Requirements and Procedures for Accessing the Benefits of the Startup Law in Spain

In July 2023, the Spanish legislator issued Order PCM/825/2023 dated 20 July. Commonly referred to as the Order, it delineates the criteria and procedures for certifying startups in alignment with the recently enacted Law 28/2022, the Startups Law.

This article provides an in-depth analysis of the Order, focusing on its evaluation criteria for innovative and scalable entrepreneurship that is essential for startups aiming to benefit from the Startups Law’s special tax regime and other advantages. Furthermore, we summarize the procedural steps companies must follow to access the specialized regime designed explicitly for startups.

Before delving into these concepts, it is crucial to note that the Spanish legislation defines a startup as any legal entity that concurrently satisfies the conditions outlined in Article 3 of the Startups Act and has received certification from the Empresa Nacional de Innovación, S.M.E., S.A. (ENISA).

Article 3 of the Order emphasizes the necessity of presenting documentary evidence for each requirement (https://www.mariscal-abogados.com/new-startups-law-in-spain/). It further develops the criteria to assess the innovation and scalability of the venture.

Startup Law requirements

Innovative character

Article 4.2 of the Order defines an innovative project as one that a company develops when its purpose is to solve a problem or improve an existing situation through the development of products, services or processes that are new or substantially improved compared to the state of the art and which entails a risk of technological, industrial or business model failure.

The general criteria for identifying an innovative project include:

• The presence of technological innovation is eligible for protection under industrial property rights (excluding trademarks and trade names) or other rights, including safeguarded software or know-how.
• The availability of an optional report submitted to the Spanish Patent and Trademark Office (OEPM) for evaluating this aspect.
• The innovation in products, processes, services or business models.

The Order introduces presumptions of innovation. In this context, the applying startup will fulfil the innovation criterion if it has satisfied any of the following conditions:

• Allocate a minimum of 15% of their total expenditure to technological R&D&I activities in the preceding two financial years or the previous financial year for companies less than two years old
• Receive public aid for R&D&I projects or innovative entrepreneurship in the past three years without facing revocation
• Obtain a reasoned report from the Ministry of Science and Innovation emphasizing their high degree of innovation
• Benefit from Social Security contribution bonuses for hiring research personnel
• Attain either the Innovative SME seal or certifications issued by AENOR, including:
  • Young Innovative Company Seal
  • Innovative SME Seal
  • R&D&I Management Seal
  • Innovative SME

Scalability

Concerning the criterion of scalable entrepreneurship, the Order lacks a precise definition for this concept. It solely outlines the requirements for evaluation, including:

• Market attractiveness of the product or service
• Development stage of the enterprise
• Business model
• Level of competition
• Team expertise and training
• Clientele type
• Nature of contracts with suppliers, service providers, and tenants.

The Order introduces a presumption of scalability for startup applicants who have secured one or more credit policies with ENISA within the last three years, provided that at least one policy remains active.

Startups Act Procedure

The certification application by the interested company must be submitted through the electronic register on the ENISA website, accompanied by the following documents:

• Tax ID number of the applicant startup
• Deed of incorporation
• Annual accounts for the last financial year
• Certificate of current tax payments
• Certificate of current Social Security payments
• Affidavit of compliance with the Startup Law
• Business plan

ENISA commits to responding within a maximum of 3 months. The administrative silence will be considered a positive response.

The initiation date for the benefits under the Startups Act will be the certification date of the applicant company as an emerging company or startup.

For additional details on the requirements and procedures for accessing the benefits of the Startups Act,