In our previous posts on the recently approved Law to foster Spain’s start-up ecosystem (here and here), we focused on tempting expats with some interesting improvements in their special tax regime (along with other sound arguments such as Spanish weather, food or culture). However, as our shrewdest readers might have surmised, the main purpose of this law is providing legal and tax incentives for start-ups, so now we will focus on those.
The Start-up Law, as it is commonly known, includes a wide range of corporate, employment and administrative-related measures to foster entrepreneurship and the creation and development of innovative start-ups. In terms of taxation, start-ups will benefit from a reduced 15% corporate income tax (CIT) rate (compared to the general 25% rate) for the first tax year in which they report positive taxable income and the subsequent three tax years. This CIT-reduction will also apply to non-resident companies active in Spain through a permanent establishment or branch.
Start-ups will also be entitled to defer CIT or Non-Resident Income Tax payments in respect of the first two years of positive taxable income for twelve or six months, respectively, without the obligation to provide collateral and without accruing late-payment interest. During these first two years, start-ups will not need to submit payments on account (pagos fraccionados) for those two taxes either.
The law also includes some benefits for start-up employees and investors, such as:
- For income derived from awards of shares (including those granted upon the exercise of stock options) to employees, the maximum exempt amount has increased from EUR 12,000 to EUR 50,000 per year. A special valuation rule has been introduced for non-exempt income in order to reduce tax controversy (in relation to the appraisal of the shares of a start-up, something complex by definition).
- The general personal income tax deduction for investing in new companies (not limited to start-ups) has increased from 30% to 50% and the maximum investment that can qualify for the deduction has been raised from EUR 60,000 to EUR 100,000.
There have also been some interesting changes to the tax treatment of carried-interest income in Spain that we would have been very happy to discuss, had our colleagues not already beaten us to it!
To all those investors and entrepreneurs reading this post: we hope these new tax benefits have tempted you to consider Spain as an option to set up shop. If you were already thinking of Spain, fortunately, you now have even more reasons to do so. And, if you are still giving the choice some thought, you can find a more detailed overview of the changes here.