The 7 keys to the Startup Law

Half a year after the preliminary draft of the “Startups Law” went out to the public hearing, it arrives to Congress with the intention of entering into force after the summer of 2022. We tell you the 7 keys of the Startups Law.

According to the MIDE report, Madrid is at the top of the European rankings in terms of the most attractive cities for startups and entrepreneurs due to its location and infrastructure network. However, before becoming a global “hub” of innovation and entrepreneurship, it must overcome several challenges such as connection between the various initiatives and a reference space.

However, the real question is, will the startup law be a boost to Spanish entrepreneurship? In this post we tell you some keys about the so-called “Startups Law” or “Law for the Promotion of the Emerging Companies Ecosystem”.

What are the main advantages of the startup law?

  • One of the main advantages is that it simplifies the procedures for the incorporation of this type of companies, thanks to the future National Office of Entrepreneurship.
  • Reduction of 25% to 15% in the corporate tax.
  • Deferral of the tax debt for 12 months during the first 2 fiscal years with positive result.
  • Elimination of the obligation to make installment payments.
  • The investment that can be made without having to pay taxes for new companies is raised from 60,000 to 100,000 per year.
  • Increases the deduction for investment to 50%..
  • In order to attract the incorporation in Spain of startups by foreign residents, much easier access to the Non-Resident Income Tax (IRNR) is offered.
  • Tax improvements are introduced for stock options, such as raising the minimum annual IRPF exemption from 12,000 to 45,000 euros.

What are the main drawbacks?

“First of all, it has an excessive number of conditions to be fulfilled, the ambiguity of some of these, especially with regard to the cataloging of innovative character,” Fernando López Castro, lawyer and economist who provides services to entrepreneurs, tells us.

“Also its temporary nature, because the tax incentives are given in a maximum period of four years if the company has had a positive result. But if a company does not achieve a positive fiscal year at least in its second year of operation, it will not enjoy the full incentives”.

Ley de startups

Will the startup law attract the so-called “digital nomads”?

The good climate, the abundance of coworking spaces, the good connection and the lifestyle make Spain a good destination for the so-called digital nomads. Thanks to the startup law “digital nomads and their family members will be able to access a special visa for up to five years” Fernando tells us.

In addition, “a specific residence permit is also planned for people who work in a foreign company located in Spain, including the audiovisual sector” he clarifies.

What will happen to serial entrepreneurs?

The final version of the Startups Law corrects some points that were highly criticized in the draft presented in July. For example, the one that said that an entrepreneur could only be understood as one who had never founded a startup before.

In the draft that has already been approved, there is talk of “serial entrepreneurs”, i.e., those who have created several companies will be able to benefit up to three times from the law that reduces a maximum of 15% of the corporate tax for the first four years of life. In addition, they will be able to defer payments of other taxes for two fiscal years.

Who certifies companies that are startups and those that are not?

The first document left many doubts about who would certify what we consider to be a startup and how to differentiate it from an SME, which are not eligible for the startup law.

Nadia Calviño, the First Vice-President of the Government and Minister of Economic Affairs and Digital Transformation, confirmed that ENISA will be the organization in charge of this procedure as a one-stop shop.

Two new public entities for the Startups Law

Under the umbrella of this new law, two new public entities will be created: the forthcoming National Office of Entrepreneurship to provide aid and information and a National Forum of Startups that seeks to foster a constant dialogue with the sector.

European Alliance of Entrepreneurial Nations

Spain will also sign the founding act of the SNA (Europe Startup Nations Alliance), which was presented at the Web Summit in Lisbon. This is an initiative of several European countries, which will work to ensure that European startups enjoy the best conditions. They will do so on the basis of 8 key points:

    • Streamline the creation of startups and facilitate their entry into the market, for example by allowing a new company to be created in just one day.
    • Attract and retain talent, streamlining visa processes.
    • Stock options
    • Innovate in regulation
    • Acquisition and innovation, eliminating administrative impediments.
    • Access to financing
    • Social inclusion, diversity and protection of democratic values
    • Digital first, enhancing interactions between public organizations and digital startups.

The Startups Law is expected to be approved by the summer of 2022, with a deadline of the last quarter of the year. The economic impact of this law and its corresponding measures is unknown, but we know that it is part of a series of measures to attract and retain investors and talent.

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