The preliminary draft of the so-called Startup Law

The preliminary draft of the so-called Startup Law

On 6 July, the Council of Ministers approved the draft bill on the Promotion of the Startup Ecosystem, known as the Startup Law, a long-standing demand of Spanish entrepreneurs.

The Ministry of Economic Affairs and Digital Transformation, through the Secretary of State for Digitalization and Artificial Intelligence, submitted it for public hearing until 21 July. As startup lawyers, on this post we ill analyze the preliminary draft of the so-called Starup Law.

Main measures included in the preliminary draft of the Startup Law

The main measures of the draft Startup Law relate to taxation, reducing the taxation of startups from 25% to 15% of corporate income tax, up to a maximum of four years after their creation.

It envisages raising the maximum deduction base for investment in new or recently created companies from 60,000 to 100,000 euros per year in order to encourage investment. It is also accompanied by an increase in the deduction rate from 30% to 40%, as well as the period in which a company can be considered to be newly created. In general, it is raised from 3 to 5 years, although in certain sectors it can be as long as 7 years.

The text also includes the non-obligation to obtain a foreigner’s identification number, known as NIE, for non-resident investors. Only these investors and their representatives will be required to obtain tax identification numbers, nothing more.

The text establishes a specific framework for start-ups, responding to their uniqueness and the main demands of the sector, in order to give global visibility to the Spanish start-up ecosystem and attract investment and talent.

Startups are defined by the government as companies less than 5 years old (7 in biotechnology or industry), unlisted, innovative and with an annual turnover of less than 5 million euros.

The aim is to regulate and make more flexible all the activities that start-ups have to carry out with the Administration throughout their life cycle, particularly in their early stages, due to the amount of paperwork involved in the development of a recently created innovative company, which penalizes it with respect to other SMEs in aspects such as taxation or visa procedures, the regulation of which the new Law contemplates.

One of the most important objectives of the Startup Law is to avoid brain drain as much as possible and to attract talent and investment.

Startups will also be able to apply for deferral of corporate tax or non-resident income tax liability for a period of 6 to 12 months.

Stock options will also be favored. The amount of the exemption has been raised from 12,000 to 45,000 euros per year in the case of delivery of shares to start-ups, while the conditions for the generation of treasury shares in limited liability companies have been made more flexible.

In addition, it is intended to facilitate the creation of a specific tax regime for professionals who telework and have moved to Spanish territory, as well as a specific visa for those who work in the country for a foreign company.

Reactions to the Startups Law

The sector has welcomed the draft bill with some satisfaction, but urges the government to update the current legislation to adapt it to the current technological and globalized context. Many claim that the reduction in corporate tax will not help many startups because the first few years, in this type of company, usually generate losses. On the other hand, it is also considered that it will be difficult to define exactly what a start-up is or that the time during which these companies can take advantage of the benefits is only 4 years, when many projects take much longer to see the light of day.

The draft bill establishes a specific framework to promote the creation and attraction of start-ups in Spain, to attract investment and talent, one of the reforms of the Recovery and Resilience Plan, according to Nadia Calviño, Minister of Economic Affairs.