SPAIN: An Introduction to Tax

A Focus of Attraction for Emerging Companies 

All jurisdictions are trying to attract talent and entrepreneurship based on technological innovation, which is undoubtedly the sector with the highest added value and the greatest growth prospects.

Among the measures included in the Spain’s recovery and resilience plan, which is the strategy for channelling the funds earmarked by the European Union to repair the damage caused by the COVID-19 crisis, the Spain Entrepreneurial Nation Strategy has been approved, which includes, among other measures, support for entrepreneurship, financial instruments to boost initial investment and growth of technology start-ups, the creation of the National Entrepreneurship Office and various regulatory projects aimed at facilitating the creation, growth and restructuring of this type of company.

One of the legislative measures passed is Act 28/2022, of 21 December, on the promotion of the start-up ecosystem includes various commercial and tax measures aimed at attracting and promoting technology start-ups.

For these purposes, a technology startup is understood to be a newly created company or one set up after 2017 or, in the case of biotechnology, energy or industrial companies, after 2015. They must be independent companies, ie, not related to previous groups or companies, and must not be listed on regulated markets.

Other relevant conditions to be classified as startups are to have their registered office or a permanent establishment in Spain and to have at least 60% of their workforce with an employment contract in Spain.

They are also required to have a technological base, which means that they must develop an activity that requires the generation or intensive use of scientific and technical knowledge in order to generate new products, processes and services.

In order to be eligible for the benefits described below, it is an essential condition that the entities be up to date with their obligations to the Administration.

In order to facilitate public knowledge of the conditions required of this type of company, a public company, ENISA, is expected to be able to certify the status of technology start-ups.

Benefits 

The legislation approved at the end of 2022 foresees a number of tax benefits such as a reduction of the corporate tax rate to 15% for the first year with positive tax bases in the following three years.

In addition, companies are allowed to defer payment of corporate income tax or, in the case of companies not resident in Spain, non-resident income tax, for 13 months in the first year with a positive result and for seven months in the second year without having to provide any guarantee in favour of the Administration or pay interest.

New features have also been introduced in the taxation of employees and partners of this type of company in order to attract talent. Thus, employee remuneration consisting of the delivery of shares will be exempt from personal income tax for employees up to a limit of EUR50,000 per year, provided that the delivery is made within the framework of the company's general remuneration policy. This remuneration system may be instrumented through the delivery of stock options.

The excess over EUR50,000 per year is included in the employees' taxable income, but on a deferred basis, as it will not be taxed until the technology start-up is admitted to trading on a stock exchange or the shares received are transferred. Therefore, employees are not taxed on a substantial part of the shares received and the part that should be taxable is not actually taxed until they are sold or listed.

In order to make these share-based remuneration schemes possible, technology start-ups are exceptionally allowed to hold treasury shares of up to 20% of the share capital for a maximum period of five years.

A personal income tax deduction of up to 50% of the investment made, up to a limit of EUR100,000 per year, is provided for partners in this type of company as long as the investment is made in the first years of the technology start-up's life and the shareholding does not exceed 40%.

In order to attract the relocation to Spain of persons providing services to this type of company, highly qualified professionals who invoice technology start-ups for at least 40% of their total annual income are allowed to pay tax only on income directly obtained in Spain. This regime therefore allows a professional who has not been resident in Spain in previous years to move to Spain without being taxed by the Spanish Administration on income obtained outside Spain and to be taxed on income obtained in this country at lower rates than ordinary residents in Spain.

Certain income obtained by directors, managers and employees of fund management companies linked to entrepreneurship is also taxed at a reduced rate. In particular, remuneration deriving from success fees, special rights in management entities or the transfer of shares received from these entities in the course of the activity are taxed with a reduction of 50%.

The social security contributions of professionals who manage a technology start-up in Spain are 100% subsidised for three years when, in addition, they work for another entrepreneur.

Impact 

These tax incentives are complemented by various measures aimed at simplifying or streamlining bureaucratic procedures.

Thus, for example, the provisions relating to the acquisition of residence permits in Spain have been modified to make it easier for international entrepreneurs and teleworkers to obtain the afore mentioned residence permits.

Measures are also envisaged to streamline administrative procedures and reduce costs, such as express registration in the Commercial Register or the establishment of reduced fees for notaries and registrars involved in the incorporation procedures for this type of company.

In order to facilitate the development of these companies, these entities do not have to be dissolved if losses reduce their net worth to less than half of their share capital, provided that they are able to pay their suppliers and that three years have not elapsed since the company was set up.

This is a set of tax and commercial measures that aim to promote the creation of this type of company, either by residents in Spain or by people residing in other countries who wish to take advantage of the approved legal framework and infrastructures in Spain.