Spain is becoming increasingly popular among startups. Its legal system, the high level of employee training, labour costs, and the tax benefits introduced by Law 28/2022, commonly known as the Startup Law, make it highly attractive for these companies.
The Startup Law has introduced changes in various areas of business law, primarily aimed at facilitating the establishment and growth of startups in Spain. It has implemented corporate measures to simplify company incorporation, relax regulations for limited liability companies, and, importantly, provide tax benefits for startups, their partners, and their employees.
What is a Startup?
Under Law 28/2022, a startup is a company that is headquartered or has a branch in Spain and meets the following criteria:
- It must be a newly established company, not arising from a restructuring operation. New companies are those founded less than five years ago or seven years ago for companies from specific sectors.
- It must not have distributed dividends.
- It must not be listed on a regulated market.
- At least 60% of its workforce must have employment contracts in Spain.
- It must be developing an innovative project with a scalable business model.
- Its annual turnover must be less than 10 million euros.
To benefit from the Startup Law, the applicant company must certify its compliance with these requirements before the National Innovation Company (ENISA).
Tax Benefits to Set up a Startup in Spain
Tax Benefits for Startups
Reduced Tax Rate: Companies accredited as startups will be taxed at 15% instead of 25% in the first year they generate taxable profits and in the following three years.
Exemption from Mandatory Advance Payments: They will not be required to make mandatory CIT interim payments during the first two fiscal years in which they generate taxable profits.
Deferred Tax Payments: They can postpone their corporate income tax payments for the first two years in which taxable profits are generated without needing to provide guarantees. The deferral for the first year can be up to 12 months, and for the second year, up to 6 months, without guarantees.
Tax Benefits for Partners and Investors
Increased Deduction: Spanish tax resident Partners or investors in startups taxable under the general regime can apply a 50% deduction (up from the previously applicable 30%) on the costs of subscribing to shares in newly established companies, with a maximum of 50,000 euros.
Beckham Law Regime: Partners who relocate to Spain to assume the director position of a startup and meet additional requirements may benefit from the Beckham Law regime. This regime provides a fixed tax rate of 24% on employment income generated in Spain up to 600,000 euros and between 19% and 26% on dividends, interest, or capital gains.
Tax Benefits for Employees
Stock Option Exemption: Employees residing in Spain who provide services to startups and receive compensation through stock option plans or the exercise of company stock options can enjoy an exemption of up to 50,000 euros annually. These stocks are valued based on the price set during the most recent capital increase or, if no increase occurred in the previous year, at their market value.
Deferral of Tax on Excess Income: Any income generated from stock plans that exceed the 50,000-euro exemption threshold will not be taxed until one of the following occurs:
- The stocks are sold
- The startup goes public
- Ten years have elapsed since the stock grant
Beckham Law Regime for Relocated Employees: Employees and collaborators of a startup who relocate to Spain can also opt for the Beckham Law regime, provided they meet several requirements.
These tax benefits for startups, their partners, and employees make setting up such companies in Spain more advantageous and facilitate their efficient and accelerated development.
If you need additional information to set up a startup in Spain,
