2 Central government taxes

2.18 Special regime for startups

Law 28/2022 of December 21, 2022, promoting the ecosystem for startups (also known as the Startups Law) regulates various tax incentives aimed at startups and their investors and workers, plus a variety of other measures unrelated to startups. A startup is understood to be a newly created company or one which has been registered at the commercial registry for no more than 5 years (7 years for biotech, energy or industrial companies or companies in other strategic sectors or any which have developed their own technology, designed entirely in Spain).

Such companies must not have come about as the result of a restructuring transaction, must not distribute dividends, and must not be listed on a regulated market. Furthermore, they must have their company headquarters, registered office or a permanent establishment in Spain, and 60% of their workforce must have an employment contract in Spain and be engaged in an innovative entrepreneurship project.

The tax benefits envisaged for entities of these characteristics are as follows:

1. In relation to corporate income tax and nonresident income tax: They are taxable at a rate of 15% for the first tax period in which they obtain taxable income and the following three periods (provided they continue to be classed as startups).They may apply for deferral (12 months in the first year and 6 months in the second) of the tax debt, in the first two periods in which they obtain taxable income, provided they are up-to-date in compliance with their tax obligations and their self-assessment is filed within the voluntary filing period.

   They do not have to make prepayments in the first two periods in which they obtain taxable income.

2. The incentives relating to the taxation for personal income tax purposes of employees and investors are as follows:
   • Stock options: Shares or holdings in startups awarded to workers must be recognized at the value attributed to the shares or holdings in the most recent capital increase (subscribed by an independent third party) carried out in the year preceding that in which they are delivered (if no such capital increase has taken place, they must be recognized at market value).

     There is an annual exemption of €50,000 for salary income obtained corresponding to deliveries of shares or holdings to active workers, provided that the delivery is made for no consideration or at a price which is below the market price. It is not necessary for the same terms and conditions to be applied to all the workers at the company, although such arrangements must form part of its general compensation policy.Any income above the exempt amount can be deferred until future years in certain circumstances which are stipulated in the rules.

   • Tax credits for investment in newly or recently created companies: The tax credit is equal to 50% of amounts paid in the period for the subscription of shares or holdings in newly or recently created companies, subject to a maximum tax credit base limit of €100,000 per annum.

     The period for subscribing the shares or holdings is increased, generally, from 3 to 5 years, as from the company’s formation, and may be as long as 7 years for certain categories of startups.Their founding shareholders are eligible for this tax credit regardless of their percentage ownership interest in the company.

   • More flexible rules for persons assigned to Spain (see section 2.3.3., in which a description is provided of the regime resulting from this flexibilization).