Spain’s Start-ups Law meta-explained: How to benefit from the new regulatory framework
Spain’s recent enactment of the Startups Law is set to create a positive regulatory environment for new and emerging companies, with innovative measures that encourage their growth and expansion.
The Startups Law is a regulation contained in Law 28/2022, of 21 December, on the promotion of the startup ecosystem and in Law 18/2022, of 28 September, on the creation and growth of companies. Both of them are intended to promote entrepreneurial development by reducing administrative pain points typically faced by start-ups and emerging companies. The new law also deploys advances and improvements in tax and migration matters, making it easier for investors to finance startups and support their growth. With a focus on creating a favorable legislative framework, the Startups Law is expected to have a major impact in the coming years.
Naturally and automatically, the Canary Islands benefit doubly as a territory of proven attractiveness for international investors. The improvements described below are compatible with the other fiscal instruments and advantages of the Canary Islands Economic and Fiscal Regime. More specifically, this regulation allows Gran Canaria to continue to consolidate its position as a magnet for business and talent.
One of the key beneficiaries of the new law is the Canary Islands, a territory that has long been attractive to international investors. The improvements described in the law are compatible with other fiscal instruments and advantages of the Canary Islands Economic and Fiscal Regime, making it an even more appealing location for businesses and investors.
Gran Canaria, in particular, stands to benefit greatly from the new law, as it continues to consolidate its position as a magnet for business and talent.
Some of the key aspects of the Start-ups Law::
- Spain’s new Start-ups Law has ushered in the ‘start-up’ concept
These are newly created companies or existing companies that are maximum 5 years old (7 in the case of biotechnology, energy or industrial companies). the company must have its registered office or permanent establishment in Spain and have at least 60% of its workforce with employment contracts in Spain. Additionally, the company must not have arisen from mergers, spin-offs, or acquisitions, nor be listed, nor have distributed dividends. Finally, the company’s business model must be innovative and scalable.
It’s important to note that these requirements must be accredited and maintained, and will be verified by ENISA, the Spanish government’s national innovation agency.
- Dwindling incorporation deadlines and costs
The deadline for the registration of start-ups and all their corporate acts will be five working days and notary fees will also be reduced.
It should also be recalled that the previous Law 18/2022 on the creation and growth of companies (the so-called “Crea y Crece Law”) had already modified the minimum amount of capital for the incorporation of limited liability companies to 1 euro (until October 2022 it was 3,000 euros).
- Reducing the initial taxation of start-ups
Application of a reduced corporate income tax rate of 15%, as opposed to the general rate of 25%, for a maximum of four tax periods from the first one with a positive tax base. Effective nationwide, it is worthwhile mentioning that newly established companies in the Canary Islands might benefit from a much advantageous 4% corporate tax rate and 0% withholding tax, provided that some requirements are met, mostly employment-creation (this regime is called ‘Canary Islands Special Zone’, ZEC in its Spanish acronym). There is no temporary limitation to benefit from the ZEC-regime. More info here
- Tax treatment of stock options to remunerate start-up employees
Workers who receive income from work in kind through stock options will benefit from an extension of this exemption, from 12,000 euros to 50,000 euros per year.
- Improvement of the IPRF deduction for the subscription of shares or participations in start-ups
Applicable not only to private investors, but also to the founding partners of a start-up company. From a deduction of €60,000 to €100,000 per year, increasing from a deduction rate of 30% to 50% under the new law.
- Rebate on the Special Self-Employment Scheme contribution for the self-employed in companies
100% discount on the self-employed contribution, during the first three years, for entrepreneurs who simultaneously work as employees.
- ‘Impatriates regime’
Workers, highly qualified professionals, entrepreneurs and investors, and their family unit, may pay non-resident income tax (IRNR) during the tax period of change of residence and the five subsequent periods, at the single rate of 24% up to 600,000 euros. This ruling was previously allowed for highly qualified professionals only.
- Reducing bureaucratic requirements for foreign investors
The requirement for investors wishing to invest in a start-up company to have a Foreigners’ Identification Number (NIE) is abolished. Instead, they must have a Tax Identification Number (NIF), which can be obtained by electronic application.
- Extension of residence authorisations and new visa for digital nomads
The validity of initial residence permits for entrepreneurs wishing to start a business activity in Spain is extended from one to three years, as well as for foreign investors.
Creation of the “visa for digital nomads”, known as a visa for international teleworking, with a duration of one year for foreigners not resident in Spain who work remotely for companies based in third countries.
This authorisation will be valid for a maximum of three years, renewable for two-year periods.
Overall, the Startups Law represents a significant opportunity for startups and investors looking to tap into the potential of Spain’s entrepreneurial ecosystem. With a focus on facilitating investment and growth, this new regulatory framework is set to create a thriving startup ecosystem that benefits all involved
To expand the information and facilitate its understanding, as well as its applications, the SPEGC developed a training day, in collaboration with the international law firm Cuatrecasas, to explain all the details of the regulations, which can be seen here.
Also, ‘Best in Gran Canaria’ has different instruments to facilitate entrepreneurship in Gran Canaria, such as the Business Support Service (SAE), and financing tools, such as Inverpyme, designed to enhance the growth and development of companies that promote economic diversification and strengthen the productive fabric of the island.