New features to spanish IRPF included in the Startups bill

The new features on the “Startups” Bill aims to promote the creation and relocation of emerging companies in Spain, boost R&D&I, attract talent and international capital to our country, and avoid the “brain drain”.

In order to favor the needs of this type of emerging companies, the new regulation has established a series of tax incentives.

Taxation of the delivery of shares to employees and stock options.

The annual amount of remuneration in kind, constituted by the delivery of shares to employees, is increased from 12,000 euros to 50,000 euros per employee, and it is not required that such remuneration is made under the same conditions for all employees, it’s sufficient that it is within the company’s remuneration policy.

The part of the income that is not exempt it is when exceeds €50,000, will not be taxed as earned income at the time of delivery. It will be taxed in the tax period in which the shares or participations become liquid, either by the transfer of the shares by the taxpayer or because the company’s capital is traded on the Stock Exchange.

If after ten years from the delivery of the shares or holdings, none of the above cases have occurred, the taxpayer must allocate the deferred income in the tax period in which this period is completed.

In addition, a valuation criterion is established for the shares or holdings which will be determined by the value of the shares subscribed by an independent third party in the last capital increase carried out in the year prior to the delivery of the shares or holdings. If there has been no capital increase, they will be valued taking into account the market value indicators at the time of delivery.

Stock options will be applied at the time the employee exercises the option to acquire the shares, taking into account the years elapsed from the grant to the exercise of the option, and in order to be able to apply this regulation the company must be classified as emerging at the time the stock options are granted.

Deduction for investment in newly created companies.

The deduction rate for investment in new or recently created companies is increased from 30% to 50% and the maximum deduction base is increased from €60,000 to €100,000.

This measure will be applied provided that the shares or stock holdings have been acquired at the time of incorporation of the entity or through a capital increase carried out within five years of incorporation (seven years in some cases), and must be held for a period by more than three years and less than twelve years.

It is also established as a condition for the deduction of the direct or indirect participation of the taxpayer, with that held in the same entity by his spouse or any related person, cannot exceed 40% of the capital stock of the entity in its voting rights. This limit is not applicable for the founding partners of the emerging company.

Special regime applicable to workers posted to Spanish territory.

The “Startups” Law proposes amendments related to Article 93 of the Personal Income Tax Law, which regulates the special optional regime of workers posted to Spain, better known as the “Beckham Law”. Such amendments mainly affect the access requirements and their extension.

Firstly, it will not be necessary to obtain a foreigner’s identification number (NIE) for non-resident investors and the cause of dissolution due to losses during the first three years is eliminated.

The required period of non-residence in Spain is reduced from ten to five tax periods prior to the year in which they move to Spain.  That is to say, the year in which the residence is acquired plus five.

A new case is added to the reason for the employee’s transfer. It must be justified through an employment relationship or by the acquisition of the condition of being an administrator, and the work activity must be provided at a distance, by means of the exclusive use of a computer, telematic and telecommunication means and systems, which is known as digital nomads.

Finally, there is the opportunity for both the spouse and the children under 25 years of age or disabled of any age, to opt to benefit from the same tax regime as the taxpayer, provided that a series of requirements are met:

  • That they travel to Spanish territory with the inpatriate worker.
  • That they acquire tax residence in Spain.
  • They have not been residents in Spain in the last five tax periods.
  • They do not have income obtained through an establishment in Spanish territory.
  • The sum of the savings income of both taxpayers must be less than the taxable income of the inpatriate worker.

The special regime for the family nucleus will only be applicable as long as it is applicable for the inpatriate, at the moment in which it is denied, it will also be applicable to his relatives.

Taxation of income obtained from the management of funds linked to entrepreneurship or “Carried interest”.

The Startups Bill adds an additional provision to the Personal Income Tax Law to regulate the qualification and tax treatment of the remuneration, obtained from the successful management of venture capital entities, also known as Carried interest.

It is established that the Carried interest will be considered as earned income, however, it will be taxed as a general base, but a reduction in the tax base of 50% is included. The purpose of this measure is to improve the competitiveness of Spanish taxation compared to other European countries.

The participations, shares or rights must be held in the taxpayer’s assets for a minimum period of five years. In the event of a change in the managing entity, they must be held continuously until their early liquidation or until they are rendered ineffective or are totally or partially lost.

This treatment will not apply when the special economic rights come directly or indirectly from an entity resident in a non-cooperative country or territory or with which there are no regulations on mutual assistance in the exchange of tax information.

As always, our team is at your disposal to answer any questions you may have in relation to this matter. Please do not hesitate in contact us.