New Start-Act in Spain

Congress has passed the Startup Ecosystem Promotion Act, commonly known as the Startup Act, which specifically targets young, emerging, and technology-based companies known as startups. The law contains many new regulations that provide tax benefits, aims to eliminate bureaucratic obstacles by making procedures more flexible, and thus encourages the creation of and investment in startups. It also includes important measures to attract and recruit international and national professionals, favoring the establishment in Spain of "digital nomads" (nómadas digitales), i.e., people who work remotely for foreign companies.

However, the new law is not only intended to promote startups, but also targets entrepreneurs, people who work remotely from their homes and want to live in Spain, executives, and international and national professionals who left Spain due to the poor economic conditions in 2008 - 2015.

For startups, some conditions are required in order for the favorable regulations to apply to them: It must be a newly created company that is less than 5 years old (7 years in the case of companies in biotechnology, energy, industry and other strategic sectors, or that have developed their own technology entirely in Spain), be independent from other companies, not listed on the stock exchange, not distribute or have distributed dividends, have an innovative character and have an annual turnover of up to 5 million euros.

The law allows Spain to adapt to digital developments, joining other countries in the European environment that have already adopted similar measures to attract investment, entrepreneurship and professionals. Remote working has become an integral part of everyday working life, at least since the Corona pandemic, due to the various advantages that this form of work brings to employees, especially flexibility and work-life balance.

The law also responds to the standards of the EU Start-ups Nations Standard Declaration initiative, signed last March, which sets out a series of measures to promote entrepreneurship in the EU and encourage the creation of new innovative companies.

What are the concrete benefits of the legislative reform?

Less bureaucracy through administrative agility

The procedures for setting up a company will be simplified. This is now to be possible in a single step and by telematic means, without notary or registration costs.

In addition, obtaining a foreigner identification number (NIE) will no longer be required for foreign investors. It will be easier to apply for a tax identification number (NIF) electronically, which is an essential requirement for making an investment.

Tax advantages

The new regulations provide for some tax benefits. Here, the extension of the scope of the special regime for posted workers, the so-called "Beckham Law", stands out. Individuals who acquire tax residency in Spain can, thanks to this special regime, choose to be taxed under the non-resident income tax (IRNR) or the personal income tax (IRPF). For an annual income of up to 600,000 euros, a tax rate of 24% applies to tax non-residents. For income of 600,000 euros or more per year, the tax rate is 47%. In comparison, to make clear the extent of the tax advantage, for persons who are tax resident in Spain and therefore taxed under the IRPF, the tax rate would be twice as high for such a high annual income.

Previously, this regime was reserved for employees who signed a new employment contract in Spain or who were sent to Spain on the employer's instructions, as well as for directors of companies with a shareholding of less than 25% of the capital. With the reform, certain self-employed persons (who will carry out an entrepreneurial activity and for whom there is a positive opinion from ENISA -Empresa Nacional de Innovación, S.A.- or who will provide services to emerging companies as highly qualified professionals), as well as employees who work from home in Spain (i.e. even without their posting having been ordered by their company) and directors of companies, regardless of their shareholding (with the exception of purely asset-managing companies, for which the 25% cap on capital continues to apply).

Also the respective spouses, the partner with joint children and children under 25 years of age of the beneficiaries and persons, regardless of their age in case of disability benefit from the special regime, provided that the conditions provided for these persons are met in their case.

The conditions for the application of the special regime are that the beneficiaries have not been tax residents in Spain for the last 5 years (10 years under the old law), that the departure to Spain took place in the same or previous year, and that the beneficiaries do not receive income that qualifies as received through a permanent establishment.

In addition to the changes to the Beckham Law, the maximum deduction base, i.e. the amount that can be deducted from income tax, for investments in new or recently established companies (whether start-ups or not) has been increased (from 60,000 to 100,000 euros per year). The deduction rate is increased from 30% to 50% and the period during which a company is considered recently established is extended.

In addition, the tax rate of corporate income tax and income tax for non-residents, provided that the company retains the status of a start-up, has been reduced from 25% to 15% in the first four years, as long as the tax base is positive. There is also the possibility of deferring the tax liability without interest or guarantees.

Elimination of double social security contributions in case of multiple activities

For self-employed persons who simultaneously work for an employer on behalf of a third party, there is a 100% reduction of the social security contribution on the freelance activity during the first three years.

New VISA regime for remote workers in Spain and application for residency in Spain

Finally, the amendment includes a new regulation on the application for a visa for people who work remotely for a foreign company. This also applies to their family members and is to be granted for a maximum of one year.

After that, a residence permit in Spain can be applied for. It can be applied for three years and renewed every two years, provided that the relevant requirements continue to be met.

Autor: Fernando Lozano