The Spanish Startup Law
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Disclaimer: The information contained herein is of a general nature and subject to change. Applicability to your specific situation should be determined through consultation with our tax or legal advisors.
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THE SPANISH STARTUP LAW
On the 14th of October 2022, the Spanish government published the “Proyecto de Ley de fomento del ecosistema de las empresas emergentes.”, or better known as the “Ley Startups”.
This package of measures has been designed to stimulate the creation of innovative businesses in Spain has been approved with effective date 01/01/2023.
The measures can be divided in immigration measures to improve access to residence and work permits and fiscal measures to make the country more attractive from an entrepreneurial and residential point of view:
IMMIGRATION MEASURES:
The Creation of a Digital Worker Visa:
Directed at nationals of third countries (non-EU) that want to work from Spain either as an employee or as a freelancer. The requirements are:
An Improved Entrepreneur Visa:
Directed at nationals of a third country (non-EU) that want to start a new business in Spain. The requirements are:
Further Generic Improvements:
FISCAL MEASURES
Corporate Tax Benefits:
The measures are applicable to emerging companies. These are defined as companies established permanently in Spain that have at least 60% of the employees in Spain and are less than 5 years old (7 years for certain sectors).
Besides, they have to be qualified as an innovative business, do not have it's stocks traded publicly and have not distributed dividends. The “Empresa Nacional de Innovación (ENISA)”, will be the authorized entity to certify applicants in order to access the benefits.
If no reply is received in three months, the status will be granted automatically, but this does not necessarily mean that the tax authorities cannot investigate later.
The tax benefits consist of a reduction of corporate tax rates from 25% to 15% for the first 4 years (instead of the normal 2 years), counting from the first profitable year and as long as the company maintains its status of emerging company:
Income Tax Benefits:
Spain has been a country where stock options have not been widely implemented due to administrative and fiscal downsides. Now, interesting measures have been taken to turn this situation around:
Stock options received by employees of emerging companies are not taxed until actual benefits are realised through the sale of the stocks or IPO. Instead of having to calculate the difference between the acquisition value and the theoretical market value of the company at the moment of acquisition, the valuation of stocks according to the last financing round is accepted.
The tax-exempt threshold for employees receiving stock options is amplified from €12.000 to €50.000 annually, and the obligation to offer them to all employees is removed. Taxation over quantities surpassing the tax-exempt threshold can be postponed to the moment of sale of the stocks or a maximum of 10 years.
The reduction of the taxable base for investments in new or recently created innovative start-ups has been increased from 30% to 50%, while the maximum taxable base applicable has been increased from €60.000 to €100.000.
Displaced Worker Benefits:
Employees hired from abroad and becoming a fiscal resident in Spain can pay taxes according to the non-resident regime for the fiscal year they become fiscal residents and the 5 following years. Instead of paying taxes over their worldwide income, they will only pay reduced taxes over the income generated in Spain.
Instead of paying taxes according to the Spanish income tax scales, they pay a fixed percentage of 19% if they are nationals of EEA (EU + EFTA) countries that have a tax treaty with Spain (or 24% in they are nationals of third countries) over income up to €600.000. Income over €600.000 is taxed with 47%.
They also do not pay wealth tax in Spain or have to declare foreign assets but, at the same time, are not entitled to any income tax reductions or benefits contemplated for resident taxpayers.
The novelties are:
Reduction of the requirement of not having been a resident in Spain during the previous 10 years before application to the previous 5 years.
Previously only foreign employees of Spanish companies were entitled (Spanish labour contract or letter of assignment to a Spanish entity), but now the special regime it is also applicable to:
OTHER MEASURES
Emerging companies will not be subject to dissolution for losses that reduce their net worth to less than half of their capital stock, provided there is no other need to file for bankruptcy proceedings, until three years after their incorporation.
The shareholders of an emerging company can authorize the acquisition of own stocks, up to a maximum of 20% of the capital, for remuneration purposes of directors, employees, or other collaborators.
Deferral of the tax debt without the need to provide securities and without punitive interest will be allowed, and the obligation to make advance tax payments is eliminated as long as the company is considered emerging.
Double contribution to the Social Security will be eliminated during 3 years for those entrepreneurs who simultaneously maintain an employment as an employee.
CONCLUSION
The new start-up legislation contains many interesting elements, and it is the coordinated combination of migratory, fiscal and administrative measures that makes it potentially very effective.
Some details are still not clear or incomplete, and over time we will see a more defined interpretation and operative execution of the measures.
In any case, the law marks a significative milestone on the road to enhance Spain’s attractiveness as a business or professional destination.
On the 14th of October 2022, the Spanish government published the “Proyecto de Ley de fomento del ecosistema de las empresas emergentes.”, or better known as the “Ley Startups”.
This package of measures has been designed to stimulate the creation of innovative businesses in Spain has been approved with effective date 01/01/2023.
The measures can be divided in immigration measures to improve access to residence and work permits and fiscal measures to make the country more attractive from an entrepreneurial and residential point of view:
IMMIGRATION MEASURES:
The Creation of a Digital Worker Visa:
Directed at nationals of third countries (non-EU) that want to work from Spain either as an employee or as a freelancer. The requirements are:
- Working exclusively at distance through electronic means, as specified in a labour contract (employees), a service contract (freelancers) or a similar document.
- Employees: Employing company must be established outside of Spain and have at least one year of existence. The labour relationship must be at least 3 months old.
- Freelancers: Must have 80% or more of their clients outside of Spain. the commercial relationship with clients must be at least 3 months old.
- Both employees and freelancers must demonstrate they have sufficient economic resources to sustain themselves and their families.
- Unrelated but also relevant is a recently approved measure for individuals residing in Spain on a Student Visa that now have a one year permission to find work or to start an economic activity once they have finalized their studies.
An Improved Entrepreneur Visa:
Directed at nationals of a third country (non-EU) that want to start a new business in Spain. The requirements are:
- The creation of a new and innovative businesses that is sustainable, scalable and benefits the Spanish economy.
- Demonstrate the possession of the relevant experience, preparation, and motivation needed.
- Preparation and presentation of the corresponding business plan.
- NEW: This documentation is now directly evaluated by a specialized agency (ENISA).
- NEW: The application will be automatically approved if no reply is received in a maximum of 10 days.
Further Generic Improvements:
- The requirement for a criminal history record has been reduced from 5 years to 2 years.
- The permit duration has been amplified from 2 to 3 years, is extendable with another 2 years to 5 years, and after 5 years a long-term permit can be requested.
- Candidates without a university title can now be employed by all types of companies, not only by the bigger ones as it was defined until now, and can obtain their permit through their companies.
FISCAL MEASURES
Corporate Tax Benefits:
The measures are applicable to emerging companies. These are defined as companies established permanently in Spain that have at least 60% of the employees in Spain and are less than 5 years old (7 years for certain sectors).
Besides, they have to be qualified as an innovative business, do not have it's stocks traded publicly and have not distributed dividends. The “Empresa Nacional de Innovación (ENISA)”, will be the authorized entity to certify applicants in order to access the benefits.
If no reply is received in three months, the status will be granted automatically, but this does not necessarily mean that the tax authorities cannot investigate later.
The tax benefits consist of a reduction of corporate tax rates from 25% to 15% for the first 4 years (instead of the normal 2 years), counting from the first profitable year and as long as the company maintains its status of emerging company:
- New or recently created company that develops an innovative and scalable project.
- Having obtained the qualification as emerging company by ENISA (Automatic resolution in maximum 3 months).
- Having the business headquarters in Spain and at least 60% of staff are employed in Spain.
- Having not distributed any dividends before or during the period of consideration.
- Companies whose shares are not traded publicly and do not originate from a merger or acquisition.
Income Tax Benefits:
Spain has been a country where stock options have not been widely implemented due to administrative and fiscal downsides. Now, interesting measures have been taken to turn this situation around:
Stock options received by employees of emerging companies are not taxed until actual benefits are realised through the sale of the stocks or IPO. Instead of having to calculate the difference between the acquisition value and the theoretical market value of the company at the moment of acquisition, the valuation of stocks according to the last financing round is accepted.
The tax-exempt threshold for employees receiving stock options is amplified from €12.000 to €50.000 annually, and the obligation to offer them to all employees is removed. Taxation over quantities surpassing the tax-exempt threshold can be postponed to the moment of sale of the stocks or a maximum of 10 years.
The reduction of the taxable base for investments in new or recently created innovative start-ups has been increased from 30% to 50%, while the maximum taxable base applicable has been increased from €60.000 to €100.000.
Displaced Worker Benefits:
Employees hired from abroad and becoming a fiscal resident in Spain can pay taxes according to the non-resident regime for the fiscal year they become fiscal residents and the 5 following years. Instead of paying taxes over their worldwide income, they will only pay reduced taxes over the income generated in Spain.
Instead of paying taxes according to the Spanish income tax scales, they pay a fixed percentage of 19% if they are nationals of EEA (EU + EFTA) countries that have a tax treaty with Spain (or 24% in they are nationals of third countries) over income up to €600.000. Income over €600.000 is taxed with 47%.
They also do not pay wealth tax in Spain or have to declare foreign assets but, at the same time, are not entitled to any income tax reductions or benefits contemplated for resident taxpayers.
The novelties are:
Reduction of the requirement of not having been a resident in Spain during the previous 10 years before application to the previous 5 years.
Previously only foreign employees of Spanish companies were entitled (Spanish labour contract or letter of assignment to a Spanish entity), but now the special regime it is also applicable to:
- Digital workers that deliver their services to foreign clients exclusively through digital means.
- Entrepreneurs that initiate a new innovative business activity in Spain and generate income through a permanent establishment.
- Highly qualified professionals that provide a at least 40% of their services to emerging companies in Spain or are dedicated to education or research and development.
- Administrators of companies, even if they have more than 25% participation in the share capital (previously excluded), excluding investment or asset management companies.
- Family members of individuals entitled to the displaced worker regime. Family members are considered spouses, children, and the children’s progenitors. These will have to comply with the same requirements to qualify and cannot earn more than the displaced worker.
OTHER MEASURES
Emerging companies will not be subject to dissolution for losses that reduce their net worth to less than half of their capital stock, provided there is no other need to file for bankruptcy proceedings, until three years after their incorporation.
The shareholders of an emerging company can authorize the acquisition of own stocks, up to a maximum of 20% of the capital, for remuneration purposes of directors, employees, or other collaborators.
Deferral of the tax debt without the need to provide securities and without punitive interest will be allowed, and the obligation to make advance tax payments is eliminated as long as the company is considered emerging.
Double contribution to the Social Security will be eliminated during 3 years for those entrepreneurs who simultaneously maintain an employment as an employee.
CONCLUSION
The new start-up legislation contains many interesting elements, and it is the coordinated combination of migratory, fiscal and administrative measures that makes it potentially very effective.
Some details are still not clear or incomplete, and over time we will see a more defined interpretation and operative execution of the measures.
In any case, the law marks a significative milestone on the road to enhance Spain’s attractiveness as a business or professional destination.
