On December 22nd the Official Spanish Gazette (BOE) published Law 28/2022 dated on December 21st to foster the start-up ecosystem in Spain, also known as the new “Start-up Law”.
The most relevant tax, commercial and labour measures introduced in the law are summarised below:
1.- Tax summary of start-ups and their investors and workers
Start-ups are defined as emerging companies that simultaneously meet the following requirements:
- Companies with a maximum age of 5 years since their incorporation, and up to 7 years for biotechnology, energy, industrial and other strategic sectors or companies that have developed their own technology, designed entirely in Spain;
- To not distribute or have distributed dividends;
- To establish its registered office, headquarters or permanent establishment in Spain;
- To not be listed on a regulated market;
- To have 60 % of the workforce with an employment contract in Spain. In case of cooperatives, for the purpose of the aforementioned percentage, worker-members and worker-partners whose relationship is of a corporate nature shall be counted as part of the workforce.
- To develop an innovative entrepreneurial project with a scalable business model.
- To not being aroused from a merger, spin-off or conversion of companies that are not deemed as start-ups.
- If they belong to a group of companies, as established in Article 42 of Code of Commerce, the group or each of the companies that compose it must comply with the above requirements.
The condition of start-up must be applied before Empresa Nacional de Innovación. SME, S.A. (ENISA), which will assess the compliance with the requirements referred to in the previous section within a period not higher than three months. Likewise, in the absence of an express resolution, the aforementioned application will be understood as accepted by positive administrative silence.
Such condition of start-up shall be recorded on the company’s registration sheet in the Mercantile Register.
Notwithstanding the above, companies considered to be emerging, which do not fulfil one of the following situations, will be excluded:
- To not be up to date with their tax and Social Security obligations;
- To be convicted by a final judgment for an offence of unfair administration, punishable insolvency, corporate offences, money laundering offences, offences against Tax Department and Social Security, among others;
- To be sentenced to the loss of eligibility for public subsidies or grants;
- To lose the public procurement right.
In the same way, the benefits provided for in the Law will cease to be applied to start-ups when any of the following events occur:
- Failure to meet any of the requirements for start-ups mentioned in previous sections;
- When 5 to 7 years have elapsed since the creation of the start-up;
- By acquisition by another company that is not considered start-up;
- The annual turnover of the company exceeds the value of ten million euros (€10.000.000);
- The company’s activity generates significant damage to the environment;
- Shareholders who, directly or indirectly, hold at least 5% of the share capital or directors of the emerging company who have been convicted by final judgement for the offences referred to in the previous sections;
- Termination of the company.
1.2.- Benefits in the Corporate Income Tax (CIT)
- The general tax rate is reduced from 25% to 15% for emerging companies. It will be applicable for four consecutive tax periods, being the first one with a positive taxable base, as long as the emerging company condition is maintained.
- It is provided the possibility to defer the payment of the CIT tax debt of the first two tax periods in which the taxable base is positive, without the need to provide guarantees and without the accrual of late payment interest. The deferral will be for twelve and six months, respectively.
1.3.- Taxation for workers and investors
1.3.1.- Stock Optionstreatment
The taxation for Stock Options or purchase of participations or shares of start-ups granted to their workers is improved as following:
- The Personal Income Tax exemption for the delivery of shares/participations or Stock Options is increased from the general 12.000 euros to a maximum of 50.000 euros per year;
- A special valuation rule is established for these shares/participations, being the value used by an independent third party in the last capital increase carried out in the year prior to the allocation of the income. Failing this, the general rule of market value at the time of delivery to the employee shall apply.
1.3.2.- Deduction for investment in new or recently created companies
- The Personal Income Tax deduction for investors in new or recently created companies is increased from the current 30% to 50%, extending the maximum base from 60.000 to 100.000 euros;
- The period for subscribing shares or participations is generally extended from three to five years, starting from the incorporation of the company and up to 7 years in certain cases.
- If new or recently created companies meet the requirements to be considered as start-ups, their founding shareholders may apply this deduction regardless of their participation percentage in the company’s share capital.
1.3.3.- Regimen for workers moved to Spanish territory
In order to attract foreign talent to Spain, the tax regime for workers moved to Spanish territory has been made more flexible, allowing them to acquire their tax residence by paying Non-Resident Income Tax during the year of change of residence and the following five tax periods instead of Personal Income Tax.
The main measures to be highlighted are listed below:
- The tax periods prior to the employee’s move to Spanish territory during which the employee must not have been a tax resident in Spain are reduced from 10 to 5 years;
- The subjective scope of application is extended to the following cases:
- Postings not ordered by the employer, when the work activity is carried out remotely, through exclusive use of computer, telematic and telecommunication means and systems;
- Persons who carry out an entrepreneurial economic activity in Spain;
- Highly qualified professionals who provide services to start-ups whose remuneration represents together more than 40% of their total income;
- The regime continues to apply to those who move to Spain as a result of acquiring the post of director of a company.
- Work income in kind provided for in article 14.1 a) of the Non-Resident Income Tax Law will be exempt;
- The possibility of opting for the special regime is regulated for children under 25 years of age of the taxpayer and their spouse or parent of the children, provided that the following requirements are met:
- They move to Spanish territory with the taxpayer to whom the special regime applies or at a later date, provided that the first tax period in which the regime applies to them has not ended;
- Acquisition of tax residence in Spain;
- To not have been resident in Spain during the five tax periods prior to their posting and who do not obtain income that would be classified as gained through a permanent establishment located in Spanish territory.
- That the sum of the taxpayers’ taxable income in each of the tax periods in which this special regime applies is lower than the taxpayer’s taxable income which gives rise to the application of this regime.
2.- Commercial-related measures
A relaxation of certain formal and corporate aspects of start-ups is foreseen, among which we highlight the following:
- The term for the registration of start-ups and all their corporate resolutions is reduced to five working days, although the general rule is fifteen working days.
- Shareholders’ agreements in start-ups in the form of a limited liability company are registrable and may be published in the register if they do not contain clauses contrary to Law.
- Start-ups shall not be dissolved for losses that reduce their net equity to less than half of their share capital, provided that it is not appropriate to file for bankruptcy proceedings, until three years have elapsed since their incorporation.
- Treasury stocks in start-ups that are limited liability companies: The general shareholders meeting may authorise the acquisition of own shares, up to a maximum of 20 % of the share capital, to be delivered to directors, workers or other partners of the company, for the sole purpose of implementing a remuneration plan.
3.- Labour-related measures
It is provided for, among others, a 100% rebate on contributions for self-employed workers in start-ups in a situation of multiple jobs, applicable during the first three years after registration in the Special Regime for Self-Employment as a result of the beginning of self-employed activity in the start-up.
4.- Tax regimen for carried interest
In line with the regulations in other European countries, the so-called carried interest, i.e., the additional remuneration -direct or indirect- of workers, managers, directors, executives or managers of certain entities and/or closed-end collective investment funds, including venture capital companies and funds, will be considered as employment income, with a 50% reduction in the taxable base for personal income tax.
The aforementioned reduction will be subject to the fulfilment of the following requirements:
- The special economic rights must be conditioned upon the rest of investors reaching a minimum return guaranteed in the regulations or bylaws;
- The holder of the participations, shares or rights must keep them in his equity for a minimum period of five (5) years, except for certain exceptions, such as mortis causa transfer, early liquidation, among others.
The above reduction will not be applicable when the special economic rights come -directly or indirectly- from an entity resident in a country or territory classified as a non-cooperative jurisdiction or with which there are no regulations on mutual assistance in the exchange of tax information.
The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before taking specific measures or actions.