In the field of new regulatory frameworks aimed at facilitating a more open, competitive, and innovative economy, the Spanish government has recently approved three bills regarding the Spanish start-up legislation: innovative technology-based companies –“start-ups”-; creation and growth of commercial companies and salvation of insolvent, but viable companies. If the forecasts are fulfilled, these bills, after the mandatory debate and parliamentary approval, will become laws by the middle of next year, hence the importance for foreign businessmen, investors, and professionals in general, and business angels, family offices, and venture capital in particular, to familiarize with their contents, beginning by that of start-ups and going on afterwards with the rest.
As far as the start-ups bill is concerned, the first aspect to consider is the proper definition of a start-up. Though this matter has not stopped raising issues about its scope, the bill establishes that a start-up is a newly created company, or a company less than 5 years old (7 in case of companies in the biotechnological, energy, industrial, or other strategic sectors), that has an innovative character, non-profit sharing, and an annual turnover of up to 5 million euros. In addition to it, it includes within this definition serial entrepreneurs that have launched up to 3 parallel or consecutive business projects, leaving without clearing the question of why this limit is only up to 3 projects and not, as it usually happens, to 4, 5 or 6.
Another important aspect is that of tax improvements in the Spanish start-up legislation, which affects, in particular, carried interests, stock options, and corporate tax. In the first case -carried interests-, the improvement is that, although the taxation is maintained as earned income instead of capital income, the exemption is extended up to 50%, with the sole condition of retaining the stake for 5 years. In the second case -stock options-, the exemption from taxation, in principle limited to €12,000, has been extended to €50,000. And in the third case -corporate tax-, the general rate of 25% goes down to 15%, for 4 years, as long as the tax base is positive and provided that the consideration of the company as a start-up is duly kept.
As for incentives, the Spanish start-up legislation, has an aspect of equal importance as the previous ones, the deduction for investment in new or recently created companies is modified, increasing the deduction rate from 30% to 50% in the first 5 years of the company’s life, as well as the maximum tax-free base of the personal income tax that goes from €60,000 to €100,000. It is true that, taking into account the volume of investments handled in this sector, these increases may seem low, but in any case they are not negligible. In addition, it is established that in order to enjoy these benefits are eligible not only investors but also the founders of these emerging companies.
The bill also regulates the figure of “digital nomads”, that is, entrepreneurs and teleworkers who move to Spanish territory, and this newly-coined figure is another of the novelties to take into account. To attract them it incorporates a set of measures to facilitate their entry and residence, such as specific visas, in addition to providing for the possibility that they have access to the tax status of non-residents and pay the non-resident income tax at a reduced rate of 15% instead of 25%. Moreover, the requirements of the Spanish start-up legislation for them to obtain this tax status are relaxed from 10 to 5 years, and the period of its enjoyment -from which their families can benefit as well- is extended from 5 to 10 years.
Lastly, it is worth noting the simplification of the Spanish start-up legislation procedures for setting up this type of companies since first there is no need for non-resident investors to obtain the Foreigner Identification Number (NIE), and second they can be created within 6 hours and registered digitally. To this end, the National Innovation Company (ENISA), acting as a one-stop shop will be the agency in charge of granting the declaration of innovative nature of the companies so that they can take advantage of the benefits of the bill. To further facilitate the procedures, the incorporation of the company (notary fees) and its publication in the Official Bulletin of the Companies Register will be provided for free.
Antonio Viñal
Lawyer
AVCO Legal
madrid@avco.legal
