Spain Startup Law: Measures, Benefits, Opportunities
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Spain Startup Law: Measures, Benefits, Opportunities

New Startup Law in Spain: all the opportunities for 2024 and who can benefit from them

The landscape of business innovation in Spain is on the cusp of a transformative shift with the introduction of the new Spain Startup Law, a pioneering legislative framework that has been in the works since 2018. This initiative is poised to usher in a wave of benefits for investors, entrepreneurs, and foreign professionals seeking to tap into the spanish market. In this guide, we will explore the extensive measures, advantages, and tax implications that the law entails, as well as elucidate the process of establishing a startup in Spain. With an array of tax opportunities and simplified business setup procedures, the Spain Startup Law is set to be a catalyst for economic modernization and a beacon for those looking to contribute to and benefit from Spain’s thriving startup ecosystem.

startup founder puts post its on a glass preparing the business plan to benefit from the advantages of the startup law in spain

What is the new Spain Startup Law?

The Spain Startup Law, officially enacted on January 1, 2023, marks a significant milestone in Spain’s legislative landscape, setting a new precedent for the nation’s approach to fostering an innovative and technologically driven business ecosystem. This law provides a specialized regulatory framework that caters to the distinctiveness of startups, addressing their innovative nature and the sector’s primary demands. With the overarching goal of reinforcing Spain’s position as a hub for entrepreneurship in Europe, the law introduces a multitude of measures aimed at nurturing startups throughout their lifecycle, particularly in their formative stages.

Objectives of the Spain Startup Law include:

  • Encouraging the inception or relocation of startups within Spanish territory.
  • Streamlining administrative processes for startup establishment and operation.
  • Attracting and retaining specialized talent by offering favorable tax considerations for stock options.
  • Enhancing collaboration between vocational training institutions, universities, and emerging companies.
  • Bolstering development hubs or centers that serve as magnets for companies and investors in peripheral cities and rural areas.
  • Promoting innovative public procurement with emerging companies.
  • Addressing the gender disparity within the startup ecosystem.

The law stands as a beacon for innovation, aiming to create an entrepreneurial legal environment that aligns with current market demands. By introducing tax incentives, reducing bureaucratic hurdles, and offering procedural flexibility, it seeks to:

  • Attract international talent and deter the emigration of skilled workers from Spain.
  • Encourage the formation of rapidly growing technology companies.
  • Amplify investment in research, development, and innovation (R&D&I).
  • Position Spain as a leading entrepreneurial reference throughout Europe.
  • Facilitate domestic and foreign investment in newly established startups.
  • Simplify the residency acquisition process for foreigners who work remotely or provide services to international clients.

In essence, the Spain Startup Law is crafted to meet the unique challenges faced by startups: high-risk innovative business models, capital raising difficulties in early stages, potential for exponential growth through economies of scale, reliance on highly skilled workers, and global competition. By providing a modern regulatory framework distinct from traditional business models, this law aims to catalyze startup creation, attract talent and international capital, stimulate public and private investment in startups, and bridge educational gaps with the startup industry—all underpinned by substantial tax benefits for entrepreneurs, employees, and investors.

Seize the opportunities presented by Spain’s innovative Startup Law. Lawants offers specialized company formation services tailored to entrepreneurs and startups looking to thrive under this new legislation. Our expertise ensures your venture is not only compliant with the latest regulations but also positioned to benefit from the incentives and advantages the Startup Law provides. Let us navigate the legal landscape so you can focus on growing your business in Spain’s dynamic ecosystem.

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What are the main measures of the Spanish Startup Act?

As we delve into the essence of the Spanish Startup Act, opinions on its impact vary among experts—some deem its measures to be insufficient, others argue they are overdue. However, consensus lies in the belief that this entrepreneurial legislation is set to enhance the business environment for numerous companies in Spain. The pivotal question is: how will the government cultivate such a conducive environment for entrepreneurs and startups? This ambitious goal will be overseen by the National Innovation Company (ENISA), operating under the Ministry of Industry, Trade, and Tourism, which will hold the responsibility of accrediting startups. ENISA will ensure that these enterprises meet all stipulated criteria and will facilitate the planned support.

In the forthcoming sections, we will dissect the key facets of this new law to provide a comprehensive understanding of its structure and implications. These measures are not merely legislative texts but instruments designed to shape a thriving startup landscape in Spain, fostering growth, innovation, and economic progress.

You can read the full Spain Startup Law text here.

Definition of what is considered a startup

A pivotal aspect of the Spanish Startup Law is its clear definition of what constitutes a startup in Spain, setting the stage for which businesses can avail themselves of the legislative benefits and distinguishing it from other types of company in Spain. To qualify as a startup under this law, a business must be newly or recently established and have its registered office in Spain. It should embody innovation with a technological base, which is to be certified by ENISA (the Spanish funding agency for startups and SMEs). Additionally, such a company must not have distributed dividends and should not be listed on any stock exchange.

The law delineates specific criteria to determine startup eligibility, including:

  • An annual turnover of less than 10 million euros, adjusted from the initial threshold of 5 million euros.
  • An age limit of less than five years from its inception, extended to seven years for companies in sectors like biotechnology, energy, and industry.
  • An innovative and technological orientation.
  • A structure that promotes meritocracy within the organization.
  • Operation within a market niche that was previously non-existent.
  • The potential to enhance efficiency and sustainability in other sectors.
  • The capacity to attract foreign investment and talent.
  • A physical presence with headquarters and the majority of employees based in Spain.
  • While some criteria are quantifiable and objective, the law’s publication is anticipated to provide further clarity on these stipulations as well as the elaboration of additional conditions.

Moreover, the Startup Law adopts a more nuanced approach when assessing a company’s degree of innovation and scalability. Factors such as team competence, training, supplier reliance, technological innovation, and others will be evaluated.

ENISA will not only certify startups but may also collaborate with third-party public or private entities under the new amendments. Furthermore, a provision for positive administrative silence has been introduced—if ENISA does not respond within three months to an application for startup certification, the company will automatically receive a favorable resolution.

This comprehensive definition of startup serves as the foundation for startups to navigate and benefit from the advantages offered by this forward-looking legislation. It underscores Spain’s intent to cultivate an environment that nurtures emerging businesses that are primed for growth and innovation.

Tax advantages 

Central to the Spanish Startup Law is the establishment of a favorable tax climate for emerging businesses—a crucial factor in the ecosystem that can significantly impact the development and genesis of new ventures. Recognizing the influence of tax regulations on entrepreneurship, the law dedicates a substantial portion of its provisions to creating a tax environment that is conducive to startup growth and innovation.

To achieve this, the law eliminates certain bureaucratic hurdles and introduces significant tax benefits aimed at entrepreneurs, workers, and investors involved with startups. These incentives are designed to stimulate investment and facilitate the creation of new companies, fostering a supportive backdrop for those at the forefront of technological and innovative endeavors.

Article 3 of the law outlines specific conditions that legal entities must meet to be recognized as startups and thus be eligible for these tax advantages. The strategic move to lighten the tax burden is expected to act as a catalyst, not only attracting fresh investment into the Spanish startup scene but also retaining and empowering the existing talent pool and entrepreneurial spirit.

The tax incentives laid out in the Startup Law are anticipated to play a pivotal role in enhancing Spain’s competitive edge in the global market, positioning it as an attractive destination for both domestic and international business innovators seeking fertile ground for their groundbreaking ideas.

Corporate Income Tax Benefits

A cornerstone of the Spain Startup Law is the substantial corporate income tax benefits that it extends to qualifying startups, aiming to bolster their financial stability during the crucial early stages of their development. The law strategically reduces the corporate tax rate, which is the primary tax levied on companies’ profits in Spain after deducting allowable expenses from their annual income.

Under this new legislation, startups will see their corporate tax rate in Spain cut from the standard 25% to a more manageable 15% for a maximum duration of four years. This period commences from the first fiscal year in which the startup reports a positive financial result, providing a significant relief to these nascent companies.

In addition to this rate reduction, the law introduces measures to enhance startups’ cash flow and ease their financial burdens. Startups are granted the ability to defer their tax debts for the first two profitable years without incurring interest charges, granting them additional breathing room as they navigate the early challenges of business growth.

The law outlines three specific corporate income tax benefits designed to support startups’ liquidity:

  • The aforementioned reduction in the tax rate to 15% for the first profit-generating year and the subsequent three years.
  • The provision allowing startups to defer payment of their corporate tax debt for twelve months in the first year and six months in the second year of profit, without requiring collateral.
  • An exemption from making installment payments on their tax obligations during these initial two years.

These fiscal incentives collectively create a more conducive environment for startup development, fostering innovation and entrepreneurship by alleviating some of the financial pressures that can stifle growth in the early stages of a company’s lifecycle.

Personal Income Tax Benefits for Employees in Startups

One of the pivotal enhancements introduced by the Spain Startup Law is the improved tax treatment for employees receiving compensation in forms other than cash, such as shares, interests, or stock options. Recognizing that startups often compensate their workforce with equity-based incentives due to limited cash flow, the law has made two significant amendments to benefit both startups and their employees.

Firstly, the law has substantially increased the tax exemption limit for employees who are awarded shares, interests, or stock options as part of their remuneration package. The annual exemption threshold has been raised from €12,000 to an impressive €50,000, which substantially increases the value of equity compensation that employees can receive without incurring immediate tax liabilities.

Moreover, the law introduces a deferral mechanism for taxing the gains derived from such equity awards. Under this new regulation, taxation on earnings from awarded shares, interests, or stock options is deferred until the moment these instruments are liquidated. This could occur during an initial public offering (IPO), upon sale to a third party, or after a period of 10 years has elapsed. This deferral allows employees to participate in the growth of the company without facing immediate tax consequences.

Additionally, the Startup Law addresses a longstanding request from employees of investment companies based in Spain by incentivizing the taxation of carried interest. Carried interest often receives favorable tax treatment in other jurisdictions and is now specifically regulated under this law as employment income. The new legislation includes a 50% reduction in taxable income derived from success fees paid by venture capital firms, subject to meeting certain conditions.

These measures are designed to attract and retain top talent within the Spanish startup ecosystem by making equity compensation more attractive and tax-efficient. By doing so, they not only benefit employees but also provide startups with a competitive edge in recruiting skilled professionals essential for their growth and success.

Tax Benefits for Foreigners

The Spain Startup Law introduces a suite of tax benefits that significantly favor foreign investors and professionals, positioning Spain as an even more attractive destination for international business and remote work. These benefits are particularly tailored to ease the tax burden and simplify the process for non-residents engaging with the Spanish economy.

A key change is the modification of the eligibility criteria for the non-resident income tax (IRNR), often compared to the Beckham Law, which is designed to attract high-earning foreign professionals. Previously, to qualify for this advantageous tax regime, individuals had to demonstrate that they had not been tax residents in Spain for the last 10 years. The new law reduces this requirement to only 5 years, broadening the pool of potential beneficiaries.

Moreover, foreigners can now benefit from the IRNR regime for an extended period of up to 10 years, doubling the previous limit of 5 years. This extended duration is particularly beneficial as it offers a flat tax rate of 24% on income, a substantial reduction compared to the progressive rates that can climb up to 50%. This flat rate represents a significant tax saving for high-income earners and serves as a powerful incentive for foreign talent and investors considering Spain as their new base.

Additionally, under the Startup Law, foreigners are relieved from making fractional payments of the IRNR and are granted the option to defer this tax during their first two years of generating a positive economic outcome in Spain.

Encourages Investing in Startups in Spain

The Spain Startup Law is designed to create a fertile ground for investments in innovative and fast-growing startups, offering a series of measures that incentivize both domestic and international investors to channel capital into the Spanish startup ecosystem. It is one of the investments allowed to obtain the Spain investor visa.

One of the pivotal incentives introduced by the law is the enhancement of the personal income tax deduction for investments in new or recently established companies. The deduction rate has been amplified from 30% to 50%, thereby providing a more attractive tax break for investors. In conjunction with this, the maximum base for this deduction has been escalated from €60,000 to €100,000 annually, which represents a substantial increase in the potential tax relief for investors.

Additionally, the law extends the period during which investors can subscribe shares or interests in startups. This timeframe has been extended from three to five years following a company’s incorporation. For certain categories of startups that are deemed particularly innovative or strategically important, this period may be further lengthened to seven years, offering investors more flexibility and opportunity to support startups during their critical growth phases.

The law also aims to streamline the investment process by providing clearer regulations that afford greater legal certainty to investors. This is especially pertinent for those looking to invest in technology companies that are poised for rapid expansion. The introduction of specific tax incentives further eases the path for startups seeking capital by making investment more financially appealing.

For foreign investors, there is an additional procedural requirement: they must obtain a non-resident identification number (NIE) to invest in Spanish startups. This step is part of ensuring compliance with Spanish regulations while opening doors for international capital that can contribute significantly to the growth and innovation within Spain’s startup landscape.

Eager to take advantage of Spain’s Startup Law? Let Lawants streamline your company’s formation process. We’re here to ensure your startup not only complies with the new regulations but also enjoys all the benefits the law offers.

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Modification of Residence Permits for Entrepreneurs

The Spain Startup Law introduces a significant reform in the immigration process by modifying the residence permits for entrepreneurs, investors, and key employees. This measure is designed to simplify their stay in Spain, thereby enhancing their ability to contribute to the startup ecosystem’s growth.

Under the new law, recipients of these residence permits are granted a five-year period to benefit from the Non-Resident Income Tax (IRNR), with the requirement for obtaining this status now reduced from the previous ten years of non-fiscal residency in Spain to just five years. This change significantly eases the path for foreign entrepreneurs and investors who are considering Spain as a base for their innovative ventures.

To qualify for a residence permit for entrepreneurs, applicants must fulfill certain criteria. The law defines an entrepreneurial activity as one that is innovative or of special economic interest to Spain. An innovative activity is characterized by a business that either creates a new product or significantly modifies an existing one before introducing it to the market. The sectors deemed of special interest include renewable energies, ICT, life sciences, agri-food, automotive and mobility, aerospace, transportation and logistics, audio-visual industry, and the chemical industry.

The evaluation process also takes into account the applicant’s professional profile, experience, and involvement in the project. Moreover, the geographic location of the business investment is relevant, as investments in smaller towns could have a higher impact on local economies compared to larger cities like Barcelona, Valencia, or Madrid.

The application process for obtaining an entrepreneurs residence permit can be initiated either within Spain (while on tourist legal status) or from abroad (through a Spanish Consulate). The application is submitted electronically to the UGE (the immigration office responsible for this process) and must include a comprehensive dossier evaluating the applicant’s entrepreneurial credentials:

  • Professional Profile: Detailed information about the applicant’s education, professional experience, and role in the project.
  • Business Plan: The plan must include a thorough description of the project (business activity, start date, location, estimated job creation, etc.), an outline of the product or services highlighting their innovation and value addition to the Spanish economy, market analysis, and financial projections.

In addition to this business-related documentation, applicants must also provide standard residency documentation such as a valid passport, criminal record certificates, proof of sufficient economic means, health insurance coverage, etc. This comprehensive approach aims to streamline the process while ensuring that only genuine entrepreneurs with potential for economic impact are granted residence permits.

Digital Nomad Visa and Remote Worker Visa

The Spain Startup Law marks a significant stride in regulating the burgeoning phenomena of digital nomadism and remote work. The law introduces the much-anticipated Digital Nomad Visa, which caters to individuals who have chosen to live in Spain while working remotely for companies based outside the country. This visa heralds a new era of flexibility for global remote workers and digital nomads, offering them an opportunity to enjoy the Spanish lifestyle without compromising their professional commitments.

The Digital Nomad Visa is structured as a one-year residence permit that can be renewed for two additional years, provided the initial conditions are still met. This ensures continuity and stability for digital nomads, allowing them to plan for a longer-term stay in Spain. Additionally, the government is considering a specific residence permit for individuals employed by foreign companies located in Spain, including those in the audiovisual sector, further broadening the scope of this initiative.

Although the exact requirements for these visas are yet to be officially published, it is anticipated that to qualify as a digital nomad or remote worker under this new law, the income generated within Spain should not exceed 20% of the individual’s total income. This stipulation aims to differentiate between local employment and remote work conducted for foreign entities.

The introduction of this visa provides an attractive alternative to the non-lucrative visa, which has been sought after by many foreigners wishing to reside in Spain. With an application process designed to be swift and efficient—promising an answer within a maximum of 20 days—Spain positions itself as one of the most appealing destinations worldwide for digital nomads and remote workers. To be eligible, applicants must demonstrate a steady income of more than €30,240 from sources outside Spain, which not only ensures financial stability but also paves the way towards permanent residency and citizenship for those who choose to make Spain their long-term base.

Read our detailed guide on hiring employees in Spain.

Easier startup formation process

The Spanish Startup Law 2023 is set to revolutionize the entrepreneurial landscape by streamlining the startup formation process, thereby eliminating some of the bureaucratic hurdles that can stifle innovation. This measure is a beacon of hope for entrepreneurs who have long been entangled in the web of administrative complexities associated with starting a new business.

The law introduces pivotal changes aimed at expediting the legal procedures for creating a startup. While the current process for registering a Sociedad Limitada (SL) is relatively swift, the new law promises further enhancements, although the specifics will only become clear upon its official publication. The commitment to ease and flexibility is evident in the government’s preliminary announcements:

  • One of the standout features is the abolition of notary and registry fees for companies that opt for electronic incorporation. This not only reduces the financial burden on new startups but also encourages a move towards more efficient, digital solutions.
  • Additionally, the law allows for an unprecedented registration timeframe in the Mercantile Registry. Startups using standard statutes can be registered within a mere six hours, while other cases can expect a five working day turnaround. This rapid process is crucial in a fast-paced business world where time is often of the essence.
  • Moreover, during their first three years, startups will benefit from an exemption from company dissolution in Spain due to losses that could cause equity imbalances. This provision offers a critical safety net for startups during their most vulnerable early stages, allowing them to focus on growth and stabilization without the looming threat of dissolution.

By implementing these measures, the Spanish Startup Law 2023 aims to foster a more conducive environment for startups, ensuring that Spain becomes an even more attractive destination for entrepreneurs eager to bring their visions to fruition with greater ease and less bureaucratic friction.

Crowdfunding as a financing method

The Spain Startup Law introduces crowdfunding as a legitimate and innovative financing method for startups, recognizing its potential to democratize the investment process. By embracing this approach, the law facilitates startups in accessing capital through the collective effort of numerous individuals who make small investments. This not only broadens the financial avenues available to startups beyond conventional channels but also empowers the general public to partake in investment opportunities that were previously less accessible.

Crowdfunding stands as a beacon for startups that often face challenges in securing funding through traditional banking systems or venture capital avenues. It provides a platform for entrepreneurs to present their ideas and business models directly to potential investors, thereby fostering a more inclusive and participatory economic environment.

Moreover, this measure could significantly enhance the growth potential of startups by tapping into a wider pool of resources and enabling a larger segment of society to invest in and support innovative business ventures. As such, crowdfunding under the Spain Startup Law is set to be a game-changer, offering an alternative path for entrepreneurs to secure the necessary funds to scale their operations and accelerate their growth trajectories.

Employee remuneration scheme

In an effort to attract and retain top talent within the startup ecosystem, the Spanish Startup Law 2023 has innovated employee compensation by enhancing the appeal of stock options as a remuneration method. Recognizing that competitive and flexible remuneration packages are crucial for startups to secure highly skilled professionals, the law has significantly increased the exemption limit for stock options from €12,000 to €45,000 per year.

This substantial raise in the exemption threshold not only makes stock options a more enticing form of compensation but also aligns with the startups’ need to offer more than just a salary to their employees. By allowing employees to have a stake in the company’s potential success, startups can foster a sense of ownership and alignment of interests between the company and its workforce.

This progressive approach to employee remuneration is set to bolster Spain’s position as a hub for innovative startups by creating an environment where both employers and employees can share in the financial success of their collaborative efforts. It is a strategic move designed to support startups in building committed and motivated teams that are essential for driving growth and innovation.

Read also: Employment Contracts in Spain: Types, Laws and Templates

startup founders discuss the measures of the new startup law in spain

Conclusion

In summary, the Spain Startup Law marks a significant milestone in the nation’s commitment to fostering a robust and innovative entrepreneurial ecosystem. With its strategic measures aimed at simplifying administrative procedures, offering substantial tax incentives, and bridging the gender gap within the startup community, Spain is positioning itself as a beacon for entrepreneurship in Europe.

For those looking to navigate this new legal landscape and capitalize on the opportunities it presents, Lawants offers expert guidance and support. As specialists in the Spanish legislative and business environment, Lawants provides tailored services to help entrepreneurs and investors establish and grow their startups in Spain. With their comprehensive understanding of the Spain Startup Law, Lawants stands as an invaluable partner for any business venture aiming to leverage the advantages of this transformative legislation. Whether you’re an aspiring entrepreneur or an established business looking to expand, Lawants is equipped to ensure that your startup not only complies with the new law but thrives under its measures.

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Starting a business in Spain

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