What is the new law regarding startups?
Key benefits
What qualifies as a startup?
Tax incentives
Additional opportunities for investors
Changes for Digital Nomads
Work on the draft law had been underway since 2018 and finally became a reality on 1 December 2022, when the Congress of Deputies approved the law “On Support for the Startup Ecosystem,” aimed at establishing a specific legal framework for the creation and development of startups.
The aforementioned law affects startups, their investors, entrepreneurs, and remote working professionals.
The objectives of the law are:
To attract international talent and retain a skilled workforce in Spain
To encourage the creation of new, fast-growing technology companies
To increase investment in innovative technological development
To position Spain as one of the leading hubs for entrepreneurship in Europe
To facilitate funding for newly established startups (through both local and foreign investment)
To simplify the process of obtaining residence permits for foreigners working remotely in Spain or providing services to international clients
This article examines the aforementioned regulation, which provides significant tax benefits for both foreigners and citizens, while simplifying business incorporation procedures.
What is the new law for startups about?
The Law for Startups is a new regulation that was created to promote the creation and development of new technological and innovative companies in Spain, as well as turning the country into a benchmark for entrepreneurship at the European level.
Thanks to a number of tax benefits, the removal of bureaucratic obstacles and flexibility in many procedures, this law will allow:
Qualify accrued interest as income from work. Only 50% of this income will be taxed if the requirements are met
Have no grounds for liquidation of a startup due to losses before the expiration of three years from the date of registration
Introduce tax incentives for the taxation of stock options
Key advantages
Entrepreneurs will be able to obtain a residence permit for 3 years, which can be extended for another 2. After 5 years of residence permit, you can count on permanent residence. You need to apply in Spain.
Prior to the introduction of the bill, a residence permit was initially issued for 2 years with the possibility of being extended twice for 2 years, and only after that it was possible to apply for permanent residence.
Foreign investors in startups in Spain can now not receive NIE. It is enough to provide only a special tax number, NIF.
What is considered a startup?
A company is considered a startup if:
The annual turnover is less than 10 million euros
Registration was less than 5 years or 7 years in the case of biotech, energy and industrial companies
The company has an innovative nature and a technological base with a scalable business model
They are not listed on the stock exchange and do not pay dividends
They are in a market niche that did not exist before
Improve the efficiency and sustainability of other sectors
The headquarters and most of the employees are located in Spain
In addition, it is necessary to confirm the innovativeness of the project in ENISA, Empresa Nacional de Innovación SME S. A. — a National Innovation company — and to confirm the innovativeness of its project.
Criteria by which innovation is evaluated:
The level of innovation
The level of attractiveness of the market
Stage of the company’s life
Business model
Competition
Team
Dependence on suppliers, providers and lease agreements
Customers
Tax benefits
Firstly, the corporate tax is reduced from 25% to 15% for a maximum of 4 years, while the company is still considered a startup; they start counting from the first year in which the company had income.
Remember that corporate income tax is the main tax rate paid by companies in Spain after deducting expenses from income earned during the year.
Deferred tax payments are allowed for the first 2 years with a positive result and without interest, which will give additional “air” at the initial stages of the startup’s life.
Foreigners received the most benefits. For example, from the moment this law comes into force, they will be able to get much easier access to the IRNR — income tax of non-residents.
Until now, in order to take advantage of this regime, foreigners had to prove that they had not lived in Spain for the last 10 years. This amount will be reduced to just 5 years. In addition, foreign citizens will be able to use this measure for a total of 10 years, instead of 5, as it was before.
More opportunities for investors
In order for a startup to develop, money is needed. And in many cases, this need translates into external investments.
For example, the maximum deduction base for these transactions will be increased to 100,000 euros per year (currently this figure is 60,000 euros) at a deduction rate of 40%. In addition, the transfer of shares to employees of companies up to 50 thousand euros is not taxed.
The deduction rate is 40%.
In addition, the transfer of shares to employees of companies up to 50 thousand euros is not taxed.
Changes concerning digital nomads
A new visa category was introduced for them with the following requirements:
The employee has a long-term contract for more than 3 months with a foreign company/group of companies not located in Spain.
The contract has been signed with only one company for the last three months.
The company/group of companies has been on the market for more than a year.
The employee has confirmation that the company/group of companies allows him to work remotely.
The employee has at least a year of remote work experience.
The minimum wage is equal to the subsistence minimum of Spain — from 1,500 euros.
Remote workers will now be able to live permanently in Spain on an annual visa, and after its completion, get a residence permit for 3 years with a possible extension for another 2 years, and then apply for permanent residence for 5 years. At the same time, they undertake to pay tax on the income of non-residents.
The new law on startups is a positive step that will facilitate the launch and development of startups in Spain. The main advantages of the law are a new visa, tax benefits and access to government funding programs. The law also includes incentives for mass production and support for rural entrepreneurship. In general, the reforms are aimed at positioning Spain as a centre of digital talent in the European Union, which is possible by attracting talent, encouraging cooperation between new companies and entrepreneurs and improving the business climate.