Preliminary draft of the Startups Law.

The Council of Ministers has approved the preliminary draft of the Startups Law, which brings with it significant tax incentives for entrepreneurs considering setting up this type of technology-based company

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It also promotes incentives to attract foreign investment in these businesses. Following the approval of the preliminary draft, the draft law is currently undergoing the public hearing process.

Who the new Startups Law is aimed at

After presenting the main general outlines of the new text, the Minister of Economic Affairs and Digital Transformation stated that “the law seeks to consolidate Spain as a ‘hub’ for attracting startups.”

The new law aims to establish a common framework for emerging companies, which must meet the following requirements:

– Be less than five years old.

– Have revenue of less than €5 million.

– Be innovative and technology-based.

– Not be listed and not have distributed dividends.

Advantages for startups

The main advantages that these new rules offer startups are:

1. These companies will see their Corporate Income Tax (IS) rate reduced from the general rate of 25% to 15% for a maximum of four years.

2. Deferral of any tax debts they may have.

3. Use of ‘stock options’ to improve employee remuneration, with the exempt amount for this item raised from €12,000 to €45,000 per year.

Other benefits of the new law

The new law will also bring other significant benefits, such as:

1. The creation of a favorable tax regime for so-called “digital nomads,” i.e., teleworkers relocated to Spain, granting them more flexible requirements for becoming subject to Non-Resident Income Tax (IRNR).

2. The creation of a specific visa for people working in Spain for foreign companies.

3. To encourage investment in startups, the maximum base for the tax credit for investment in newly created companies is increased from €60,000 to €100,000 per year. The credit rate rises from 30% to 40%, and the period during which a company is considered newly created is extended to seven years.

4. The elimination of the obligation to make installment payments of Corporate Income Tax and Non-Resident Income Tax, as well as of the requirement for non-resident investors to obtain a foreigner identification number (número de identificación de extranjero).

5. It facilitates the creation of regulatory ‘sandboxes.’

One of the main objectives of the text is to align Spain with the leading countries in technology entrepreneurship. The introduction of this law responds to the growing weight of innovation-based entrepreneurship in Spain, driven by the success of digital companies that grew out of small innovative projects and by access to a vast wealth of knowledge and data on the Internet on which new products and services can be developed.