Last 10th December, the Council of Ministers approved the Preliminary Draft Law on the Startup Ecosystem, also known as the “Startup Law”.
The draft includes several of the demands of the business sector after the public consultation, due to the existence of “ambiguous” parts in the first draft presented last July. The main novelty is based on the extension of tax deductions on share plans, digital nomads or investment.
In order to determine what type of companies can benefit from these new measures, the Government has introduced modifications to the definition of “Startup” and determines that it refers to companies that are newly created or less than 5 years old, that are independent from other companies, that carry out an innovative activity and that have an annual turnover of up to 5 million euros.
This new Law will allow entrepreneurs to benefit from a reduction (from 25% to 15%) in Corporate Income Tax during the first four financial years, as soon as the taxable base is positive. It also introduces the possibility of deferring payment of other taxes during the following two financial years. On the other hand, certification as a “Startup” will be managed by the National Innovation Company (ENISA), through a one-stop shop.
The Draft also states that the limit for tax-free stock options will be increased from 12,500 euros to 50,000 euros. Thus, workers who receive shares as a means of remuneration will be exempt from taxation and these will not be taxed when they are received, but when they are sold.
The key fiscal considerations of the new law
The preliminary draft, determines an increase in the deduction rate for investment in the first five years, seven in the case of biotech companies, of up to 50%. On the other hand, the increase in the maximum deduction base will go from the first 60,000 to 100,000 euros of tax-free investment per year.
In addition, for investors not resident in Spain, the obligation to obtain a NIE (Foreigner’s Identity Number) will be eliminated; it will only be necessary to have a NIF (Tax Identification Number).
Also, more test environments known as ‘regulatory sandboxes’ will be promoted to test industry innovations and industry contact mechanisms such as the National Forum of Emerging Companies.
Startups will be able to register digitally within six hours (with standard statutes), which would be extended to a maximum of five days if customised statutes were applied.
The Executive has also eliminated the requirement to renew the “startup” seal of approval in the draft and has abolished notary fees for this type of company, which will also be exempt from the obligation to file for insolvency proceedings due to losses.
On the other hand, in terms of employment, the “Startups” law eliminates the double contribution, so that people who want to start up a business can continue to work as an employee and also benefit from the Flat Rate for the first three years.
Another novelty introduced by the Law, with the aim of attracting this type of company to Spain, is based on speeding up the processing of visas for digital nomads, who come to work for a Spanish startup or who are self-employed and for digital entrepreneurs, as well as for Spaniards who want to return to Spain.
Sources at the Ministry of Economic Affairs have expressed their confidence that the Startups Law will be passed in 2022, as it is one of the reforms promised to the European Union in the Recovery, Transformation and Resilience Plan.
At OBN&, we have extensive experience advising companies in the technology sector, so if you have any doubts regarding this matter, please do not hesitate to contact us.