Guide to tax incentives for investments in StartUps

Guide to tax incentives for investments in StartUps

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  Equity Crowdfunding

Equity Crowdfunding, is a private alternative investment that exists thanks to the internet and allows users of crowdfunding platforms to invest directly in companies.

When a company goes public, the growth that generates the most profitability to its investors has already happened. Investment crowdfunding allows you to keep up with the growth of companies with potential that can still generate three-figure returns.

Investing in newly created companies implies uncertainty about future profitability and even the capital itself. Thanks to tax incentives or this type of investment we can mitigate this uncertainty.

  Tax Incentives for Equity Crowdfunding investments

There is a complex regime for Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas in Spanish) in Spain, where part of the taxation will be determined by the Autonomous Community where the taxpayer is resident. As a result, various Autonomous Communities have introduced deductions to encourage investment in new or recently created entities (startup).

The Spanish Personal Income Tax Law (Ley del IRPF in Spanish) establishes a deduction of 50% of the amounts used in the subscription of shares in newly created entities, with a limit of €100,000 per year.

If there is any regional deduction for the same concept, the state deduction basis should be reduced, i.e., a state and autonomous deduction cannot be applied to the same amount.

Consequently, a €10,000 investment to subscribe shares in a startup should result in a tax saving of €5,000 in the personal income tax return.

The requirements are, essentially, as follows:

  • The investment in the entity must occur within the first five years, on a general basis, or within the following seven years for startups referred to in paragraph 1 of Article 3 of Law 28/2022, on the promotion of the startup ecosystem (known as Ley de Startups in Spanish).
  • The investment shall be held for over three years and less than twelve years.
  • It shall not be a control investment.
  • The entity must develop economic activities.
  • The amount of the entity's own funds cannot exceed €400,000 at the moment of the investment.
  • The entity must prove compliance with the requirements through a certificate.

Likewise, there is an exemption from personal income tax on the capital gains on the transfer of shares in these entities, provided that the amount obtained is reinvested in shares of other startups. In case of partial reinvestment, the exemption will remain partial.

For further information, you can consult the current regulations at the following link: