Spanish startups law. Law for the promotion of the startup ecosystem

On Thursday, 22 December, Law 28/2022, of 21 December on the promotion of the start-up ecosystem, was published in the Official State Gazette (BOE). This law contains certain interesting aspects for new entrepreneurs who wish to set up in Spain, for workers commonly considered “digital nomads” and for those individuals who wish to pay tax under the special regime for non-residents in Spain (known as the “Beckham Law”). The following are some of the main aspects of the Law:

Purpose: To establish a regulatory framework to support the creation and growth of start-ups in Spain.

Definition of start-up company: Any legal entity, including technology-based companies created under Law 14/2011, of 1 June, on Science, Technology and la Innovation, which simultaneously meets the following conditions (*):

1. Seniority: Being newly created or, not being newly created, when no more than 5 years have elapsed since the date of registration of the public deed of incorporation in the Mercantile Register or the competent Register of Cooperatives, in general, or 7 years in the case of companies in biotechnology, energy, industrial and other strategic sectors or which have developed their own technology, designed entirely in Spain.
2. Independence: Not having arisen from a merger, spin-off, or transformation of companies that are not considered to be start-ups.
3. Turnover: Not exceeding 10 million euros.
4. Headquarters: To have its head office, registered office or permanent establishment in Spain.
5. Workforce: To have 60 % of the workforce with an employment contract in Spain.
6. Innovative character: To develop an innovative entrepreneurial project with a scalable business model.
7. Not distribute or have distributed dividends or returns in the case of cooperatives.
8. Not be listed on a regulated market.

*The benefits of the law shall not be available to start-up companies founded or managed by themselves or by an intermediary which:

1. Are not up to date with their tax and social security obligations.
2. Have been convicted by final judgement for an offence of unfair administration, punishable insolvency, corporate offences, money laundering offences, financing of terrorism, offences against the Public Treasury and Social Security, offences of prevarication, bribery, trading in influence, embezzlement of public funds, fraud and illegal exactions or town planning offences, as well as those sentenced to forfeiture of the right to obtain public subsidies or aid.
3. Have lost the possibility of contracting with the Administration.

Definition of technology-based company: A company whose activity requires the generation or intensive use of scientific and technical knowledge and technologies for the generation of new products, processes, or services and for the channelling of research, development, and innovation initiatives and the transfer of their results. A start-up company will be considered innovative when its purpose is to solve a problem or improve an existing situation by developing products, services, or processes that are new or substantially improved compared to the state of the technique and which entails a risk of technological, industrial, or business model failure.

Accreditation: To obtain the Certification of the innovative and scalable entrepreneurship of the business model, entrepreneurs must apply to ENISA to assess the characteristics indicated by Law 28/2022, of 21 December and they will have 3 months to assess the applications and decide whether to grant the certification. The status of start-up company registered in the Commercial Register or in the competent Register of Cooperatives will be a necessary and sufficient condition to be eligible for the benefits and specialities of the Law.

The following are the most relevant incentives for start-ups:

Tax advantages:

1. Taxation: the Corporate Income Tax rate is reduced from 25% to 15% for a maximum of 4 years.
2. Tax deferral: They may apply to the AEAT for deferral of payment of the tax debt corresponding to the first two tax periods in which the tax base is positive. In addition, they will not be obliged to make the instalment payments regulated in article 40 of the Corporate Income Tax Law and 23.1 of the Non-Resident Income Tax Law.
3. Stock options: The amount of the exemption is increased from 12,000 to 50,000 euros per year in the case of delivery of shares or holdings to employees of emerging companies.
4. . Deduction for investment in new or recently created companies: The deduction rate is increased from 30% to 50% and the maximum base from 60,000 to 100,000 euros. In addition, the period for subscribing the shares or holdings is increased from 3 to 5 years, starting from the formation of the company.
5. Special tax regime applicable to workers posted to Spanish territory: Access is improved for those who wish to opt for this regime (better known as the “Beckham Law”):
1.  The number of tax periods prior to the move to Spanish territory during which the taxpayer may not have been a tax resident in Spain is reduced from 10 to 5 years.
2. The subjective scope of application of the regime is extended to employees, by allowing its application to workers who, whether or not ordered by the employer, travel to Spanish territory to work remotely exclusively using computer, telematic, and telecommunication means and systems, as well as to directors of emerging companies regardless of their percentage shareholding in the company’s share capital.
3. The possibility of benefiting from the Beckham Law is established for the taxpayer’s children under 25 years of age (or whatever their age is in the case of disability) and their spouse.
6. Venture capital: The tax classification of the remuneration obtained for the successful management of venture capital entities (carried interest) is regulated and a specific tax treatment is established for such remuneration.
7. Non-Resident Income Tax: The Non-Resident Income Tax Law is amended to clarify that income from in-kind work that is exempt from Personal Income Tax will be exempt from this tax.

Attraction of foreign investment and talent loyalty:

1. Identification requirements for foreign investors: foreigners who wish to invest in Spanish start-ups and do not reside in Spain are not required to obtain a NIE (foreigner’s identity number), but must apply to the AEAT for a NIF (tax identification number). When the investor is a legal entity or an unincorporated entity of foreign nationality, the representative applying for the NIF on its behalf must be assigned a NIF. Likewise, 2 alternative electronic channels are offered for foreign investors to obtain the NIF required by law to carry out acts with tax implications without the need to go to an administrative office to request or collect it.
2.    Equivalence of documents issued in other countries: The content of powers of attorney held by tax representatives appointed by foreign investors will not be required to be adapted to Spanish law when the notarial document has been issued by a foreign notary.
3. Migratory measures: A set of migratory measures is incorporated to facilitate entry and residence not only for highly qualified professionals but also for entrepreneurship and investment. In this regard, the residence of digital nomads (*) is regulated, introducing a new category of visa and residence authorisation:
1. Visa for international teleworking: Allows foreigners to enter and reside in Spain for a maximum of 1 year while working for themselves or for employers anywhere in the world (except Spain).
2. Authorisation of residence for international telework: Allows foreigners who are already in Spain on a regular basis (e.g. students or visa holders for teleworking who are going to exhaust the year of residence and want to continue in Spain) to apply for an authorisation for a maximum period of 3 years, renewable for a period of 2 years, being able to obtain permanent residence after 5 years.

These cases are added to those provided by Law 14/2013, of 27 September, on support for entrepreneurs and their internasionalisation and, in turn, the validity of the residence authorisations provided by this Law is extended from 2 to 3 years.

(*) people whose jobs allow them to work remotely and change residence frequently, combining highly qualified work with immersive tourism in the country of residence.

Formalities applicable to start-ups incorporated as limited companies:

1. Streamlining the registration process: The deadline for the registration of start-up companies and all their corporate acts in the Commercial Register will be five working days.
2. Notary and registry fees are cheaper and publication in the BORME is exempt from fees for entrepreneurs who use the standard articles of association adapted to the needs of start-up companies.
3. Losses that reduce net worth: Start-up companies will not be subject to dissolution for losses that reduce net worth to less than half of the share capital, provided that it is not appropriate to file for insolvency proceedings.
4. Regulatory sandbox or regulated testing environments: Controlled testing environments are regulated. In this regard, the possibility is envisaged for start-ups to test for one year in an environment controlled by the corresponding regulator. To do so, they must apply to the administrative regulatory authority in their field of activity for a temporary test licence to carry out their activities.
5. Subsidies: The burden on start-ups for accessing public subsidies is reduced.