The cessation of activity or cessation of self-employment is a situation in which individual or self-employed entrepreneurs cease their business activity temporarily or permanently for some reason. The reasons for this decision can be multiple, including illness, relocation, transfer of business, death, bankruptcy or retirement. Spain has a Social Security program called “flat rate” that allows new self-employed workers to pay a lower monthly fee for the first year and then a slightly higher fee for the next two years. But, what happens to this benefit if you decide to cease your activity in 2023? In this article, we will cover this topic in detail.
What is the Flat Rate in Spain?
The Flat Rate is a Social Security program in Spain that offers incentives and reduced rates for new self-employed professionals. According to the program, the new self-employed can pay a reduced monthly fee of 60 euros, which represents a saving of 80 euros compared to the ordinary rate, during the first year. Afterwards, the rate will increase to 143.60 euros per month for the next two years. This program was introduced to encourage more entrepreneurs to create their own companies in Spain.
How does the Cessation of Activity affect the Flat Rate?
If a self-employed person decides to cease their business activity, they must follow the usual procedure for cessation of activity, which implies notifying the relevant authorities and being discharged from Social Security. But, what happens with the Flat Rate service in this situation? The answer is that it depends on the moment of the cessation of activity.
If the cessation of activity occurs before the end of the first year of the Flat Rate program, it will not be necessary to pay more Social Security contributions. In addition, the remaining months of the flat-rate benefit can be used if you decide to start a new business.
However, if business is discontinued after the first year, the lump sum must continue to be paid for the remaining two years of the program. In addition, the remaining months of the benefit cannot be used if a new business is started up again.
On the other hand, if a self-employed person wishes to contribute for this contingency, they must pay the full rate, which is usually higher than the flat rate. Currently, the approximate monthly fee for the contribution for cessation of activity is around 290 euros, while the flat rate is 60 euros during the first year.
It is important to note that the rates and requirements may vary according to current regulations and it is advisable to consult a professional or the relevant organizations to obtain updated and accurate information on the listing options and benefits available in each particular case.
What are the consequences of the cessation of activity?
The cessation of activity can have legal, social, economic and personal consequences. Some of the most important consequences are the following:
- Legal consequences: The cessation of activity can lead to the withdrawal from Social Security and the cancellation of activity licences. These consequences vary from one country to another and depend on the legal framework of each state.
- Social Consequences: Social consequences can include isolation, loneliness, and a decrease in social status. These consequences can negatively affect the physical and mental health of the person.
- Economic consequences: The cessation of activity can lead to loss of income, the inability to pay bills and the risk of indebtedness. Unplanned cessation of activity could lead to financial instability and even bankruptcy, if not managed properly.
- Personal consequences: The cessation of activity could have personal repercussions in the individual’s life, such as loss of identity, decreased motivation and difficulty finding new opportunities. It can also mean a decrease in confidence and self-esteem.
In short, the cessation of activity is an important decision that can have repercussions on the personal, social, economic and legal life of the individual. The Social Security Flat Rate program in Spain offers incentives and reduced rates for new self-employed professionals.
If a person decides to cease their business activities during this program, they must follow the standard procedure for cessation of activity and withdraw from social security. Depending on when the cessation of activity occurs, the natural person will or will not have to pay the flat rate during the remaining period of the Flat Rate program. It is essential to know the possible consequences of cessation of activity and plan accordingly to minimize risks.
Finally, to avoid ‘encounters’ with the Tax Agency, you can count on the support of Entre Trámites to advise you on filing tax and tax procedures for the self-employed and SMEs. We have specialists ready to help you.
Contact us, if you are self-employed or SME you can schedule a free consultation, call us or write to our WhatsApp!
