20 marzo, 2012

Tax opportunities deriving from the Spanish labour reform

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As one could imagine, the Spanish labour market reform introduced by Royal Decree 3/2012, of February 3, has not satisfied everyone in our country…

As it is unfortunately repeatedly mentioned, the Spanish State is facing a very difficult economic situation. Unemployment rate is almost 24 per cent in Spain, particularly affecting young job-seekers.

Upon writing this post, a general strike has been convoked by Spanish trade unions for March 29th.  One of the most sensitive changes of the reform, which has been strongly criticized by the unions, is the reduction of the mandatory indemnity limit for unfair dismissal, which has been reduced from 45 days’ pay for every year worked (with the limit of 42 months of payroll) to 33 days’ pay for every year worked, subject to the limit of two years’ wages.

Focusing on the tax aspects of the reform, we would like to highlight the following new tax measures, which have been introduced in an attempt to promote entrepreneurship.

Companies with less than 50 employees can agree on a new labour employment contract (the so-called “Labour contract to support entrepreneurs”), of an indefinite duration and working full-time, which grants the following tax advantages:

  1. 3,000.00 Euro as a tax credit, for companies not exceeding the before-mentioned employees threshold, agreeing on this contract with an individual younger than 30 years old.
  1. An additional tax credit of 50 per cent of the pending unemployment benefit of the newly employed individual, subject to a 12 months limit. In this case, the employee can receive, besides his payroll, an amount equalling 25 per cent of the unemployment benefit.

It is required that the employee has been receiving the unemployment benefit during at least three months prior to the moment of hiring. In addition, the employee must provide the employer company with a certificate issued by the Employment Public Service, setting the amount of the unemployment benefit still pending to be received.

Considering the current Spanish labour market scenario, there is no doubt that some sort of action was required to be taken. Leaving aside the fact that any legal reform can always be ameliorated, now all that we hope is that these measures finally have the effect for which they have been taken: encourage hiring and offering a new future for our youth.


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