Talent, tax reliefs and other keys to the new Spanish start-up Law

The Spanish government has approved the proposal for the much expected Start-up law. The proposal establishes important tax reliefs to stimulate funding and attract highly skilled workers. These are key factors – together with interesting measures in the novel areas such as innovation procurement and regulatory sandboxes- to create a beneficial environment for innovation and startups in Spain.

The Spanish Government’s proposal for the so called Start-up law is ready and will be submitted to the Parliament shortly.

The term start-up is now for the first time defined in Spanish law. The basic requirement is that the activity of the enterprise must aim at developing new products, services or processes – or significantly improve existing ones. It must also imply a certain risk of failure.

Among other requirements, the enterprise must also have the bigger part of its’ activity in Spain, it cannot have an annual turnover of over 5 million euro and it must be relatively new: the general rule is a maximum of 5 years, which can be raised to 7 for certain specific sectors.

The law is an intent of making the process of setting up a company quicker and more flexible and the focuses on giving certain advantages to newly created enterprises dedicated to innovation during 5-7 years.

An important part of the benefits is about the taxes to be paid by a Start-up. Incorporate income tax is the main tax rate paid by companies in Spain once expenses are subtracted from the income generated during the year. This tax rate will be reduced from 25% to 15% for startups during four years, starting to count from the first year in which the company has a positive result.

On the other hand, the deferral of tax debts without paying interest will be allowed during the first 2 years with a positive result, which will give extra “air” in the initial stages of the startup’s life

However, these are not the only news when it comes to taxes. The law proposal considers funding and recruitment of qualified employees as two key aspects to create a beneficial climate for Start-ups in Spain and as we will see, also here it uses tax reliefs among other instruments to create the right conditions:

With regards to human capital, focus is on attracting highly qualified individuals to work in Spain, to make it easier for Start-ups to recruit persons with the skills they need.

One measure is to permit easier access to a beneficial tax regime very similar to the so called Beckham Law.

Until now, in order to benefit from this regime, foreigners had to prove that they had not lived in Spanish territory for the last 10 years. Now, the requirement changes and those who have not been tax residents in Spain for the last 5 year can access.

The law proposal explicitly allows directors of a Spanish start-up to apply this tax regime if moving back to Spain, even if they have a significant part of the company shares, which is not allowed in the case of other types of companies.
It also allows remote workers that carry out their job for a foreign company digitally from Spain to apply this regime – so, even if not immediately related to Spanish start-ups, it is important to keep in mind that focus is on bringing qualified human resources to Spain, which these start-ups can eventually benefit from.

In the same spirit of making attractive as employers, the law will make it easier for start-ups to buy part of their own shares in order to offer a stock-option program to key employees. This way, the enterprise can pay part of the salary in stock-options and these will also receive a beneficial treatment tax-wise: the exemption is raised from 12,000 to 50,000 euros per year.

To facilitate funding, tax reliefs are granted to private investors: the maximum deduction base for investment in start-ups increases from 60,000 to 100,000 euros per year and the deduction rate raises from 30% to 50%.

Additionally, the government wants to increase loans and lines of credit for Start-ups. Also, the obligations to place a bond to receive governmental subsidies or aids, when required, are somewhat relaxed. It should be remembered that this law is part of Spain’s recovery plan and therefore closely linked to the Next Generation funds.

It is also worth to mention several other interesting aspects of the law proposal. Such aspects, not as concrete yet as other measures but well worth to keep an eye on, are the promotion of so called innovation procurement and the possibility to establish regulatory sandboxes to facilitate for Start-ups to try out innovative products on new markets.