The new tax incentives of the Startup Law 2023

On December 22, 2022, the new Startups Law (Ley de Startups in Spanish) came into force. This law is the first one specifically dedicated to supporting the creation of an entrepreneurial and innovative ecosystem in Europe.

One of the remarkable novelties of this law is the tax incentives since they are intended to foster startup growth. Moreover, this new legislation supports innovation and investment, public instruments that support startups, and public-private collaboration to help them grow.

Purposes of the Law

The core purpose of this Law is to foster the creation and growth of new startup companies and thereby promote innovation, especially targeting small and medium-sized companies.

However, other goals are forming part of this law, such as attracting talent and international capital to develop the entrepreneurial ecosystem. It also focuses on stimulating public and private investment in startups and fostering relations between companies, financing agents, and territories. Finally, it promotes the state aid system for innovation-based entrepreneurship.

Law Modifications

One of the main changes in this Law is in the startup definition and the turnover increment from 5 to 10 million euros. Startups are now considered companies under five or seven years old (depending on the strategic sector), which are not listed on the stock exchange and do not distribute dividends. Their headquarters or registered office must be established in Spain, and 60%, at least, of their workforce must be employed in Spain.

According to this new Law, startups will have to evidence their innovative character, i.e., the development of their new or improved products and services. Administrative agility will also be promoted by obtaining telematic verification of companies as startups, as well as knowledge, given that the aim will be to improve the expertise exchange with general regulation and controlled tests.

Tax benefits and incentives

A core modification of the Law concerns the tax benefits for new or recently created companies. This modification leads to fulfilling its principal objective: to promote entrepreneurship and innovation in the country.

  • Reduction of Spanish Corporate Income Tax and Non-Resident Income Tax at the general rate (Impuesto sobre Sociedades y del Impuesto sobre la Renta de No Residentes). A reduction from 25% to 15% in the first four fiscal years after the taxable income is positive.
  • Stock options. One of the most demanded points for this Law. Stock options are based on the delivery of shares or participations to the startup’s employees. For this reason, this tool represents one of the most effective tools for attracting and retaining talent, the main goals of this Law. The amount of tax exemption in the Law has been raised from 12,000 to 50,000 euros per year.

    In addition, the company is allowed to voluntarily acquire its own shares in treasury stock for the sole purpose of executing a remuneration plan.
  • Investment deduction in newly created companies. Tax benefits aimed at attracting investors are another significant point of the Law. The maximum deduction base for investment in new or recently-created companies is increased from 60,000 euros to 100,000 euros per year, thus increasing the deduction rate from 30% to 50%.

    Finally, the Law extends, as a general rule, from three to five years the period for subscribing shares or participations from the incorporation of the entity. For special categories of startups, it will be increased to seven years. The application of this deduction will be allowed for the founding partners, regardless of their percentage of participation in the company’s capital stock.
  • Tax regime for posted workers (Beckham Law). The eligibility period for the posted workers’ special regime will be reduced from 10 to 5 years. This regime includes digital nomads moving to Spain and investors, entrepreneurs and administrators of Spanish companies.

These new tax incentives, brought about by the new Startup Law, have been a significant revolution for many entrepreneurs, investors, and companies.

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