Startup law and taxation of emerging companies

The commonly known as “Startups Law”, published on December 22, 2022 (the “Law”), has been wonderfully received by all those who are in the process of professionalizing their entrepreneurial projects, being able to benefit from international mobility and taxation regimes that are much more beneficial than under the previous legislation.

In this note, we will focus our study on the tax advantages of this new Law.

1. Who can benefit from this Law?

In its scope of application, the Law states its extension to start-up companies, a concept that can be summarized as inclusive of all those legal entities that develop an innovative entrepreneurial project, that have not been incorporated for more than 5 years (incorporation that cannot be the result of a merger, spin-off or transformation operation), whose turnover does not exceed 5 million euros, and have not distributed dividends.

It is important to keep in mind that, beyond the above-mentioned requirements, the innovative venture project should be evaluated from the perspective of the following criteria established in the Law: degree of innovation, degree of market attractiveness, stage of life of the company, business model followed, competition, team, dependence of the start-up on suppliers, providers and rentals, customers and dependence on ENISA.

2. Tax advantages of the Law

2.1. Reduced corporate income tax (IS) rate

For all start-up companies that avail themselves of the benefits provided for in the Law, a reduced corporate income tax rate of 15% is established, applicable to the first tax period whose fiscal year has generated a positive taxable income, as well as to the following three tax periods.

Likewise, the possibility of requesting a deferral of the IS self-assessments (provided that these are not supplementary) corresponding to the first two financial years that record a positive taxable income subject to taxation is established; this deferral may be for up to 12 months, counting from the end of the deadline for payment in the voluntary period, provided that at the time of the request, the start-up company is up to date with the rest of the tax obligations that may be applicable to it.

However, in order to have access to the aforementioned advantages, the beneficiary company must maintain its status as a start-up company during the fiscal years to which it is applicable.

2.2. Management of instalment payments of IS and IRNR

Those taxpayers liable for IS or IRNR and who are included in the objective scope of the Law will not incur the obligation to make instalment payments, and it will be applicable to the first two financial years in which the start-up company has a taxable income.

In order to access this benefit, it will also be essential to maintain the condition of start-up company for those financial years to which it is applicable.

2.3. Exemption of income for IRNR purposes

One of the most interesting new features of the Law is its modification of the regime of income exempt from taxation for IRNR purposes.

2.3.1. Remuneration by means of stock options

The first of the incomes modified by the new Law is related to the delivery of shares by the company to its employees, which must be a start-up company in order to be applicable.

The exemption limit is raised from €12,000 to €50,000, giving the offeror the opportunity to make different offers to employees, without the concurrence of similar conditions being necessary for all of them, it being sufficient that the conditions are regulated in the company’s remuneration policy.

2.3.2. Investment in new companies and their IRPF deduction regime

Another substantial modification of the Law is aimed at investment in new or recently created companies, modifying the deductions available for the acquisition of shares and the income produced by them.

The deduction previously contemplated has been increased from 30% to 50%, and the maximum base has also been increased from €60,000 to €100,000.

However, this deduction presents a special regime, as the investment is not required to be in a start-up company, but a new or recently created company, and this is reflected in the specialties of how to invest and maintain the investment in the company:

• The shares must be acquired through a capital increase and may not be acquired through the sale or purchase of shares.
• The shares must be part of the investor’s assets for a period of between 3 and 12 years.
• In cases where the investment is made jointly with a spouse or relative as founding partners, the restriction that they may not together hold more than 40% of the company is eliminated.