After months of debate, the Spanish Congress finally approved, on 1 December 2022, the Law for the Promotion of the Startup Ecosystem, known as the ‘Start-up Law’, which aims to establish a specific regulatory framework to support the creation and growth of start-up companies. It was published in the Official State Bulletin (BOE) on 28 December.
Although the measures adopted in the new Law came into force the day after its publication in the BOE, i.e. 29 December 2022, the most significant tax and administrative changes did not apply until 1 January 2023.
The new Law aims to promote innovative entrepreneurship to attract resources and talent encompassed within the government’s Recovery, Transformation and Resilience Plan, and the Digital Spain 2025 Agenda.
The new Law defines ‘emerging’ or ‘start-up’ companies as those that develop an innovative entrepreneurship project with a scalable business model and meet conditions such as having operated for no more than five years (seven for strategic sectors), having their registered office or permanent address in Spain, and not being listed on a regulated market or distributing dividends. Likewise, companies with 60% of their workforce under employment contracts and with an annual turnover of less than €10 million in Spain will also be able to benefit from the new tax incentives.
The National Innovation Company (ENISA), which reports to the Ministry of Industry, will be in charge of approving emerging/ start-up status.
Main points
- Corporate income tax rate reduced to 15% for a maximum of four years, starting from the first period in which the taxable base is positive and up to the following three years. Moreover, all eligible companies may defer payment of tax incurred during the first two years of activity.
- Stock options given to employees: exempt limit increased from €12,000 to €50,000.
- Deduction for investing in new or recently created companies: increases from 30% to 50%, and maximum investment increases from €60,000 to €100,000.
- Specific tax treatment for carried interest: exemption for up to 50% of remuneration earned from successful management of venture capital entities linked to entrepreneurship, innovation and development of economic activity throughout the Spanish territory with the aim to foster the development of venture capital.
- Inpatriate tax regime: now applies to people posted to Spain who have not been resident in Spain during the five tax periods prior to the secondment (previously, ten years’ non-residence was required).
A special tax regime is proposed for digital nomads, and another for those who want to come to Spain to telework. - Social Security contributions: 100% reduction for a period of three years for those start-up founders who simultaneously maintain employment as an employee.Flexibility in treasury stock regime for limited liability companies.
- Three-year protection from liquidation for emerging companies: where losses reduce their net worth to less than half of their social capital, during the three years after incorporation.
- Simpler process for creating companies: by offering free services for certain notarial, registration, and other related costs and reducing administrative procedures.
The Start-up Law includes a range of tax measures, removing bureaucratic obstacles and shortening procedures, to encourage both the founding and investment in tech start-ups.
Obviously, any regulation seeking to foster and protect the creation of new companies and make them more competitive is always welcome and, although it should evolve and improve in all its aspects, this constitutes a step forward for both entrepreneurs and investors, and should attract talent to Spain.
Ignasi Contreras
Morison ACPM, Spain
Publicado en Global Tax Insights Q2 2023