Start-ups in Spain: New legislation to come! 👩💻🇪🇸
It looks like Spaniards are stepping up the game for start-ups in Spain. Many Spanish start-ups have become successful in the last couple of years. However, the legal system has not been their ally.
However, things seem to be slowly coming to take a turn and bring a positive outcome for start-ups in Spain.
On December 27, 2021, the Spanish government approved a draft of a bill for a start-up law. The bill named for the “Promotion of the Start-ups Ecosystem” has begun the parliamentary proceedings. In other words, “it’s on the way.” We can expect the approval by summer this year! Or at least a couple of months after the summer, so we can say it’s around the corner.
At Luxton Legal, we are excitedly waiting for it! In the meantime, we have prepared this post with the bill’s key points, so you have it in mind!
👉 Most important points!
The bill contains several measures aimed at creating an adequate legal framework for start-ups in Spain. It is especially aimed at promoting technology-based entrepreneurship.
The new law focuses on newly incorporated companies (start-ups in Spain). Additionally, to companies that comply with the following requirements.
- Start-ups in Spain incorporated within the past 5 years. It will be extended to 7 years for companies in the field of biotechnology, energy, industrial, and other strategic sectors. Also, to those that have developed their own technology).
- Have an innovative character.
- Having its headquarters or permanent establishment in Spain (a minimum of 60% of the workforce in the country)
- Those companies that do not distribute dividends or are not listed on a regulated market.
- Maximum annual turnover of 5 million euros.
Likewise, the company cannot be the result of a corporate restructuring operation (whether a merger, spin-off, or transformation). On the other hand, carrying out an activity that generates significant damage to the environment according to Regulation (EU) 2020/852 of the European Parliament, also will imply the loss of the benefits foreseen in the Law.
Serial entrepreneurs 👨💻👩💻
The law will introduce the concept of “serial entrepreneurs”. A serial entrepreneur will benefit from the incentives of the law in up to three companies created simultaneously or consecutively.
🎯The goals of the bill are as follows:
- Boost the entrepreneurship ecosystem in Spain, facilitating and enhancing the creation of new technology companies.
- Convert the Spanish territory into a hub of reference for international entrepreneurship. (As an example, look at the technology hubs in Barcelona, Valencia, and Madrid.)
- Attract foreign investment and talent to the country through new residency permits.
- Offer a large number of tax incentives to start-ups in Spain and foreign employees. Among the measures, it contains some amendments to the tax system (specifically the Personal Tax Income law). For example, raising the minimum exemption for remuneration in kind (allowing employees to obtain shares). Also, it reduces the limits on the period of non-residence and adds reasons for relocation for relocated employees.
- Also, offer investment facilities in Spain and regulate the sector in a more beneficial way for its development.
The bill in detail 🔍
Modifications to the Spanish Tax system 💰
Tax incentives for start-ups in Spain
– Reduced corporate tax rate for start-ups in Spain
- The corporate income tax rate for start-ups in Spain will decrease to 15%, instead of 25%. It is applicable to the first year in which the taxable income is positive. Also, to the following three years.
- If you have a permanent establishment of an entity that pays non-resident income tax you’ll also be able to benefit.
- You’ll be able to request a deferral of the corporate income tax debt in the first two years after the taxable income is positive. This will last for a period of 12 and 6 months respectively, without guarantees and without accrual of late payment interest.
- You won’t be obliged to make installment payments in the first two years after the taxable income becomes positive.
– Stock options exemption
- Regarding stock options, the current exemption is increased from € 12,000 per year to € 50,000 per year on the Personal Tax Income.
- In addition, start-ups in Spain will be able to offer the remuneration in stock options to the employees it considers.
- The accrual of earned income derived from the exercise of stock options is transferred to the moment of their sale or the company’s IPO or after a maximum period of 10 years. This makes them “equal” a little more to the Phantoms Shares model, where they are only taxed once the liquidation event occurs, avoiding that the professional has to assume a tax cost without cash inflow.
- The criteria for valuation of the shares is established as the subscription value of the last round carried out the previous year, if there was not one, the market value at the time of delivery is applied.
– Considerations for business angels
- Improvement of the deduction for investment in new or recently created companies by increasing the deduction rate from 30% to 50%, as well as the deduction base from € 60,000 to € 100,000. (The base is the acquisition value of the shares acquired in these entities.)
- To qualify for this benefit, you maintain your participation in the company for at least 5 years.
- You’ll be able to benefit from this deduction if you acquire the shares at the time of incorporation or in a capital increase within 5 years after incorporation (7 years for companies in special sectors such as biotechnology, energy, and strategic sectors).
- Your equity in the company can’t exceed €400,000 in the year of the investment. Also, you must maintain for a minimum of 3 and a maximum of 12 years.
– Improved tax regime applicable to employees relocated to Spain
- With the aim of attracting talent to Spain, the period during which a taxpayer must have been a tax resident in a third country to be eligible for the Special Tax Regime for Non-Residents’ Income Tax is reduced from the current 10 years to 5 years.
- The temporal scope remains the same as the period in which the movement takes place and the 5 subsequent tax periods. However, the bill plans to extend the subjective scope to digital nomads, directors of companies, and some family members.
The bill includes some amendments to ease up the procedures of incorporating start-ups in Spain
- The bill authorizes the purchase of own shares up to 20% of the share capital (treasury stock) as a remuneration plan for directors, employees, or other collaborators of the company. The acquisition must take place within five years of the authorization agreement.
- It reduces bureaucratic procedures and their associated costs, as well as the deadline for registration of all corporate acts. The new deadline is 5 working days as opposed to 15 business days.
- Obligation to register shareholders’ agreements in the commercial registry.
- Start-ups in Spain will not be subject to dissolution for losses that reduce the net worth to an amount less than half of the capital stock.
Other aspects to consider
- The draft law for start-ups in Spain also includes the promotion of innovative public procurement for start-ups.
- It contains Social Security incentives for entrepreneurs in pluriactivity.
- Start-ups in Spain will be able to apply to the administrative authority of their field of activity for a temporary test license for the development of their activities with a maximum duration of 1 year.
- The law establishes the promotion of educational programs on entrepreneurship and digitalization, including those born from public-private collaboration, particularly in rural environments.
This regulation is very positive for the start-up ecosystem in Spain. While the legislative process continues its course, we’ll keep you informed as soon we have news!
In the meantime, feel free to contact us with any questions you may have! 📩