The Spanish legislator cannot ignore the growing influence of start-ups and digital companies in both the national and global economic context. For this reason, in order to promote the creation of this type of company in Spain, the Draft Law for the promotion of the start-up ecosystem is currently being processed in Parliament.
Start-ups have a specific legal status, given that they have specific characteristics that make it difficult to fit them into the traditional regulatory framework. Specifically, they are legal entities that are constituted either in accordance with Law 14/2011, of 1 June, on Science, Technology and Innovation when they are technology-based or those created in accordance with the text of this Bill. In any case, they can only be considered to be start-ups when they meet all the requirements contained in this Draft Bill.
It is important to highlight this differentiated treatment with respect to other companies, since the characteristics of start-ups are: the high risk derived from their high innovative content; the uncertainty as to the success of their business model; the potential for exponential growth; their dependence on attracting and retaining highly qualified and highly productive workers; and, finally, their exposure to strong international competition.
The purpose of such companies is to solve a problem or improve an existing situation by developing products, services or processes that are new or improved compared to the state of the art and involve a risk of technological or industrial failure.
This standard offers a series of advantages for start-ups as long as they meet the requirements set out in Title I of the standard. Specifically, these requirements are:
- the age of the company, which must be newly created or a maximum of five years after its incorporation or seven years in the case of the biotechnology, energy, industrial or other sectors, depending on the state of technology, its independence, and
- the independence of the company
- the registered office or permanent establishment must be located in Spain
- a majority percentage of the workforce must be employed in Spain,
- the innovative nature of the company
- it must not be listed and must not have distributed dividends
- it must not have a turnover of more than five million euros.
To accredit compliance with these requirements, the regulation provides for “formal accreditation of innovative entrepreneurship” by the National Innovation Company (ENISA), which “will have the necessary resources to deploy a simple, fast and free procedure for the entrepreneur”. This “accreditation, which is unavoidable in order to be eligible for the tax and social benefits established in this law, will be effective before all the administrations and entities that must recognise them”.
When there is an accreditation recognising the existence of a start-up company, this company can enjoy the benefits provided for in this Bill. Specifically, the following advantages are to be highlighted:
- The reduction of the tax rate for Corporate Income Tax and Non-Resident Income Tax to 15% in the first four years after the taxable base is positive.
- The exemption from taxation of stock options increases to 50,000 euros per year in the case of delivery by start-ups of shares or holdings derived from the exercise of call options, making the conditions for the generation of treasury stock in limited liability companies more flexible.
- The maximum deduction base is increased for investment to 100,000 euros per year and the deduction rate is now 50%. In this regard, the period for which a company is considered to be newly created is increased to 5 years, in general, or to 7 years for companies in certain sectors.
- The deferral of the tax liability for corporate income tax or non-resident income tax in the first two years after the taxable income is positive, without guarantees or interest for late payment, for a period of 12 and 6 months respectively.
- The elimination of the obligation to make payments in instalments of corporate income tax and non-resident income tax in the two years following the year in which the taxable income is positive.
In addition to tax incentives, in order to facilitate immigration of economic interest to Spain, administrative benefits are offered for obtaining residence and work permits. In this case, it is interesting to note that the administrative processing times for these people are backed by positive silence at the end of the process, among other advantages.
- The facility to reside and work in Spain for 5 years for those who move to work in these companies, as well as to benefit from the special tax regime and pay non-resident income tax.
- The elimination for 3 years of double Social Security contributions for entrepreneurs who simultaneously work for an employer as an employee.
- The right to family reunification is reinforced, granting advantages to the relatives of the person who comes to work in an emerging company.
These benefits end when the company has managed to stabilise or the time deemed reasonable to find a sustainable business model has elapsed. However, this rule does not limit the granting of benefits to a single case, as it is possible to reapply when business projects fail. As these are high-risk ventures, the door cannot be closed to further attempts and opportunities.
Having made this brief summary of the Draft Law, it is worth mentioning the reflection made by Prof. Dr. Benito Arruñada, Professor at the Pompeu Fabra University and Associate Researcher at the Foundation for Applied Economics Studies (Fundación de Estudios de Economía Aplicada). This commentary provides a critical approach to the application of this favourable treatment for emerging companies, which is interesting[1].
[1] BENITO ARRUÑADA, “Comentario al proyecto de ley de startups”, Apuntes Fedea, enero de 2022. Disponible en https://documentos.fedea.net/pubs/ap/2022/ap2022-01.pdf?utm_source=documentos&utm_medium=enlace&utm_campaign=estudio
