement intact in case you need to go back |
Two warnings about this table. The first: it does not cover every combination, and there are cases in which the three options come out very close; when that happens we say so and do not sell a difference that does not exist. The second: the application is decided by the SEPE (Servicio Público de Empleo Estatal), the state employment service, and none of these routes is automatic. The file is prepared as well as possible and the client is warned about what can go wrong; nobody who works seriously can promise a client how the SEPE will decide.
Three questions that put the decision in order
Before looking at any rule, these three answers place almost any case:
- Are you already registered as self-employed? If not, you have all three routes open. If you are, and fewer than fifteen days have passed, you have two left. If more have passed, you have one.
- How much money do you need on day one? If the answer is a meaningful figure in machinery, building work, stock or a vehicle, the lump sum is the only route that puts it on the table. If it is zero, the answer stops being so obvious.
- What happens if this does not work out? Anyone who cannot afford to be left without a safety net has a strong argument for suspension, even if the numbers for the other routes look better.
And a fourth, less obvious one: which scheme will you pay contributions into? If your profession allows or requires you to contribute to a professional mutual fund (mutualidad) instead of the self-employed scheme, the time limits for keeping the entitlement change, and the change is not small. It is explained in suspending the benefit and resuming it.
The tax effect, which almost never enters the conversation
The three routes look different in the following year's income tax return, and the difference is not minor.
- The lump sum is exempt under article 7.n) of the Spanish Income Tax Act, provided the money is used for the purposes set out in Royal Decree 1044/1985. The exemption is conditional on keeping the activity going for five years, or on keeping the share or stake for that same period if the money went into a company's capital or into a cooperative or worker-owned company (sociedad laboral).
- Compatibility turns the benefit into employment income that sits alongside the income from your activity. Two payers appear in the year, and the threshold that obliges you to file is lower than the one for a single payer; in addition, the SEPE often withholds nothing, so that tax appears in full in the return. We cover it in from unemployment benefit to the first invoice.
- Suspension has no tax effect this year, but it will have one in the year payments resume.
What to have to hand in order to decide
The decision is taken with four documents, and the person concerned already has all four:
- The decision recognising the benefit, which states the daily amount, the regulatory base (the reference salary the benefit is calculated on) and, above all, the days still outstanding. It is the central figure and the one most often misjudged from memory.
- The employment history report (informe de vida laboral), which shows what the last job was and whether there has been self-employed activity before, two facts that trigger exclusions.
- The real start-up budget, separating what has to be paid in the first month from what can wait. Not the whole business plan: the initial outlay.
- The planned registration date, because that is what sets all the time limits running.
With those four items the calculation can be done in an afternoon, and the conversation stops being about which route "is better" in the abstract and becomes about how much money each one means in your case. It is a change of conversation worth bringing about before registration, not after.
The right order of things
First the numbers are done and the route is chosen. Then the relevant application is filed with the SEPE, if the chosen route requires one. And only after that is the registration made in the RETA, the special social security scheme for self-employed workers, and with Hacienda, the tax authority. Reversing that order is the mistake covered in this other guide, and much of it cannot be undone.
If you would like us to run the numbers with your data (what is outstanding, the planned investment and the timetable), start with the form for this service. The summary of this service is on drawing unemployment benefit while self-employed, and if you want to see the two main routes side by side, it is in this comparison.