Spain | New 'start-up law' aims to encourage entrepreneurial activity in Spain

The main measures that are relevant to incentives include generous exemptions for stock options

The new law to foster the Spanish entrepreneurial ecosystem came into force on 22 December 2022. The "start-up law" includes important tax and incentives measures (including a significant increase in the tax exemption for the award of shares or stock options to employees of start-up companies, to €50,000 a year) and requirements for companies to be considered as start-ups. 

What are the main tax measures that are relevant to incentives (in particular the generous exemptions for stock options)?

Corporate Income Tax (CIT)

The law reduces and defers corporate income tax (CIT) for start-ups.

• A reduced rate of 15% is established for the first year in which the taxable base is positive and for the following three years, provided that the status of start-up company is maintained.
• It introduces the possibility of requesting a deferral of the tax debt for the first two periods in which there is a positive taxable income for CIT, for a period of 12 and six months respectively, without the need to provide guarantees and without accruing late-payment interest.
• During the first two years of taxable profits, the start-up is also exempt of submitting payments on account.

Personal income tax

There are higher personal income tax (PIT) deductions and exemptions for stock options.

• The general PIT tax deduction for investment in start-ups is increased from 30% to 50%, and the maximum deduction base is increased from €60,000 to 100,000. In addition, the investment may be made in start-ups that are not necessarily Spanish and during the first five years of the company's life (seven years for biotechnology, energy and industrial companies).
• The exemption is increased to €50,000 euros a year for the award of shares or stock options to employees of start-up companies (previously €12,000).This exemption applies irrespective of whether these shares or stock options are granted to all employees of the company under the same conditions: the only requirement is that they are delivered as part of the company's general remuneration policy. In the event that employees have previously been granted stock options, they may also benefit from this exemption at the time of exercising these stock options (the requirements for consideration as an emerging company must be met at the time of grant of the option and not at the time of delivery).

Special valuation and imputation rules are established for the non-exempt part of the income from work in kind derived from the grant of these shares or the exercise of these stock options of start-up companies.

Accordingly, their imputation is deferred until the first of the following occurs: the shares are listed on a regulated stock exchange  or any multilateral trading system; the shares are disposed of the taxpayer; or 10 years have passed.

In relation to the valuation, if during the year prior to the allocation of the return there has been a capital increase subscribed by independent third parties, the subscription value of the capital increase will be the value used to value the shares of the start-up that have been delivered.

Additional incentives

There are additional incentives for investors that are not conditional on an investment in a start-up. These include regulation of the tax treatment of remuneration derived from the management of private equity entities, which are known as "carried interest".

The carried interest obtained by directors or employees of certain types of entities and closed-end mutual funds or their managers will be taxed as employment income but will be included in the PIT base with a 50% reduction – however, this is subject to compliance with certain requirements - and will therefore be subject to taxation at an effective rate of approximately 23-27% (depending on the Autonomous Community of residence).

Tax on inbounds improved

There are also improvements to the special tax regime for inbounds in Spain (which are applicable for 2023 onwards).

Individuals who transfer their tax residency to Spain may opt to apply for a special tax regime, subject to certain conditions. This regime allows individuals who become tax residents in Spain to be taxed for the worldwide employment income since their arrival in Spain at a fixed 24% rate for the first €600,000 and at a fixed 47% rate over any income in excess of this amount. This is instead of being taxed as ordinary tax residents in Spain, who are taxed on their worldwide income from work according to a progressive scale of rates from 18% to 53%. The applicable tax rates differ from one Spanish region to another.

From 2023 onwards, the reasons for moving to Spain that entitle an individual to apply the special tax regime have become more flexible. An individual who has not been a Spanish tax resident during the five tax years before moving to Spain (previously ten years) may be able to apply this special tax status.

Furthermore, in addition to the requirement of having been moved to Spain due to a local hire in Spain or an employer relocating an employee to Spain, new circumstances that entitle the individual to apply for the special tax regime have been added.

The application of the regime would be also applicable to individuals that move to Spain to work remotely, or "digital nomads", for a foreign company and provide their services remotely through the exclusive use of computer and telecommunication systems and resources. It is required that this type of employee has a visa for international remote working.

Directors of emerging companies may also apply the special tax regime, irrespective of their percentage shareholding in the entity's share capital. However, if the company is considered a passive entity, the shareholding should not exceed 25% of the company's capital stock.

A new category for entrepreneurs and highly qualified professionals also applies.

Spouses and children under 25 years of age (with no age limit if a child has a disability) can also benefit from the special taxpayer scheme provided certain requirements are met.

Please get in touch with your usual Osborne Clarke contact or one of the experts below if you have any queries or would like to discuss further.