Negotiating Debt with the Tax Authority and Social Security: Deferrals, Instalments and When to Go to Insolvency

Public debt negotiation in Spain refers to the use of legal mechanisms established by the General Tax Law (Ley General Tributaria, Law 58/2003) and the Social Security General Law (LGSS) to defer, arrange instalments for, or restructure amounts owed to the Spanish Tax Agency (AEAT) and the Social Security Treasury (TGSS). The primary instrument for tax debt is the deferral or instalment arrangement under Article 65 LGT, which allows taxpayers facing temporary liquidity difficulties to obtain payment facilities — including waiver of the guarantee requirement for debts under EUR 30,000. The TGSS offers its own instalment arrangement procedure for social security contributions. Both mechanisms suspend enforcement actions during the agreed period but require demonstrated repayment capacity; unpaid public debts in enforcement also generate automatic surcharges and late-payment interest that accrue until settlement.

Do you have debt with the tax authority or social security you cannot pay?

Public debt has characteristics that distinguish it from private debt that many business owners do not fully understand until they find themselves in difficulty:

It accumulates faster. AEAT surcharges are automatic: 5% in the first three months of delay, 10% between three and six months, 15% between six months and one year, and 20% after a year — plus late payment interest. The TGSS operates a similar surcharge system. A debt of EUR 100,000 can become EUR 120,000 in a matter of months without the business owner having received a single notification of a formal enforcement action.

It has its own enforcement powers. AEAT and TGSS do not need to go to court to freeze assets. They can initiate administrative enforcement proceedings on their own initiative: freezes of bank accounts, receivables from third parties (including the company’s clients), moveable and immoveable assets. An unexpected account freeze can bring a company’s operations to a halt within hours.

It can be derived to the director. Company directors can be jointly and severally liable for tax and social security debts in certain circumstances. This liability derivation is particularly aggressive in cases of non-payment of income tax and VAT withholdings.

However, AEAT and TGSS also have negotiation mechanisms that few businesses know about or use effectively. The objective of this advisory is to maximise the probability of obtaining the deferral or instalment arrangement, and to determine when out-of-court negotiation is the best option and when, instead, it is better to incorporate the public debt into insolvency proceedings.

AEAT deferral and TGSS instalment plans: how they work

AEAT deferral (Art. 65 LGT). Art. 65 of the General Tax Act allows deferral or instalment payment of any tax debt whose payment cannot be made without serious detriment to the debtor’s interests or economic activity. The application must demonstrate financial difficulties through specific documentation: a treasury plan with projected cash flow, recent annual accounts, and where applicable a guarantee proposal if the amount exceeds the exemption threshold (currently EUR 30,000).

Debts for income tax withholdings and collected VAT quotas have additional restrictions on deferral (Art. 65.2 LGT), although exceptions apply in cases of evidenced difficulties. The maximum deferral period varies depending on the type of debt and the security provided: without security, the typical period is 6-12 months; with sufficient security, it can be extended to 36 months or more in exceptional cases.

TGSS instalments. The Social Security Treasury has its own social security contribution debt deferral regime. The procedure differs from AEAT’s: the application is submitted to the competent TGSS Provincial Directorate, and the grant is subject to assessment of the company’s financial situation and the guarantee proposal. Instalment arrangements for contributions from recent years are generally more feasible than for older debts, which carry higher surcharges and have a lower probability of grant.

When to negotiate a deferral vs when to file for insolvency

The decision between managing public debt through out-of-court deferral and doing so within insolvency proceedings depends on several factors:

Out-of-court deferral is preferable when:

• Public debt is the company’s main financial problem and private debt is manageable
• The company has a treasury plan demonstrating repayment capacity within the requested periods
• Public debt is proportionate to the company’s size (no more than 2-3x annual EBITDA)
• No private creditors are in a position to enforce or petition for involuntary insolvency

Insolvency proceedings are more appropriate when:

• Public debt is so large that deferral is not viable from the company’s cash generation
• There is also significant private debt requiring simultaneous negotiation
• Insolvency is already current and the director has the legal obligation to file
• A creditor has initiated or threatened enforcement proceedings

Within insolvency proceedings, public claims have special privilege (over assets used in the business) and general privilege (50% of the claim without special privilege). This preferential position makes it difficult to apply haircuts to public debt in any arrangement, but within insolvency proceedings deferrals and instalments can be negotiated within the limits the Law permits public authorities to agree.

Public debt and fresh start proceedings: what changed in 2026

The Supreme Court judgments of February 2026 (STS 260/2026 and 254/2026) have substantially changed the scope of public debt discharge in the fresh start mechanism for individuals:

Before these judgments, debt owed to AEAT and TGSS was almost entirely excluded from the BEPI (unsatisfied debt discharge benefit). After the judgments: surcharges, late payment interest and penalties are subordinated claims and are discharged in full; the principal of the public debt can also be discharged within the limits set out in the TRLC.

This development is highly relevant for company directors who have given personal guarantees for tax debts or have accumulated personal tax debts: the fresh start proceedings can now be an effective resolution pathway, coordinated with the company closure.