There is a project that has been under development since 2018 and that will become a reality in the next weeks. A reality that will benefit a large number of investors, entrepreneurs and foreigners from all over the world living in Spain. We are talking about the new startup law.
In this post you will discover everything you need to know about this new measure, which will imply great tax benefits for foreigners and nationals, streamline the procedures for setting up new businesses in the Spanish territory, and most importantly: the creation of a new residence permit for digital nomads and foreigners working remotely in the country.
What is the new startup law?
The startup law is the new regulation that the Spanish government intends to create with the aim of facilitating the creation and development of new technology-based and innovative companies in Spain, in addition to making the country a reference for entrepreneurship at the European level.
There is no doubt that the legal framework is one of the aspects that can most hinder or enhance the creation of new companies, and therefore the development of the economy.
Thus, the Spanish government has set out to develop and publish a new law that aims to create a business legal environment that matches the current market demands.
Through a series of tax incentives, favorable regulations, elimination of bureaucratic obstacles, and flexibility in many procedures (which we will see below), this startup law aims to:
- Attract international talent and stop qualified workers from leaving Spain
- Encourage the creation of new fast-growing technology companies
- Boost investment in R&D&I
- Position Spain as a reference for entrepreneurship throughout the whole European region
- Facilitate investment in newly created startups (both domestic and foreign investment)
- Facilitate the path to obtain residency in Spain for foreigners who work remotely in the country or who simply offer their services to international clients
Current status and publication date
The so-called Law for the promotion of the start-up ecosystem or startup act has been finally approved by the Spanish parliament and is now facing its last steps until it becomes finally published.
We are expecting its publication at the end of 2022 or the very beginning of 2023, as right now it just needs to be finally approved by the Senate and then published.
Many of the specificities and concrete measures have already been published by the text the Congress has voted on and approved, and that is what we detail throughout this article.
Nevertheless, bear in mind that this text may be slightly changed in the Senate. We will be monitoring carefully all those changes and updating them in this same article.
So, if you would like to stay tuned and get those latest updates, make sure to subscribe here:
Main measures of the new law for startups
Some experts consider that the measures of this law are insufficient. Others that they come too late. Whether they are insufficient or not, what is certain is that this entrepreneurship regulation will improve things for many businesses.
How exactly will the government achieve such a favorable regulatory environment for entrepreneurs and startups?
Something that, by the way, will be managed through the National Innovation Company (ENISA), under the Ministry of Industry, Trade, and Tourism; the institution that will be in charge of accrediting these startups, verifying that they meet all the requirements and providing them with the assistance planed.
Below we are going to review the main points of this new legislation so you have a clear picture of what this law is all about.
Defining what is considered a startup
Logically, the first objective of this law will be to define as precisely as possible what is considered a startup and what is not.
This will be the fundamental basis for understanding when an entrepreneur will be able to benefit from all the advantages and benefits provided in this new regulation.
And this is even more true if we take into account that startups in Spain are currently governed by the same commercial laws that also regulate large corporations and companies of a completely different nature.
Thus, with the data we currently have, the law will consider as startups companies that:
- Have an annual turnover of fewer than 5 million euros
- Are less than 5 years old, or 7 in the case of biotechnology, energy and industrial companies
- Have an innovative character and a technological base
- Are not listed on the stock exchange and do not distribute dividends
- Have internal structures that favor meritocracy
- Are in a market niche that did not exist before
- Increase the efficiency and sustainability of other sectors
- Attract foreign investment and talent
- Are headquartered and have the majority of their employees in Spain
While it is true that some criteria are quite clear and objective, we still have to wait for the publication of the law itself to see if these will vary, as well as how the rest will be developed.
Offering important tax advantages
Another of the most important points of this law is everything related to taxes.
Tax regulations are undoubtedly one of the factors in the business ecosystem that can most influence the development and creation of new companies, and that is why this new regulation for startups devotes much of its content to create a beneficial tax climate.
Thus, we will find tax incentives that will favor the investment and creation of new companies focused on the following players:
Tax benefits for startups
First, this law pretends to reduce the corporate tax from 25% to 15% for a maximum of 4 years as long as the company is still considered a startup (see criteria in the previous section); starting to count in the first year in which the company has a positive result.
Remember that corporate income tax is the main tax rate paid by companies in Spain once expenses are subtracted from the income generated during the year.
On the other hand, the deferral of tax debts will be allowed during the first 2 years with a positive result (and without interests), which will giv extra “air” in the initial stages of the startup’s life.
Tax benefits for foreigners
Foreigners are one of the groups that will benefit the most from these measures.
From the moment this law comes into force, they will be able to enjoy much easier access to the IRNR (non-resident income tax).
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. This amount will be reduced to just 5 years.
But, in addition, they will be able to enjoy this measure for a total of 10 years (instead of 5 at present).
And why is it so beneficial to enjoy paying this tax?
Well, because it will imply paying only 24% on income instead of a progressive rate that can reach up to 50%.
We are talking about a regime very similar to the Beckham Law, which also allows you to greatly reduce your tax payments as a foreigner, and which you can discover in detail here.
But that is not all.
These foreigners will also be able to avoid the need to make fractioned payments of the IRNR, and they will be able to request the deferral of this same tax during the first 2 years with a positive economic result.
Creation of a new visa for digital nomads and remote workers in Spain
With this draft bill, great news for foreigners from all over the world has also arrived.
All those who are considered digital nomads or who have moved to Spain to work remotely for a foreign company will have much easier access to Spanish residency with the new visa that will be launched under the new startup law: the digital nomad visa.
It will most likely be a 1-year residence permit with the possibility of renewal for 2 extra years (and so on) as long as the initial requirements continue to be met.
In addition, the government also plans to create a specific residence permit for people working in a foreign company located in Spain, including those from the audiovisual sector.
We must still wait for the official publication of this law to find out what the exact requirements will be and how the foreigner will be able to prove his status as a digital nomad or remote worker, but in general, the income she receives in Spain can’t exceed more than 20% of his total income.
Thus, this new residency will become the alternative to the non-lucrative visa that so many foreigners wished to have.
Also, taxes for digital nomad visa holders will be lower.
More facilities for investors
For a startup to grow, money is required. And in many cases, this need translates into external investment.
Thus, in order to facilitate the inflow of capital to startups by investors (national and international), this new law will regulate these transactions more precisely while offering important advantages.
Firstly, with a new regulation that provides a much greater depth of coverage for investment in fast-growing technology companies, investors will be given greater legal certainty.
On the other hand, tax incentives will be created for these investors, hence making it easier for startups to access capital.
For example, the maximum deduction base for these operations will be increased to €100,000 per year (currently the figure is €60,000), with a deduction rate of 40%.
Finally, foreign investors will have to apply for their non-resident NIE in order to invest in startups located in Spain.
Greater flexibility in the startup creation process
Another of the purposes of this new law is to allow greater flexibility and easiness in the process of legally creating a new startup.
This is one of the points that we still cannot evaluate until we have extra information, as nowadays the process for registering an SL is quite fast (with the possibility to have everything ready in just a few days).
That is why it won’t be until the law is published that we won’t be able to know how the government plans to make the legal procedures for the creation of new companies faster and easier.
What we do know is that this will be a priority, and we can confirm this with the two points that the government has announced:
- It has been communicated that notary and registry fees will be eliminated if the company is incorporated electronically
- In addition, it will be possible to register the company in the Mercantile Registry in just 6 hours using standard statutes, or 5 working days in the rest of the cases
- During the first 3 years, the startup will be exempted from the cause of dissolution for losses related to or generating equity imbalances
Establishment of new methods of employee remuneration
Finally, this law also intends to adapt to the way in which large startups currently operate, allowing the use of stock options as a remuneration method to workers.
In addition, the exemption would be raised from 12,000 to 45,000 euros per year; therefore, these stock options would adopt a favorable treatment.
This has a summary of everything the startup law entails. What do you think about it? Do you consider it will boost the entrepreneurial ecosystem in the country? Let us know in the comments section below, and if you have any doubts, do not hesitate to contact our lawyers for an immediate response: