Improvements in taxation provided for in the Startups Act
On 22 December last, Law 28/2022, of 21 December, on the promotion of the start-up ecosystem was published, introducing improvements in the taxation of impatriates, investors, workers and venture capital fund managers.
Law 28/2022, of 21 December, on the promotion of the start-up ecosystem, also known as the Start-up Law, was passed with the intention of being the regulatory framework through which start-ups can be created and grow under more favourable conditions than the rest.
To this end, the law, which came into force on 23 December, establishes tax benefits, reduces administrative obstacles and facilitates the obtaining of visas, and allows greater flexibility in the management of these companies and in the application of commercial and insolvency principles.
In the tax area, a series of incentives are established – most of which are applicable from 1 January 2023 – with the aim of attracting talent and investment.
Accordingly, the aim is to encourage the establishment in Spain of entrepreneurs and workers resident abroad, as well as to promote investment through venture capital entities.
Companies that can benefit
The Law will apply to start-ups, which also include technology-based legal entities created under Law 14/2011. In addition, they must meet the following requirements:
- Be a newly created company or, if not, that no more than five years have elapsed since its public deed of incorporation was registered in the Register. In the case of biotechnology, energy, industrial and other strategic sectors or companies that have developed their own technology designed in Spain, no more than seven years may have elapsed.
- The company must not have arisen from a merger, spin-off or transformation of companies that were not previously considered as emerging.
- It must not have distributed dividends or, in the case of cooperatives, have distributed returns.
- Not be a listed company.
- Have their registered office, domicile or permanent establishment in Spain.
- At least 60% of the workforce must have an employment contract.
- Develop an entrepreneurial project.
- Be innovative, understood as such if its purpose is to solve a problem or improve an existing situation through the development of products, services or processes that are new or substantially improved compared to the state of the art and which entail a risk of technological or industrial failure.
- In the case of being part of a commercial group within the meaning of Article 42 of the Commercial Code, the group or each of its constituent companies must fulfil the conditions set out above.
However, the rule excludes certain companies that will not be eligible for this regime:
- Those companies that have been founded or managed by themselves or through an intermediary.
- Companies that are not up to date with Social Security.
- Companies that have been convicted of certain crimes.
- That have lost the possibility of contracting with the Administration.
Accreditation of the status of start-up company
Emerging companies that wish to avail themselves of the benefits and specialities of this Law must apply for accreditation from the Empresa Nacional de Innovación, S.M.E, S.A. (EINSA), which will assess compliance with the requirements detailed in the previous point.
The procedure for processing the accreditation is pending development by ministerial order, which will determine the criteria for assessing the characteristics of an emerging company and, in particular, the innovative and scalable nature of the venture.
This status will be registered in the Mercantile Register or in the competent Register of Cooperatives and will be a necessary and sufficient condition in order to be eligible for the benefits and specialities of this Law. It also recognises the Tax Agency’s ability to verify whether the requirements necessary to benefit from the tax incentives are met and remain in force.
Period of enjoyment of the benefits
The start-up company and its investors will not be able to avail themselves of the benefits and specialities provided for in the Law in any of the following cases:
- When 5 or 7 years have elapsed since the creation of the start-up company.
- When any of the requirements described in the first section are no longer met.
- When the emerging company is acquired by another company that does not have such status.
- The annual turnover of the company exceeds €10,000,000.00.
- It carries out an activity that generates significant damage to the environment.
- If the shareholders who directly or indirectly hold at least 5% of the share capital or the administrators are convicted by final judgement for certain offences.
Tax benefits approved by Law 28/2022
Corporate income tax
Corporate Income Tax and Non-Resident Income Tax taxpayers who obtain income through a permanent establishment located in Spanish territory and who qualify as a start-up company will be taxed at a rate of 15% in the first tax period in which, having this status, the taxable income is positive and in the following three periods, provided that they maintain the aforementioned status.
It is also established that these taxpayers may apply to the Tax Agency, at the time of filing the self-assessment tax return, for deferral of payment of the tax debt corresponding to the first two tax periods in which the taxable base of the tax is positive.
The Tax Agency must grant the deferral, with waiver of guarantees, for a period of 12 and 6 months, respectively, from the end of the deadline for payment of the tax debt in the voluntary period. To do so, these entities must be up to date with their tax obligations on the date on which the deferral is requested and the self-assessment must be submitted within the established period.
Finally, such taxpayers are not required to make the instalment payments regulated in Article 40 of the Corporate Income Tax Law, provided that they maintain their status as an emerging company.
Personal income tax
From 1 January 2023, the following items will be subject to improved personal income taxation:
Deduction for investment in new or recently created companies:
This deduction, which does not necessarily have to be in start-up companies, is extended in the following aspects:
- The current deduction percentage is increased from 30.00% to 50.00%.
- The maximum investment subject to deduction is increased from 60,000.00 euros to 100,000.00 euros.
- This measure will apply provided that the shares or holdings have been acquired at the time of incorporation of the entity or by means of a capital increase carried out within five years of incorporation, as opposed to the three years provided for in the current rule.
- For investments in Spanish start-ups, certain privileges are recognised:
- The period for investing is increased by 7 years.
- Its founding partners may apply this deduction regardless of their percentage stake in the company’s share capital.
The securities must be held for a minimum of 3 years and a maximum of 12 years.
Exemption on the delivery of shares or stock options to employees of emerging companies:
The amount of the exemption for remuneration in kind to workers – both residents and non-residents – for the delivery of securities of emerging companies is also increased from 12,000.00 euros to 50,000.00 euros.
In addition, a temporary imputation rule is established for employees of emerging companies in relation to the part of the income from work that is not exempt from taxation.
Thus, this income will be imputed in the event that the first of the following situations occurs:
- the shares are admitted to trading on a stock exchange or any multilateral trading system, whether Spanish or foreign.
- they are transferred by the taxpayer.
- or, in any case, after 10 years have elapsed since the shares or holdings were delivered.
Furthermore, the requirement that the shares be offered under the same conditions to all employees of the company, group or subgroup is eliminated, without prejudice to the fact that this must be done as part of a general remuneration policy of the company.
As regards their valuation, special rules are laid down and, on the other hand, limited liability companies are allowed to generate treasury shares for the sole purpose of implementing a remuneration plan by means of the delivery of securities to employees and directors.
The so-called Beckham Law regime is characterised by the fact that it only taxes income obtained in Spanish territory and applies to taxpayers who become tax residents in the year in which they move and in the following five tax periods.
With the approved amendment, it may be applied when the person moved has not been resident in Spain during the five tax periods prior to that in which the move to Spanish territory takes place, thus reducing the periods from 10 to 5 years.
The regulation also gives the option of applying this regime to the spouse and partner with children in common and to children under 25 years of age, or of any age in the case of disability, when they meet certain requirements.
This regime is also extended to teleworkers of non-resident employers, as long as they have a visa for international teleworking provided for in Law 14/2013, of 27 September, on support for entrepreneurs and their internationalisation, as well as to the administrators of emerging companies, even if they hold a stake of more than 25.00% in the share capital, except in the case of asset-holding entities.
Likewise, persons who are going to carry out an activity classified as entrepreneurial and also highly qualified professionals may also apply this regime when they travel to Spain to carry out an economic activity for emerging companies or to carry out training, research, development or innovation activities, receiving remuneration that represents, in total, more than 40.00% of their income from work and economic activity.
Venture Capital Fund Managers
The new regulation clarifies the tax classification of the remuneration obtained for the successful management of venture capital entities (carried interest) as employment income, while at the same time establishing a specific tax treatment for such remuneration.
Compliance with the requirements set out in the regulation means that only 50% of this income will be included in the tax base, including success fees.
Finally, by way of illustration, some of the measures affecting the commercial and labour spheres are listed below:
- Losses that reduce net worth. Emerging companies will not be subject to dissolution for losses that reduce their net worth to less than half of their share capital until three years have elapsed since their incorporation, provided that it is not appropriate to request a declaration of insolvency.
- Speeding up the registration of acts and resolutions in the Companies Register. A period of only 5 working days is established for the registration of start-up companies and their corporate acts;
- Trial licences for start-up companies. They may apply to the administrative authority in their field of activity for a temporary trial licence for a maximum of 1 year for the development of their activities.
- Student start-ups. Pending development of the requirements, limits to the student start-up statute.
- Self-employed bonus. Self-employed workers who, among other circumstances, have effective direct or indirect control of a start-up company and who, at the same time, work as employees for another employer may have their minimum self-employed contribution base reduced by 100% for 3 years from the date of registration as a result of their dedication to the start-up company.
While certain definitions are pending regulatory development and also some other procedures by ministerial order, we will keep you informed of these issues as they are published.