Spain has a specific law to support innovative start-ups through tax incentives, administrative facilities and measures to attract talent and investment.
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Startup law
Law on startups
The Law for the Promotion of the Start-up Ecosystem, known as the Start-up Law, places Spain at the forefront of Europe in the field of support for these innovative technology-based companies and in attracting talent and international capital.
The regulation was approved by a large majority in the Congress of Deputies on 1 December 2022, after incorporating numerous contributions from the sector’s stakeholders and the different parliamentary groups. It was published in the Official State Gazette on 22 December 2022 and came into force the following day. The initiative is part of the Digital Spain Agenda 2026 and is part of the structural reforms of the Recovery, Transformation and Resilience Plan to improve the business climate, complementing the Crea y Crece Law and the Bankruptcy Law.
What is the aim of the Startups Act?
The regulation seeks to support innovative digital-based start-ups, especially in their early stages, by adapting the administrative, fiscal, civil and commercial framework to their specificities. To this end, it includes measures to boost the creation and growth of this type of company, strengthen the attraction of international talent and investors to Spain, stimulate public and private investment and promote the circulation of knowledge. It also proposes boosting rural entrepreneurship and eliminating gender gaps so that there are more women entrepreneurs.
What is a start-up or emerging company?
The regulation establishes the requirements that a company must meet to fall into this category:
Not more than 5 years old (7 in the case of strategic sectors such as biotechnology or those that have developed their own technology, designed entirely in Spain).
It must not have arisen from a merger, spin-off or transformation of companies that are not considered emerging.
Not distribute dividends.
Not be listed on the stock exchange.
Have their registered office or permanent establishment in Spain.
Have at least 60% of the workforce with an employment contract in Spain.
Not exceed an annual turnover of ten million euros.
Develop an innovative entrepreneurial project with a scalable business model. Innovation can consist of developing products, services or processes that are new or substantially improved compared to the state of the art.
How should a company certify its entrepreneurial and innovative character?
Entrepreneurs who wish to avail themselves of the benefits of this law must apply to ENISA (Empresa Nacional de Innovación) to certify compliance with the requirements. ENISA must carry out the evaluation procedure within a maximum period of three months.
The analysis of the degree of innovation of the entrepreneurial project and the scalability of the business model must include the following criteria:
Degree of innovation.
Degree of market attractiveness.
The life stage of the company.
Business model.
Competence.
Equipment.
Dependence on suppliers, providers and rental contracts.
The volume of customers or users of the company.
What tax incentives can startups benefit from?
The main tax measures included in the law are:
Reduction of the tax rate on Corporate Income Tax and Non-Resident Income Tax: from 25% to 15% in the first four financial years from when the taxable base is positive.
Extension of the application of the special tax regime for posted workers: it is extended to professionals, entrepreneurs and investors posted to Spanish territory, who may opt to pay non-resident income tax (IRNR) during the tax period of change of residence and the five following periods. They must fulfil the condition of not having resided in Spain during the previous 5 tax periods, compared to the 10 required before the law came into force.
Possibility of extending the deferral of payment of the tax debt corresponding to the first two tax periods in which the taxable base for Corporate Income Tax or Non-Resident Income Tax is positive.
Increase in the maximum deduction base for investments in new or recently created companies from 60,000 to 100,000 euros per year. The deduction rate is also raised (from 30% to 50%).
Improved tax treatment of stock options used to remunerate start-up employees. The amount exempt from taxation is raised from 12,000 euros to 50,000 euros per year in the case of delivery by startups of shares or participations.
What administrative advantages does the Startups Act offer?
Possibility of creating a start-up company in a single step, obtaining a tax identification number, so that the company can complete the formalities for its incorporation at a later date. The double registration and notary procedure is eliminated and a fully electronic procedure is envisaged.
Minimum cost of notary and registry fees for the registration of limited liability companies.
The law exempts start-ups from the equity balance requirement for the first three years after incorporation. This means that, in general, they will not have to be dissolved if they suffer losses that reduce equity to less than half of the share capital.