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 Startups 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 Startups Law’s objective is to establish a specific regulatory framework to support the creation and growth of startups in Spain and develop a production model based on R&D.
Why a Startups Law in Spain?
- Startups assume a high risk due to their highly innovative content and uncertainty about the success of their business model, which blocks financing at the early stages
- International competition makes it difficult to attract foreign capital and talent
For these reasons, startups needed a differentiated treatment compared to companies with conventional business models. The new law will recognize benefits and incentives for technology-based startups, considering their specificities and incorporating gender equality across the board.
Objectives of the Startups Law
- Promoting the creation and relocation of startups in Spain
- Attracting talent and international capital for the development of the Spanish business ecosystem of startups
- Stimulating public and private investment in startups
- Favouring the interrelation between companies, financing agents and territories to increase the chances of success for startups with particular focus on rural areas
- Eliminating existing gender gaps in the Spanish startup business ecosystem
- Promoting innovative public procurement with startups
- Promoting participatory monitoring of the evolution of the Spanish startup business ecosystem
Who can benefit from the Startups Law?
The startups 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 startups
How long will Startups be able to benefit from the new law?
Startups 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 startup or carries out any activity that harms the environment.
Benefits of the Startups 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 Startups 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
- Startups will not incur in the cause of dissolution due to losses of article 363 of the Corporate Enterprises Act (no dissolution of the startup if losses reduce its net worth to less than half of its share capital)
- Startups 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 Startups 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 startups without needing a regular work visa.
With the entry into force of the Startups Law (expected by the summer), Spain will become one of the most attractive countries to create a startup in the European Union.
Do you want to create a startup in Spain or invest in a Spanish startup?
This article is not considered legal advice