On December 10, 2021, the Spanish Council of Ministers approved the Draft Law on the Promotion of the Ecosystem of emerging Companies, known as the Start-ups Law. With this regulation, Spain is at the forefront of Europe in supporting the ecosystem of innovative technology-based companies and attracting investment and talent.
The Start-ups Law’s objective is to establish a specific regulatory framework to support the creation and growth of start-ups in Spain and develop a production model based on R&D.
Why a Start-ups Law in Spain?
- Start-ups assume a high risk due to their highly innovative content and uncertainty about the success of their business model, which blocks the financing at the early stages
- International competition makes it difficult to attract foreign capital and talent
For these reasons, start-ups needed a differentiated treatment compared to companies with conventional business models. The new law will recognize benefits and incentives for technology-based start-ups, considering their specificities and incorporating gender equality across the board.
Objectives of the Start-ups Law
- Promoting the creation and relocation of start-ups in Spain
- Attracting talent and international capital for the development of the Spanish business ecosystem of start-ups
- Stimulating public and private investment in start-ups
- Favouring the interrelation between companies, financing agents and territories to increase the chances of success for start-ups with particular focus on rural areas
- Eliminating existing gender gaps in the Spanish start-up business ecosystem
- Promoting innovative public procurement with start-ups
- Promoting participatory monitoring of the evolution of the Spanish start-up business ecosystem
Who can benefit from the Start-ups Law?
The start-ups must simultaneously meet the following conditions:
- Age of the company: be newly created or have a maximum of 5 years, 7 years in the case of biotechnology, energy, industrial or other strategic sector companies
- Not having arisen from a merger, demerger, or transformation operation
- Having its registered office or permanent establishment in Spain
- 60% of the workforce must have an employment contract in Spain
- To be considered an innovative company, its objective being to solve a problem or improve an existing situation by developing new products, services, or processes.
- Not have been listed on a regulated market and not having distributed dividends
- Not reaching a turnover of more than 5 million euros per year
- Entrepreneurs may benefit from this regime up to 3 times, with three different start-ups
How long will Start-ups be able to benefit from the new law?
Start-ups will benefit from this scheme until:
- They no longer meet any of the previous requirements
- They are acquired by another company that is not a start-up or carries out any activity that harms the environment.
Benefits of the Start-ups Law
- The initial taxation is softened, reducing the corporate tax rate from the current 25% to 15%, for a maximum of 4 years
- The deferral payment of tax debts is extended during the first two years of activity
- Given the difficulty of remunerating highly qualified workers, the Start-ups Law eases the generation of treasury stock in limited companies
- In addition, the current tax exemption available to conventional companies for the delivery of free shares to workers is extended from €12,000 to €50,000
- Start-ups will not incur in the cause of dissolution due to losses of article 363 of the Corporate Enterprises Act (no dissolution of the start-up if losses reduce its net worth to less than half of its share capital)
- Start-ups will be able to register digitally with standard statutes, and their incorporation will take 6 hours or a maximum of 5 days with personalized regulations.
Benefits for foreign investors
The Start-ups Law grants foreign investors numerous advantages
- Individual non-resident investors: They will not need to obtain a Foreigner’s Identification Number (NIE in Spain). They will acquire an electronic application for the Tax Identification Number (NIF in Spain), an essential requirement to materialize and document the investment
- Support for the equivalence of documents issued in other countries. Notarial certificates issued by foreign notaries must not comply with the Spanish legal system
- The creation of a one-year international remote working visa will allow foreigners to reside in Spain and work remotely for their start-ups without needing a regular work visa.
With the entry into force of the Start-ups Law (expected by the summer), Spain will become one of the most attractive countries to create a start-up in the European Union.
Do you want to create a start-up in Spain or invest in a Spanish start-up?
This article is not considered legal advice