Three years after it began to take shape, on December 1, Congress approved the Act on the Promotion of the Startup Ecosystem, better known as the ‘Startup Law’. The text, in force since the 22nd of December, includes measures aimed at promoting, attracting, and strengthening this type of companies to turn them into one of the engines of the modernization of the Spanish economy. This law has been promoted by the Ministry of Economy, through the Secretary of State for Digitalization and Artificial Intelligence. The High Commissioner for Spain Entrepreneurial Nation (ACENE), a department dependent on the Ministry of the Presidency created at the beginning of 2020, also participated.
The startup sector and the digital economy had long been demanding tax and labor improvements to attract and retain talent, the reduction of red tape when creating a company and to incentivize investment in emerging companies. Thus, the law establishes several tax modifications – such as the increase in exemptions for stock options and the reduction of corporate tax – and makes it easier for workers, entrepreneurs, and foreign investors to settle in Spain.
Madrid is the main destination for foreign investment in Spain, the city that more and more international companies choose to open new headquarters or establish development centers. Access to talent – both home-grown, with a level of English that has improved considerably in recent years, and international – as well as the competitive costs, world class infrastructure and good quality of life are the main reasons these companies cite when asked why they opted for Madrid.
In the recently published list of Internations, Expat City Ranking, which rates cities according to how good they are to live as an expat, Madrid appears in fifth position. The Global Remote Index, which reveals which global cities are most accessible and attractive for remote workers, places Madrid in 15th place. Among other factors —such as the cost and quality of life, safety, health and public transport—, this ranking takes into account aspects related to labor regulations and the existence of visas for teleworkers, precisely one of the novelties introduced by this new law.
The new regulation aims to facilitate the arrival in Spain of digital nomads, remote workers, investors and foreign employees, in addition to improving the conditions for startups to grow. Madrid, as a well-established pole of attraction, will be able to benefit from these measures and position itself among the main European cities to which to move to work or do business. The main regulatory changes affect both international investors and talent and the entrepreneurial ecosystem present in the capital:
Attracting investment and talent
- Entrepreneurs, investors, and foreign students will find it easier to move to Spain. The regulation extends the duration of initial residence permit from one to three years for entrepreneurs and investors who start an economic activity in Spain, and in the case of students on work placements, or who are seeking employment or wish to embark upon a business project once they have concluded their studies, the residence permit has been extended from one to two years. The residence permits for highly qualified foreign professionals who come to work in a company will also be for three years or the duration of the contract extendable to five, after which permanent residence can be requested. In addition, the procedures to obtain the NIE (Foreigner Identification Number) will be simplified with a specific website to request an appointment online.
- Digital nomads will have their own visa (the ‘ digital nomad visa’). The “international remote working visa” is aimed at foreigners who are not resident in Spain and who wish to work remotely in our country for themselves or for a company located elsewhere. This visa allows you to reside in Spain for a maximum of one year, but its beneficiaries may apply for the residence permit for a period of three years extendable to five, after which they can apply for a permanent one. To obtain it, self-employed nomads must prove they have an established working relation of at least one year with the foreign company or companies, and in the case of salaried employees an employment relationship of at least three months. If a nomad is self-employed and is granted the visa, he/she can dedicate up to 20% of his/her activity to work for Spanish companies. Potential beneficiaries must prove that they are university graduates, have completed professional training or have attended a recognized business school; or have a minimum professional experience of three years.
- Improved tax regime for Inpats. Inpats are employed workers posted to Spain, i.e., people with an employment contract in another country who are sent to Spain by their company. To attract them and get them to establish their tax residence in our country, a special tax regime was created in 2004 that allows them to pay the Non-Resident Income Tax (IRNR), instead of the IRPF (Personal Income tax), which is higher.
The Startups Law makes it easier to benefit from this regime. While before it was necessary not to have been a tax resident in Spain in the last ten years, now five is enough. In addition, teleworkers (they must have the necessary visa for teleworking), people who carry out a qualified activity as an entrepreneur and highly qualified professionals who provide services in Spain to emerging companies or are dedicated to training, research, development, and innovation may also benefit from the special regime.
- Foreign investors will no longer need to obtain a NIE. If a foreign investor is a natural person and wants to invest in a startup in Spain, he will need to obtain a NIF (Tax Identification Number) and not the NIE (Foreigner Identification Number) as before. If the foreign investor is a legal entity, he will still need to obtain the NIF. The procedure will be electronic, through the AEAT, and will be resolved within ten working days.
Tax improvements for startups and investors
- Stock options for employees will be tax exempt, up to a maximum of 50,000 euros. Stock options are a kind of remuneration whereby workers have the option of buying shares of the company in the future at a price below the market price. Until now, in Spain the value of these options had to be declared in the IRPF (Income Tax) up to 12,000 euros. The rule extends the exemption to 50,000 euros.
Startup workers won’t have to pay any tax on these options until they decide to sell them or the company is floated on the stock exchange (up to a maximum of 10 years from the date they are received by the worker).
- Investors in startups will be able to deduct 50% of their contribution. Until now, the percentage of deduction for subscription of shares in new companies amounted to 30%. The maximum deduction base has also been increased from 60,000 to 100,000 euros. This tax benefit is subject to a series of conditions. For example: equity cannot exceed 400,000 euros, shares must be acquired in the first five years of the company’s life and must be held between three and twelve years.
- Startups will pay 15% corporate tax, instead of 25% for a maximum of four years and provided that the company maintains its status as “an emerging company”: it must be newly created, not arise from a spin-off of non-emerging companies, not be listed on the stock exchange or distribute dividends and it must develop an innovative project with a scalable business model. The National Innovation Company (ENISA) will be responsible for certifying that a company has startup status. In addition, startups will be able to defer the payment of taxes during the first two years of activity.
Facilitation and sandboxes
- One-year temporary trial licenses and promotion in the creation of sandboxes. If start-ups operate in regulated sectors, the law allows them to apply to the administrative authority regulating their field of activity for a one-year temporary trial license. In addition, the regulation will promote the creation of regulatory sandboxes in which the usefulness, feasibility and impact of technological innovations in a supervised environment can be evaluated.
- National Office of Entrepreneurship (ONE). To promote administrative efficiency, this agency will be in charge of organizing and coordinating the services to support entrepreneurship in collaboration with all the bodies of the State and public and private agents of the ecosystem.
- Thanks to the new Crea y Crece Law, it is possible to create a startup with only one euro of capital and in six hours.