Non Refundable Pay-Outs

NON REFUNDABLE PAY-OUTS

NON

REFUNDABLE PAY-OUTS

The Spanish government recently approved an €11 billion economic relief package which includes €7 billion direct aid to distressed businesses.

This is done to stimulate the economy crisis caused by COVID-19 and prevent a wave of corporate insolvencies.

The package comes in three separate funds:

1. A €3 billion pool to restructure stateguaranteed loans, to be managed by the banking sector.

2. A €1 billion reserve to recapitalize medium-sized companies, run by the state-owned financing company Cofides. 3. €7 billion in non-refundable direct aid to self-employed workers and small and medium-sized enterprises (SMEs) affected by the coronavirus crisis. (2€ billion are for the Balearic Islands and

Canary Islands, two regions badly hit by the crisis.

Eligible companies must prove that their revenues fell by at least 30% in 2020 from 2019, and the cash grants must be used for fixed expenses or debt reduction. The aid targets sectors particularly affected by the pandemic, such as hospitality, wholesale and retail distribution, or culture.

The self-employed may collect up to €3,000 or €4,000 depending on whether they file taxes under the módulos system or not. Businesses may be eligible for up to €200,000.

Direct aid to struggling businesses has been a longstanding demand in Spain, where restrictions to contain successive waves of the coronavirus have pummelled This is well overdue after the thrashing received by the retail and tourist industry due to the Covid19 restrictions.

To reduce this risk of companies taking the pay-outs and then closing down, the aid will be contingent on keeping the business open until at least June 2022, and not raising company executives’ pay, among other conditions. Recipients will have to be up to date with their tax filings and not operate in tax havens.

Ever since Sánchez, of the Socialist Party (PSOE), announced the €11-billion aid package, the executive has been struggling to find a way to ensure there are clear targets and strong oversight for the direct aid. This will be the first instance of mass aid for businesses since Spain joined the European Union in the mid-1980s.

The Finance Ministry will monitor the aid to make sure recipients use it to cover fixed expenses (such as rent) and to reduce debt levels (such as paying suppliers and employees).It would seem that regional governments will be in charge of handling the pay outs,

NOTE

It is hoped that the package will help stimulate the weak economy dealing with the third wave of the coronavirus pandemic. The International Monetary Fund (IMF), the European Commission, the European Central Bank and the Bank of Spain have all been warning for months about the risk of a wave of corporate insolvencies once existing government programs are phased out, including the job retention scheme known as ERTE.

Some ministers feel that Spain is late stepping up to the plate: with Brussels’ consent, similar schemes have been in place for some time now in Germany, France, Italy, United Kingdom and neighbouring Portugal.