The most attractive tax incentives in the new Start-up Act
Do you already know all the tax incentives included in the new Start-up Act? As we have previously commented in our blog, it is anticipated that the new Start-Up Act will come into force next January 1st, 2023.
One of the most outstanding developments of this new legislation is the introduction of flexible requirements to be attractive for talented foreign citizens who are looking for job offers in Spain as well as the creation of a special visa for the well-known digital nomads.
Another enhancement provided in this new Act is the intention to promote rural entrepreneurship, launching pilot projects in small municipalities that encourages the incorporation of new technologies in rural areas.
Definition of start-up
Our Spanish domestic tax law will consider a Start-up as a company that meets all the following requirements:
- Launched no later than 5 years ago (or 7 years ago for certain specific sectors).
- With a maximum turnover of 10 million EUR.
- Not listed on the stock market.
- A company that has not distributed dividends.
- Its headquarters or registered office must be permanently established in Spanish territory.
- At least 60% of the workforce of the company must be employed in Spain.
According to this law, the startup must prove its innovative nature, understood as the development of new or improved products or provision of services. To verify this requirement, seven lines of criteria have been incorporated to be assessed by Enisa (Empresa Nacional de Innovación), including the degree of innovation, market attractiveness, the life phase of the company, the business model and its scalability, competition, or volume of clients.
Bureaucratic agility with the new Start-up Act
This new Act pursues the promotion of administrative agility, for which it provides a single and telematic way for the certification of innovative companies such as Spanish start-ups (ONE).
Furthermore, non-resident investors are not required to obtain a foreign identiﬁcation number (NIE), but are only required to obtain a tax identification number (called NIF).
The main benefits are related to taxation.
It establishes a reduction of the corporate tax rate for corporate tax from 25% to 15% during the first four years from when the taxable base is positive.
This measure is in line with what is stipulated in other European countries, but it will only have an impact on those start-ups that manage to be profitable from an early age. Generally, most emerging companies do not usually have benefits in their first years.
Stock options improvement
This remuneration formula is based on the delivery of shares or participations to start-up employees and constitutes one of the main tools for attracting and retaining talent.
This new Act increases the amount of tax exemption for stock options from 12.000 to 50.000 euros per year. This improvement in stock options makes Spain the best country in this tax regime at a European level.
To attract investors
The tax benefits established for the attraction of investors is another of the most relevant aspects of this new legislation.
It increases the deduction base for investment in newly or recently created companies from EUR 60,000.00 to EUR 100,000.00 euros per year. The rate of deduction increases from 30% to 50%. Hence, if an investment of EUR 100,000.00 is made on a Start-up company, the investor will have a deduction of EUR 50,000.00 in the tax return.
Furthermore, the new Act modifies the period for subscribing shares or participations from 3 to 5 years, counting from the company constitution (and up to 7 for certain categories of emerging companies). In addition, the application of this deduction is allowed for founding partners regardless of their percentage of participation in the company’s capital stock.
It seeks to improve the exchange of knowledge through a general regulation and controlled testing and the so-called sandbox. Thus, the innovation of the start-ups will be allowed to be tested for one year to evaluate the usefulness, feasibility, and impact of technological innovations in the different sectors of productive activity.
The law has also introduced an improvement in the treatment of carried interest: the benefit obtained by venture capital fund managers after disinvestment in a company. Although its consideration as employment income is maintained, the new Act sets a 50% reduction on this kind of income.
To apply this deduction, it is mandatory to hold the investment for at least a period of five years.
Tax incentives are contemplated for business angels, which will have a tax deduction of 50% on EUR 100,000.00, from which the entrepreneurs of the startups will also be able to benefit, as previously commented.
In light of the above, if you are planning to run a Start-up in Spain, we strongly recommend you contacting a tax advisor so that he or she can assist you in this process. If you have any doubts regarding the tax incentives in the new Start-up Act in Spain, do not hesitate to ask.
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