Failure to comply with Unemployment Capitalization. Without Right to Exemption but with Reduction 18.2 LIRPF

Labor

Failure to comply with Unemployment Capitalization. Without Right to Exemption but with Reduction 18.2 LIRPF

Unemployment Capitalization and Exemption from Personal Income Tax: Everything You Need to Know

Personal Income Tax Law 35/2006 establishes that unemployment benefits in the form of a single payment, known as unemployment capitalization, are exempt from Personal Income Tax (IRPF). This means that if you receive your unemployment benefit in one go to start or invest in a business, you do not have to pay taxes on that amount as long as you meet certain requirements.

What are the requirements to maintain the exemption?

The exemption depends on meeting a key condition: maintaining the activity or participation in the business for five years. That is to say:

If you invest the benefit in a labour company or associated work cooperative, or as capital in a commercial entity, you must maintain your participation in the business for at least five years.
If you decide to use the unemployment benefit capitalisation to start up as a self-employed person, you must also maintain the activity for five years.

If you do not comply with these requirements, you will lose the right to exemption and you will have to pay taxes on the amount received.

What happens if I do not maintain the activity or participation for five years?

If you do not meet the maintenance requirement, the amount of the single payment will have to be taxed in the personal income tax. In this case, you will have to complete a supplementary self-assessment, which includes the initially exempt amount plus late payment interest, as indicated in article 122 of the General Tax Law.

30% reduction in personal income tax: Does it apply in these cases?

An important question is whether this amount pending tax can benefit from the 30% reduction established by article 18.2 of the Personal Income Tax Law for income generated over a period of more than two years. In some cases, if the lump sum payment comes from years worked as an employee (more than two), you may be entitled to this reduction when paying taxes, although this may require additional tax advice.

Conclusion

Capitalizing unemployment benefits is an interesting tax opportunity for those who want to start a business, but it is essential to comply with the permanence requirements. In case of non-compliance, remember that you must pay taxes on the amount and check if additional benefits apply to you, such as the 30% reduction.