The long-awaited Law No. 28/2022 on Fostering the Ecosystem for Start-up Companies, better known as the Start-up Law, has been published on 21 December and came into force with its publication in the BOE the following day. This regulation has the following main objectives:
- Encouraging the creation and growth of innovative and fast-growing technology-based companies (start-up companies or “start-ups”).
- Attracting talent and investment by creating a favourable environment.
- Attracting specialized investors or “business angels”.
- Promoting the development of hubs for attracting companies and investors in peripheral cities and in rural areas.
- Promoting investment in innovation, boosting available public support resources and strengthening public-private partnerships.
It is important to point out that in order to be able to benefit from the new features introduced by this law, it will be compulsory, as an essential pre-condition, to obtain the start-up company certification issued by the National Innovation Enterprise (ENISA).
This entity will assess whether the company meets all of the requirements: it must be newly or recently created, be independent, have its registered office or permanent establishment in Spain, have at least 60% of its workforce in Spain, be innovative, and it must not be a listed company, not have distributed dividends and not have a turnover of more than ten million euros.
Given the need for a regulation adapted to the intrinsic characteristics of these companies, the bill introduces a series of new features in the fiscal, corporate, civil and labour fields, which will be analyzed from three perspectives: that of the start-up itself, that of workers and that of investors.
Start-ups will enjoy significant tax and legal benefits
As we mentioned in the introduction, the company must apply for start-up company certification. Once the application has been made, ENISA will have a maximum term of three months to issue the corresponding certification, and if no decision is made within that period, the outcome will be deemed positive by reason of administrative silence. [1]
Once ENISA issues the certification, the start-up company will have the right to apply the following incentives:
Firstly, a reduction in the corporate tax rate from the current 25% to 15%, for a maximum of four years from the first year in which the taxable income is positive and provided that start-up status is maintained, bearing in mind that after five (or seven) years the start-up will no longer be eligible for the benefits of the law.
Secondly, the general meeting of the start-up may authorize the acquisition of its own shares or treasury stock up to a maximum of 20% of the capital for the sole purpose of implementing a remuneration plan.
Thirdly, all capital companies are subject to dissolution for losses that reduce their net worth to less than half of the share capital. A change established by the bill is that start-up companies will be exempt from those grounds for dissolution until three years have elapsed since the company’s incorporation.
Interesting incentives for workers to attract talent
With the aim of attracting talent and providing for an attractive and appropriate remuneration policy, taxation of the stock option regime has been improved. The tax exemption, which was 12,000 euros, has been raised to 50,000 euros per year. In fact, an important new feature of the new law is that it will only be taxable when the stock is sold or the company goes public, or otherwise, ten years from receipt of the shares or holdings.
Moreover, with the aim of attracting foreign talent, this bill improves access to the special tax scheme on personal income tax for workers posted to Spanish territory: the number of tax periods prior to the posting to Spain during which the taxpayer must meet the requirement of not having been a tax resident in Spain is reduced from ten to five years.
Furthermore, workers included in the Special Social Security Scheme for Self-Employed Workers (RETA) who have effective control of a start-up company while also working as employees for another employer will have a 100% rebate on the RETA contribution for three years.
Improvements in deductions for domestic and foreign investors
The deduction for investment in new or recently created companies is increased, raising the deduction rate from 30% to 50% of the amounts paid for subscription of shares or holdings and increasing the maximum base from 60,000 to 100,000 euros per year.
In addition, the period for applying this deduction to the subscription of shares or holdings is increased from three to five years from the company’s incorporation, and up to seven years for certain categories of start-up companies, such as biotechnology, energy or industrial companies.
Tax relief for successful management of venture capital firms
On the other hand, if the investment in a start-up is made through an investment fund, there will be a team of people in charge of managing the fund. It is very common for them to be remunerated with a success fee (carried interest), notwithstanding other types of fees.
In line with regulation in other European countries, the tax classification of the remuneration obtained for successful management is regulated. In this regard, carried interest will be considered earned income, although with 50% exempt from taxation, with the aim of bringing taxation into line with that of other European countries.
In conclusion, the approval of this bill represents a decisive step forward in a sector that has been calling for a specific regulation for years, especially considering that Spain is the fourth European country in terms of the number of start-ups, with 11,100 companies employing 140,000 people, according to the PwC report ‘La contribución socioeconómica de South Summit en España’ (the socio-economic contribution of South Summit in Spain).
By Alberto López Cazalilla, Lawyer at ELZABURU
[1] Serial entrepreneurs, those who have set up several companies of this kind, can only benefit from the law up to a maximum of four times.
