The start-up sector, or start-up, is closer to having tailor-made legislation in Spain. The bill for the Promotion of the Ecosystem of Emerging Companies, known as the start-up law, has passed its processing in Congress this Thursday with a broad consensus, after first obtaining the approval of all the parties —with the abstention of Vox— in the Commission on Economic Affairs and Digital Transformation. The legislative project will now be transferred to the Senate for approval. The text, which during its processing has included up to 80 amendments, defines for the first time what a start-up, proposes bureaucratic simplifications and tax reductions to encourage the creation of these companies, and grants tax benefits to foreign professionals who come to work in Spain for companies in the sector. “This law is going to put Spain at the forefront in promoting this ecosystem,” said the First Vice President of the Government, Nadia Calviño, in the parliamentary debate.
The rule was a long-standing demand from the sector, which has in Barcelona, Madrid, Malaga or Valencia important poles for the creation of this type of innovative companies, but they see that, with the current legislation, they cannot compete in the long term with other European cities , especially with regard to attracting investment and international talent. Barcelona, for example, is at the top of the rankings of favorite European cities for entrepreneurs to create a start-up (the third city according to Startup Heatmap Europe), but loses positions in the lists of cities where companies can grow more or attract more investment. The unification of some criteria that this bill makes allows it to be compared to other European cities, but in other aspects, such as wealth and inheritance and donation taxes, differences between the Spanish cities themselves persist. If approved in the Senate, the law will enter into force on January 1, 2023 and the fiscal measures will be applied in the next fiscal year.
The first thing the bill does is define once and for all what a start-up and, therefore, what type of company will be able to benefit from the new legislation when it is approved in the Senate. They must be newly created companies, not older than five years (seven in the case of companies in industry, energy, biotechnology or that arise as a result of scientific research, since the processes in these sectors are longer ), they must have their headquarters in Spain, their project must be “innovative” and with a scalable business, and an economic limit is set: not having invoiced more than 10 million euros. For these companies, the corporate tax rate and the non-resident income tax rate will be reduced, from the general rate of 25% to 15%, in the first four years since the tax base is positive.
The bill also speeds up the procedure to recognize these emerging companies, which will be granted a tax identification number to carry out the procedure, which will be completely electronic. The one in charge of recognizing these companies will be the National Innovation Company (Enisa), which will be able to collaborate with the autonomous governments for this, and which will also apply positive administrative silence in the event that it does not give an answer. The project foresees that these companies are not subject, during the first three years, to dissolution due to losses that generate an equity imbalance, since it is understood that they usually take longer to become profitable.
But while they are not profitable, they need a flow of money to increase their business, and that is where investors come in, for whom the bill also provides improvements. Among other things, it expands the maximum deduction base for investment in this type of company, which goes from 60,000 to 100,000 euros per year, and the type of deduction goes from 30% to 50%. For investors, the definition of start-up that the bill establishes is important, since until now these deduction criteria were applied to companies created up to three years before, and now it is extended to five or seven years depending on the sector.
Benefits for foreigners
The law of start-up gives tools to retain and attract professionals. Among them, the stock options, the way in which start-ups around the world pay a part of the salary through shares of the company itself. Until now, due to how Spanish legislation was, it did not pay off for workers to accept these stock options, since these were taxed on the current value of the company and were considered income from work. The bill provides that taxation is made when the worker sells these shares, and also raises (from 12,000 to 50,000 euros) the amount that is exempt from taxation in this type of payment.
Regarding the attraction of international talent, the project foresees several measures: the so-called “digital nomads” (those who telework from different parts of the world for international companies) will obtain a residence and work permit in Spain for five years and will be able to pay taxes non-resident personal income tax; the requirement of not having resided in Spain (from 10 to five years) to access this special tax regime is relaxed; and investors and freelancing (collaborators) who work for start-up Spanish companies will also be able to take advantage of the inpatriate regime (with an income tax rate of 24% for five years and without paying taxes on assets, provided that 40% of their turnover is with these companies); Finally, the period for obtaining the NIE is increased from three to six months, which will encourage the hiring of foreigners.
Barcelona Global, the business association that has been behind many of the amendments presented and that has closely followed the process for five years, acting as lobby, celebrated on Wednesday in a meeting with journalists that the project was going to be processed in Congress, although he understands that there are still steps to be taken. The president of the entity, Maite Barrera, considered that the new legislation will consolidate the Catalan capital as one of the main poles of attraction for emerging companies, and that it will bring out digital nomads.