The New Spanish Startup Law
Disclaimer: The information contained herein is of a general nature and subject to change. Applicability to your specific situation should be determined through consultation with a tax or legal advisor.
A New Law for Startups
On October 14, 2022, the Spanish government published the Proyecto de Ley de fomento del ecosistema de las empresas emergentes, better known as the “Ley Startups.” This package of measures to stimulate the creation of innovative businesses in Spain has been approved with effective date January 1, 2023.
The measures can be divided in immigration measures to improve access to residence and work permits, and fiscal measures to make the country more attractive for entrepreneurs and businesses.
Immigration Measures
The Creation of a Digital Worker Visa
This new visa program is directed at third country nationals (non-EU) that want to work from Spain either as an employee of a foreign company or as a freelancer. The requirements are:
- All of your work must be done remotely through electronic means, as specified in a labor contract (employees), a service contract (freelancers) or similar.
- If you are an employee, the company employing you must be established outside of Spain and have at least one year of existence. Your labor relationship with the company must be at least three months old.
- If you are a freelancer, 80% or more of your clients must be outside of Spain, and your commercial relationships with your clients must be at least three months old.
- Both employees and freelancers must demonstrate they have sufficient economic resources to sustain themselves and their families.
- Unrelated, but also interesting, is a recently approved measure for individuals residing in Spain on a student visa: once they have completed their studies, they are now allowed to extend their stay by one year to find work or to start a business.
An Improved Entrepreneur Visa
This visa is directed at third country nationals that want to start a new business in Spain. The new requirements are:
- You must create a new, innovative business that is sustainable, scalable and benefits the Spanish economy.
- You must demonstrate that you have relevant experience, are prepared to start your business and are motivated to do so.
- You must prepare and present your business plan.
- This documentation will now be directly evaluated by the specialized agency Empresa Nacional de Innovación S.A. (ENISA).
- Your application will automatically be approved if no reply is received in a maximum of 10 days.
Further Generic Improvements
- The requirement for a criminal history record has been reduced from five years to two years.
- The permit duration has been increased from two to three years, with the ability to extend it another two to five years. After five years a long-term permit can be requested.
- Candidates without a university degree can now be employed by and obtain a permit through all types of companies, not only by large companies, as was previously the case.
Fiscal Measures
Corporate Tax Benefits
These measures are applicable to emerging companies, which are defined as companies established permanently in Spain that have at least 60% of their employees in Spain and are less than five years old (seven years for certain sectors).
Additionally, a company must be qualified as an innovative business, cannot have its stocks traded publicly and cannot have distributed dividends. ENISA is the authorized entity to certify applicants in order to access benefits.
If no reply is received in three months, the status will be granted automatically, but this does not necessarily mean that the tax authorities won’t investigate later.
The tax benefits consist of a reduction of corporate tax rates from 25% to 15% for the first four years (instead of the normal two years), counting from the first profitable year and as long as the company maintains its status as an emerging company. In review, the requirements are:
- It must be a new or recently created company with an innovative and scalable project.
- It must have obtained the qualification as an emerging company by ENISA (automatic resolution in a maximum of three months).
- Its business headquarters must be located in Spain and at least 60% of staff has to be employed in Spain.
- It must not have distributed any dividends before or during the period of consideration.
- The company must not have publicly traded shares and cannot originate from a merger or acquisition.
Income Tax Benefits
Stock options received by employees of emerging companies are not taxed until actual benefits are realized through the sale of the stocks or IPO. Instead of having to calculate the difference between the acquisition value and the theoretical market value of the company at the moment of acquisition, the valuation of stocks during the last financing round is now accepted.
The tax-exempt threshold for stock options is amplified from €12,000 to €50,000 annually, and the obligation to offer them to all employees is removed. Taxation over quantities surpassing the tax-exempt threshold can be postponed to the moment of sale of the stocks or a maximum of 10 years.
The taxable base for investments in new or recently created innovative startups has been increased from 30% to 50%, while the maximum taxable base applicable has been increased from €60,000 to €100,000.
Displaced Worker Benefits
Employees hired from abroad who become fiscal residents in Spain can pay taxes according to the non-resident regime for the fiscal year they become fiscal residents and the five following years. Instead of paying taxes over their worldwide income, they will only pay reduced taxes over income generated in Spain.
Instead of paying taxes according to the Spanish income tax scales, they pay a fixed percentage of 19% if they are from countries in the European Economic Area (EEA) or European Free Trade Association (EFTA) that have a tax treaty with Spain. Third country nationals pay 24% over income up to €600,000. Income over €600,000 is taxed at 47%.
They also do not pay wealth tax in Spain but, at the same time, are not entitled to any income tax reductions or benefits contemplated for resident taxpayers.
Novelties
The requirement of not having been a resident in Spain has been reduced from the previous 10 years to the previous five years.
Previously only employees of companies displacing foreign employees to Spain were entitled—meaning you had to have a Spanish labor contract or letter of assignment to a Spanish entity. However it is now also applicable to:
- Digital workers that deliver their services to foreign clients exclusively through digital means.
- Entrepreneurs that initiate an innovative business activity in Spain and generate income through a permanent establishment.
- Highly qualified professionals that provide at least 40% of their services to emerging companies in Spain or are dedicated to education or research and development.
- Administrators of companies, even if they have more than 25% participation in the share capital (previously excluded), excluding investment or asset management companies.
- Family members of individuals entitled to the displaced worker regime. Family members are considered spouses, children and the children’s progenitors. These will have to comply with the same requirements to qualify and cannot earn more than the displaced worker.
Other Measures
Emerging companies will not be subject to dissolution for losses that reduce their net worth to less than half of their capital stock, provided there is no other need to file for bankruptcy proceedings, until three years after their incorporation.
The shareholders of an emerging company can authorize the acquisition of stocks, up to a maximum of 20% of the capital, for remuneration purposes of directors, employees or other collaborators.
Deferral of the tax debt without the need to provide securities or punitive interest will be allowed, and the obligation to make advance tax payments is eliminated as long as the company is considered emerging.
Double contribution to social security will be eliminated for a period of three years for those entrepreneurs who simultaneously maintain employment as an employee.
Conclusion
The new startup legislation contains many interesting elements, and it is the coordinated combination of migratory, fiscal and administrative measures that makes it potentially very effective.
Some details are still not clear or incomplete, and over time we will see a more defined interpretation and operative execution of the measures. But on the whole, the law marks a significant milestone on the road to enhance Spain’s attractiveness as a business or professional destination.
BCN Business Services is an English-speaking consultancy firm providing complete services to foreign entrepreneurs in Spain. Areas of expertise include immigration, registration, company formation, accounting, taxes, personnel administration, real estate, insurance and related legal issues. You can learn more at bcnbs.com and follow on LinkedIn.
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