Benefits applicable to investments in emerging companies (Startups)

The exponential growth in the last decade of technology-based start-ups, better known as “startups”, has led the legislator to create a specific regulation to boost this type of business, which is currently estimated to employ more than 150,000 people in Spain. This regulation aims not only to provide legal cover for these businesses, setting up a secure legal framework, protecting their investors, but also to encourage new investments by approving a package of fiscal measures that will undoubtedly bring in new investments.

This is the legal framework in which the new Law 28/2022 on the promotion of the start-up ecosystem, the tax aspects of which are summarised below, is being implemented. However, of vital importance is the Law’s definition of “start-up companies”, which will delimit the projects to which the tax benefits can be applied: However, of vital importance is the Law’s definition of “start-up companies”, which will delimit the projects to which the tax benefits can be applied:

Be less than 5 years old (7 in the case of biotech, energy, industrial or other strategic sectors)
It does not stem from restructuring of non-emerging companies.
Have a registered office, head office or permanent establishment in Spain
60% of its staff should have employment contracts in Spain.
Have an innovative entrepreneurship project with a scalable business model, which must be certified by ENISA (Empresa Nacional de Innovación SME SA).
Cannot distribute dividends or be listed on secondary markets
If it belongs to a group of companies, the rest of the group must meet the requirements to be emerging.
Registration in the Commercial Register or Register of Cooperatives is required as a start-up company under the Startups Act.

But what are the benefits applicable to these companies? We can group them into different pillars:

For the company:

Reduction of the corporate income tax rate to 15% for 4 tax periods
Special facilities to defer tax debts for up to 2 years without providing guarantees and exemption from the obligation to submit instalments within the same period.
100% rebate on the minimum self-employed contribution for workers who are self-employed due to their dedication to a start-up company and who are working as an employee. The bonus applies for 3 years.
Reduced requirements for start-ups to access public aid.
Possibility of acquiring treasury shares (maximum 20% of the capital) to implement remuneration plans in the start-up, granting the treasury shares to directors, employees or collaborators, subject to certain requirements.
They are prevented from being subject to dissolution during the first 3 years.
Reduction of notary and registry costs and faster registration of the company in the Commercial Register.

2. For the investor:

Deduction in the IRPF quota for the investment made, which is extended to foreign companies, of up to 100,000 euros and with a limit of 50% of the investment during the first 5 years.
If the company is Spanish, the limit of not owning more than 40% of the share capital is eliminated and the investment limit is extended to 7 years from its creation.
Increase of the personal income tax exemption up to 50,000 euros in the delivery of shares or holdings to employees.
Special rules for temporary imputation of non-exempt income in case of delivery of shares under certain circumstances.
Bonus of 50% of the “carried interest” or minimum return of a closed nature obtained by the investor/employee under the fulfilment of certain requirements (minimum guaranteed return must be defined in the entity’s Articles of Association, maintenance of the shares or units for at least 5 years, etc.).

3.- Flexibilisation of the regime for impatriates associated with an entrepreneurial entity:

It does not require a posting ordered by the employer, which also applies to a worker who voluntarily moves to carry out an “entrepreneurial” activity in Spain or to provide highly qualified services (training, research and innovation) without the remuneration representing more than 40% of the total income obtained.
Persons moving to Spain on the occasion of their appointment as company director are allowed to be direct or indirect owners of the company, regardless of their shareholding, except in the case of asset-holding companies, where they may not hold more than 25% of the share capital.
The procedures are simplified for foreign natural person investors to make their investment in Spain without having to reside there: it is not necessary to obtain a NIE.

4.- Facilities for entry and residence in Spain for certain groups;

international teleworkers, investors, entrepreneurs, highly skilled professionals and researchers are offered longer residence permits: 3 years with an option to renew for an additional 2 years and entry requirements are relaxed.

Finally, together with the Law on Startups, two novel figures are implemented: the figure of the student Startup through which it is intended to promote entrepreneurship among students, being able to carry out economic transactions and issue invoices, with a maximum duration of 2 school years. The Spanish Agency for the Supervision of Artificial Intelligence is created, under the Ministry of Economic Affairs and Digital Transformation, which has among its aims the dissemination, training, development and responsible, sustainable and reliable use of artificial intelligence.