By Gorka Alonso-Cuevillas, Lawyer and Head of the Tax Law Department

It seems that the recently published Bill has addressed the majority of these impediments, while the Government has taken advantage of the opportunity to modify various provisions of the tax regulations to make both investment in this type of entities and the hiring workers in these.

1. What is understood as an emerging company or startup?

An emerging company is considered one that meets all of the following conditions:

a) Be newly created or, not being newly created, when no more than five years have elapsed from the date of registration in the Commercial Registry of the public deed of incorporation, in general, or seven in the case of companies biotechnology, energy, industrial and other strategic sectors or that have developed their own technology, designed entirely in Spain, which will be determined through the corresponding regulatory regulations.

b) Not having arisen from a merger, spin-off or transformation operation. The terms concentration or segregation are considered included in the previous operations.

c)Have its registered office, registered office or permanent establishment in Spain.

d)60% of the workforce will have to have an employment contract in Spain.

e)Be an innovative company. This characteristic will be granted by the National Innovation Company (ENISA).

f)Not distributing or having distributed dividends.

g) Not listing on a regulated market.

h)If you belong to a group of companies defined in article 42 of the Commercial Code, the group or each of the companies that make it up must meet the above requirements.

i) That the annual business volume does not exceed the value of five million euros.

2. When is the consideration of an emerging company or startup lost?

The emerging company and its investors will not be able or will no longer benefit from the benefits provided for in this law when any of the following cases occur:

Yo. Stop meeting any of the requirements provided for in article 3 and in particular, at the end of five or seven years from the creation of the emerging company.

ii. The company is extinguished before this term.

iii. Be acquired by another company that does not have the status of an emerging company.

iv.Carry out an activity that generates significant damage to the environment in accordance with Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on the establishment of a framework to facilitate sustainable investments and that modifies Regulation (EU) 2019/2088.

v.The partners or administrators of the emerging company have been convicted by a final judgment for the crimes of unfair administration, punishable insolvency, corporate crimes, crimes of money laundering, financing of terrorism, for crimes against the Public Treasury and Social Security, for crimes of prevarication, bribery, influence peddling, embezzlement of public funds, fraud and illegal exactions or for urban planning crimes as well as the penalty of loss of the possibility of obtaining public subsidies or aid.

3. Tax incentives for emerging companies or "startups"

Companies that are considered emerging or “stratups” will have a reduction in Corporate Tax or Non-Resident Income Tax of 10%. That is, they will be taxed at a rate of 15% during the first tax period in which the tax base is positive and in the following three, as long as this consideration is maintained during this period.

The possibility of deferring the corporate tax or non-resident income tax debt is contemplated in the first year in which the tax base is positive and in the following year, with exemption from guarantees and without accrual of late payment interest, for a period of 12 and 6 months respectively.

This possibility will require being up to date with other tax obligations.

4. Modifications to the Personal Income Tax (IRPF)

4.1. Taxation of the delivery of shares to workers and stock options

Yo. Delivery of shares/participations to workers

This exemption amounts to 50,000 euros per year and does not require that the offer be made to all workers under the same circumstances, but it is sufficient that it be within the company's remuneration policy.

Furthermore, the delivery of non-shares/participations with a value greater than the exemption will not be taxed as employment income at the time of delivery, as at present, but will be taxed in the first tax period in which any of the following occurs. facts:

That the company goes public (in Spain or abroad) That the recipient transfers the shares/participations That 10 years have passed since their delivery and neither of the two previous events has occurred.

A valuation criterion for the shares/participations delivered is also established and will be the value of the securities subscribed by an independent third party in the last capital increase carried out the year prior to the delivery of the shares/participations and, if there has been no extension, will be valued at the market value at the time of delivery.

ii. Stock options 

In the case of granting rights to acquire shares/participations (stock options) to certain employees, the provisions of point (i) above will apply.

However, the granting company must be classified as emerging at the time of granting the rights ("stock options"), and it is not mandatory to maintain this consideration at the time the holders of the aforementioned rights exercise them.

4.2. Deduction for investment in new or recently created companies

The deduction is increased to 50% (currently 30%). In addition, the basis on which the deduction can be applied is also increased to 100,000 euros (currently 60,000 euros).

For this new regulation to be applicable, each and every one of the current requirements must be met, and can be applied both with respect to economic contributions to capital and contributions of business or professional knowledge for the development of the emerging company or startup.

The acquisition of shares or participations will have to be carried out during the first five years from its incorporation (or seven in the case of companies in biotechnology, energy, industrial and other strategic sectors or that have developed their own technology) and must be maintained during a term greater than three years and less than twelve.

The limit of participation, direct or indirect, of the taxpayer at a maximum of 40% of the share capital continues to be maintained. However, this limitation will not apply to the founding partners of the emerging company or "startup" and they will be considered to be those that appear in the public deed of incorporation of the same.

4.3 Special regime for “impatriate” workers/Beckham law

The Startup Bill modifies part of the special tax regime provided for impatriated workers more commonly known as the “Beckham Law” in the following aspects:

The period of prior non-residence in Spain is reduced to five years (currently ten years).

A new assumption is added (to the already existing ones of (i) start of work in Spain, (ii) transfer to this country or (iii) the acquisition of the status of director of a Spanish company) which is the one that begins carry out a work activity that is provided remotely, through the exclusive use of computer, telematic and telecommunications means and systems.

This new assumption will be deemed fulfilled in the case of workers who have the international work visa provided for in Law 14/2013, of September 27, on support for entrepreneurs and their internationalization.

In addition to the taxpayer himself, the spouse (or parent) and children under 25 years of age displaced with the taxpayer may opt for the special tax regime. This option may be exercised at the time of the taxpayer's displacement or at a later time, but always before the end of the first tax period of application of the special tax regime mentioned for the taxpayer.

In order for the spouse or parent, as well as children under 25 years of age, to be able to opt for the special tax regime, they must meet the same conditions required of the taxpayer with the exception of the need to start a work activity in Spain, as well as their joint taxation. (during all the years of application of the regime), is lower than that which would correspond to the taxpayer.

4.4 Taxation of “carried interest” or remuneration for the management of funds linked to entrepreneurship, innovation and the development of economic activity.

The “carried interest” or profit-sharing system is known as the system through which investment fund managers are compensated at the time of completing a divestment and as a consequence of their good management.

Thus, the “Startup” Bill establishes that the work income received by these fund managers may be subject to a 50% reduction, provided that certain requirements are met, and these income come from certain entities.