What tax, labor and administrative incentives does the new "startups" law include?

On December 22, 2022, Law 28/2022, promoting the startup ecosystem and also known as the Startup Law, was published in the Official State Gazette (BOE). This law incorporates a set of tax, commercial, civil, and labor measures, reducing obstacles to the creation and growth of these startups, particularly those related to social security and tax burdens, commercial law requirements, and bureaucratic procedures. It promotes investment in innovation, strengthens public instruments for this purpose, and reinforces public-private partnerships. Furthermore, it aims to encourage entrepreneurs and employees of these types of companies, as well as "digital nomads"—that is, remote workers from all sectors and companies—to establish themselves in Spain.

On December 22, 2022, Law 28/2022 on the promotion of the ecosystem of emerging companies, also called the startup law, was published in the BOE (Official State Gazette). This law incorporates a set of fiscal, commercial, civil and labor measures, reducing the obstacles to the creation and growth of these emerging companies.

The regulation came into force on December 23; however, the main tax and administrative changes will not apply until January 1, 2023.

Startup concept

Emerging companies are defined as legal entities, including technology-based companies, that simultaneously meet the following requirements:

1. It must be a newly created company or a company whose registration of incorporation in the Commercial Registry or the competent Cooperative Registry has not elapsed for more than five years (seven years in the case of companies in biotechnology, energy, industrial and other strategic sectors or that have developed their own technology, designed entirely in Spain).
2. The company must not be the result of a merger, spin-off, transformation, concentration or segregation of companies that are not considered emerging companies.
3. Dividends (returns, in the case of cooperatives) should not be distributed or have been distributed.
4. They must not be listed on a regulated market.
5. They must have their registered office, registered office or permanent establishment in Spain.
6. 60% of the workforce must have an employment contract in Spain. In cooperatives, for the purposes of this percentage, worker-members and working members whose relationship is of a corporate nature will be counted as part of the workforce.
7. They must develop an innovative entrepreneurial project with a scalable business model as defined by law. Tax Department Commentary Spain 2.
8. If they belong to a group of companies within the meaning of Article 42 of the Commercial Code, the group or each of the companies that make it up must comply with the above requirements.

In any case, the incentives provided for startups and their investors will not be applicable or will cease to be applied in the following cases:

1. When any of the above requirements cease to be met and, in particular, at the end of 5 or 7 years from the creation of the company.
2. When the company is dissolved before that deadline.
3. When the entity is acquired by another entity that is not a startup.
4. When the company's annual turnover exceeds 10 million euros.
5. When an activity is carried out that causes significant damage to the environment in accordance with Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020.
6. When the partners holding (directly or indirectly) at least 5% of the capital or the directors have been convicted by final judgment for any of the crimes indicated below as causes of exclusion from the regime.

Furthermore, the benefits of the rule will not apply to emerging companies founded or managed by themselves or by an intermediary, (i) that are not up to date with their tax and social security obligations, (ii) that have been convicted by a final judgment for disloyal administration, fraudulent insolvency, corporate crimes, money laundering or terrorist financing crimes, crimes against the Public Treasury and Social Security, crimes of prevarication, bribery, influence peddling, embezzlement of public funds, fraud and illegal exactions or urban planning crimes, and that have been sentenced to the loss of the possibility of obtaining subsidies; or (iii) that have lost the possibility of contracting with the Administration.

On the other hand, the regulation stipulates that if the notary authorizing the deed, or the commercial registrar or the head of the Register of Cooperatives, believes that the company has been incorporated fraudulently, they will inform the Directorate General for Legal Security and Public Faith and the State Tax Administration Agency (notifying the interested party of this information). Accordingly, it can be understood that companies incorporated fraudulently will also be ineligible for the benefits of the regulation.

The law regulates in detail the procedure for the National Innovation Company SME, SA to validate compliance with the requirements to be considered an emerging company and for its mandatory registration in the Commercial Registry or in the Registry of Cooperatives, as appropriate.

TAX ADVANTAGES FOR START-UP COMPANIES

This law regulates various tax incentives for so-called "start-up companies" and their investors and employees, as well as other measures of varying scope, not related to this type of entity.

I. CORPORATION TAX AND NON-RESIDENT INCOME TAX (WITH PERMANENT ESTABLISHMENT)

1. Tax rates for startups

The tax rate for Corporate Income Tax and Non-Resident Income Tax (for income obtained through an establishment located in Spanish territory) is reduced from the general rate of 25% to 15% in the first four years from the date the taxable base is positive and the status of emerging company is acquired and maintained.

2. Deferral of taxation for a startup

The deferral of tax debt for Corporate Income Tax or Non-Resident Income Tax (for income obtained through a permanent establishment located in Spanish territory) is permitted in the first two years from the date the taxable base is positive, without guarantees or late payment interest, for a period of 12 and 6 months, respectively, from the end of the voluntary payment period for the tax debt corresponding to the aforementioned tax periods.

Requirements:

• Be up to date with your tax obligations on the date of application.
• That the self-assessment is submitted within the established deadline.

Incompatibility:

• The payment of supplementary self-assessments cannot be postponed.

3. Elimination of the obligation to make installment payments

The obligation to make installment payments of Corporate Income Tax and Non-Resident Income Tax (for those who obtain income through a permanent establishment located in Spanish territory) is eliminated for companies that have the status of emerging companies in the 2 years following the year in which the taxable base is positive, provided that the status of emerging company is maintained in them.

II. PERSONAL INCOME TAX

Effective from 1 January 2023, the following changes are introduced in the Personal Income Tax Law (LIRPF):

1. Income from work in kind (delivery of shares or stakes in a startup company) exempt.

The distribution of shares or equity interests to employees of a startup company is exempt from taxation up to a value not exceeding €50,000 per year. The offer must be made within the company's general compensation policy and contribute to employee participation in the company.

If the delivery of shares or equity interests derives from the exercise of purchase options on shares or equity interests previously granted to the workers by the emerging company, the requirements for consideration as an emerging company must be met at the time of the granting of the option.

2. Special rule for valuing in-kind employment income through shares or stakes granted to employees of emerging companies

A special valuation rule is introduced for shares or equity interests granted to employees of startup companies. This rule establishes that the value will be the value of the shares or equity interests subscribed by an independent third party in the last capital increase carried out in the year prior to the year in which the shares or equity interests are delivered. If no such increase has taken place, they will be valued at the market value of the shares or equity interests at the time of delivery to the employee.

3. Special rule for the timing of the recognition of in-kind employment income derived from the delivery of shares or holdings in a startup company

Income from work in kind derived from the delivery of shares or holdings in a startup company that is subject to tax because it exceeds 50,000 euros will be attributed to the tax period in which any of the following circumstances occur:

• That the company's capital be subject to admission to trading on a stock exchange or on any multilateral trading facility, Spanish or foreign.
• That the corresponding share or stake is removed from the taxpayer's assets.

Limit: if within 10 years from the delivery of the shares or holdings none of the circumstances have occurred, the employment income must be imputed in the tax period in which the aforementioned 10-year period has been fulfilled.

4. Income from work obtained from the management of funds linked to entrepreneurship, innovation and the development of economic activity

New regulation of venture capital fund managers through the incorporation into the LIRPF of the fifty-third additional provision.

Tax rating:

Income earned by administrators, managers or employees of venture capital entities or their management entities or entities of their group, and which derives directly or indirectly from shares, stock or other rights, including success fees, that grant special economic rights in any of the following entities, is classified as employment income:

• Closed-end Alternative Investment Funds, included in any of the following categories: venture capital entities (Art. 3 Law 22/2014), European venture capital funds, European social entrepreneurship funds and European long-term investment funds.
• Other investment organizations similar to the above.

Specific tax treatment:

They will be included in the taxable base at 50 percent of their amount, without any exemption or reduction being applicable, when the following requirements are met:

a) The special economic rights of said shares, stocks or rights are conditional upon the remaining investors in the entity obtaining a minimum guaranteed return defined in its regulations or statutes.

b) Maintenance for a minimum period of 5 years of the shares, stock or rights, unless:

• Its transmission occurs mortis causa,
• They are liquidated early, become ineffective, or are lost in whole or in part as a result of a change in the managing entity, in which case they must have been held continuously until such circumstances occur. The provisions of this section shall apply, where appropriate, to the entities holding the units, shares, or rights.

Exception to this specific tax treatment: it does not apply 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 is no regulation on mutual assistance in matters of exchange of tax information.

5. Tax deduction for investment in newly created or recently established companies:

Several modifications are introduced to this deduction, regulated in article 68.1 of the LIRPF:

• The deduction percentage is increased from 30% to 50%.
• The maximum deduction base is increased from 60,000 to 100,000 euros.
• In general, the period for subscribing to shares or stakes is increased from 3 to 5 years, starting from the incorporation of the entity, and up to 7 years for emerging companies.

6. Special tax regime applicable to workers transferred to Spanish territory (impatriate regime)

In this special regime, regulated in article 93 of the LIRPF, the following new features:

• The number of tax periods prior to moving to Spanish territory during which the taxpayer cannot have been a tax resident in Spain is reduced from 10 to 5 years.
• The subjective scope of application of the regime is extended to employees, allowing its application to workers who, whether or not ordered by the employer, travel to Spanish territory to work remotely using exclusively computer, telematics and telecommunications means and systems, as well as to administrators of emerging companies regardless of their percentage of participation in the share capital of the entity.
• The possibility is established to opt for the special regime, that is, to choose to pay tax under the Non-Resident Income Tax, for the taxpayer's children under 25 years of age (or whatever their age may be in the case of disability) and their spouse or, in the case of no marital relationship, the parent of the children, provided that they meet the following conditions:
  • That they travel to Spanish territory with the taxpayer or at a later time, provided that the first tax period in which the special regime applies to the taxpayer has not ended.
  • That they acquire their tax residence in Spain.
  • That they have not been residents in Spain during the 5 tax periods prior to the one in which their transfer to Spanish territory occurs and that they have not obtained income that is classified as obtained through a permanent establishment located in Spanish territory, except as a result of carrying out in Spain an economic activity classified as an entrepreneurial activity and an economic activity by a highly qualified professional who provides services to emerging companies, or who carries out training, research, development and innovation activities, receiving for this a remuneration that represents in total more than 40% of the total business, professional and personal work income.
  • That the sum of the total taxable bases of these other taxpayers (children, spouse or parent) who move to Spain with the taxpayer who originates the application of the special regime, is less than the taxable base of the latter taxpayer.

This special regime will be applicable during the successive tax periods in which, fulfilling such conditions, it is also applicable to the taxpayer who originates the application of the special regime.

III. INCOME TAX ON NON-RESIDENTS WITHOUT A PERMANENT ESTABLISHMENT

Exempt income

Article 7 stated that income exempt from Personal Income Tax (IRPF) for non-resident individuals (Art. 7 LIRPF) also applies to non-resident individuals. It is now also expressly stated that income from work in kind (Art. 42.3 LIRPF) that is exempt from Personal Income Tax (IRPF) is also exempt from Non-Resident Income Tax (IRNR).

IV. OTHER TAX-RELATED MODIFICATIONS

1. Public interest tax benefits

The following events , which are classified as being of exceptional public interest, are modified :

• Tax benefits applicable to the "8th Centenary of Burgos Cathedral 2021" Program. The duration of the support program for this event is modified: it will run from December 1, 2018 to December 31, 2022 (previously it was until November 30, 2021).
• Tax benefits applicable to the "Alicante 2021. Round the World Sailing Race Start" Program. The duration of the support program for this event is modified: it will be from January 1, 2021 to December 31, 2024 (previously it was until December 31, 2023).

2. Obligation to report on Corporation Tax or taxes of an identical or similar nature by certain companies and branches

Directive (EU) 2021/2101 of the European Parliament and of the Council of 24 November 2021 amending Directive 2013/34/EU as regards disclosure of corporation tax information by certain undertakings and branches.

The Directive regulates the obligation to prepare and publish a report on corporate income tax, or taxes of an identical or similar nature, with the aim of promoting transparency and corporate responsibility in relation to corporate income tax paid by multinational companies operating in the European Union. The transposition of the Directive is carried out through an amendment to the Spanish Audit Law, specifically by introducing a new Additional Provision entitled "Obligation to report on corporate income tax or taxes of an identical or similar nature by certain companies and branches," and amending Article 5 so that the audit report indicates whether, in the financial year prior to the year for which the audited financial statements were prepared, the company was required to publish a report on corporate income tax or taxes of an identical or similar nature and, if so, whether that report was published in accordance with the provisions of the aforementioned additional provision.

This additional provision is divided into five sections:

• Companies and branches required to report: The ultimate parent company of a group and companies that are not part of a group, in both cases when subject to Spanish law, must publish a report on corporate income tax when, for two consecutive financial years, their revenue has exceeded €750 million. This obligation will cease when such revenue falls below the threshold for two consecutive financial years. In the case of subsidiaries and branches subject to Spanish law, ultimate parent companies, or companies not subject to the law of a Member State, the report will refer to the parent company or the company that established the branch, when these meet the revenue requirements mentioned in the preceding paragraph.
• Content of the report relating to corporate income tax; taxes of an identical or similar nature: The report shall include a brief description of the nature of the activities, the number of employees, their income, the amount of profit or loss before applying corporate income tax, and the amount of corporate income tax accrued during the financial year in question, calculated as the current tax expenses recognized on the taxable profit or loss for the year by the companies and branches in the tax territory in question, as well as the amount of reserves at the end of the financial year in question. The information shall be presented separately for each Member State where the taxable entity carries out its activities.
• Publication and accessibility: The report will be approved and published within six months of the closing date of the financial year to which it refers and will be filed with the Companies Registry along with the documents comprising the annual accounts. Furthermore, it must be published on the website within six months and be freely accessible for at least five consecutive years.
• Responsibility for the preparation, publication, filing and accessibility of the report relating to corporate income tax or taxes of an identical or similar nature: The members of the governing bodies of the obligated company shall be collectively responsible for ensuring that the report relating to corporate income tax is prepared, published, filed and made accessible.
• Start date for submitting the report relating to IS or taxes of an identical or similar nature: For financial years beginning on or after June 22, 2024.

MEASURES RELATED TO THE PROMOTION AND ENCOURAGEMENT OF SELF-EMPLOYMENT

1. Social security contribution reduction for self-employed workers in emerging companies with multiple jobs.

The beneficiaries will be workers included in the Special Regime for Self-Employed Workers (RETA) for having effective control, direct or indirect, of an emerging company who, simultaneously, work for another employer.

The bonus will be 100% of the fee corresponding to the minimum base established, at any given time, in general in the RETA and the time of its enjoyment, provided that the situation of multiple activity persists, will be at most the first 3 years counted from the date of registration that occurs as a result of the start of the self-employed activity due to the dedication to the emerging company.

It should be borne in mind that this benefit will expire when the situation of multiple employment ceases and that it will not restart if a new situation of multiple employment occurs.

2. Measures to attract and retain foreign talent: International teleworking

Law 14/2013, of September 27, on support for entrepreneurs and their internationalization, is amended, highlighting the creation of a new category of visa and residence permit for nomadic workers: the visa for international teleworkers.

Under the new regulations, nationals of a third country authorized to remain in Spain to carry out an activity through the exclusive use of computer, telematics and telecommunications systems and means will be considered to be in a situation of residence for international teleworking :

• Labor, taking into account that the holder of the authorization may only work for companies based outside the national territory.
• Professional, in which case you may work for a company located in Spain, provided that the percentage of said work does not exceed 20% of your total professional activity.

Likewise, qualified professionals who can prove they are graduates or postgraduates from prestigious universities, vocational training and prestigious business schools, or who have a minimum of 3 years of professional experience, may apply for the teleworking visa or authorization

The specific requirements that must be met (in addition to the general requirements of Article 62 of Law 14/2013) are the following:

• That the company or group of companies with which the worker maintains an employment or professional relationship has been carrying out its activity in a real and continuous manner for at least 1 year.
• Documentary proof is required that the employment or professional relationship can be carried out remotely.
• In the case of an employment relationship, proof of its existence between the worker and the company not located in Spain must be provided for at least the last 3 months prior to the submission of the application, and documentation must be submitted that validates that said company allows the worker to perform the work activity remotely.
• In the event of the existence of a professional relationship, it must be proven that the worker has a commercial relationship with one or more companies not located in Spain for at least the last 3 months, as well as the documentation that proves the terms and conditions under which the professional activity will be carried out remotely.

The international teleworking visa allows entry and residence in Spain for up to one year while the holder works for themselves or employers anywhere in the world. Furthermore, foreigners who are legally residing in Spain (e.g., those studying in Spain) or who entered using the international teleworking visa (and who, for example, are about to use up that year of residence and wish to remain in Spain) may apply for a residence permit for a maximum period of three years, renewable for two-year periods, and may obtain permanent residency after five years.

In addition to the above, and with the purpose of attracting and retaining talent, the validity of residence permits for investors  and for research  , while the validity of residence permits for entrepreneurs  and for intra-company transfers.

Furthermore, the procedure and definition of entrepreneurial activity provided for in Chapter III of Section 2 of Law 14/2013 are modified , in order to improve and make more flexible the procedure for processing residence permits for this group, and the passport is allowed to be a sufficient document to register with Social Security during the first 6 months of residence or stay in the categories regulated by Section 2 of Law 14/2013.

In conclusion, the seventeenth and eighteenth additional provisions of Law 14/2013 are amended to extend , firstly, from 12 to 24 months the residence permit granted to students who have at least a graduate's degree, allowing them to seek suitable employment related to their level of studies or to undertake a business project . Secondly, the validity period of the residence permit for internships is increased from 6 months to 1 year , and the total period resulting from the sum of the initial permit and its extension is increased from 1 year to 2 years.

You can contact this professional office for any questions or clarifications you may have.

Warm regards,

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MGI Àmbit

A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.

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