- The law to foster the start-up ecosystem was passed as Law 28/2022 of 21 December.
- It cuts corporation tax for startups and improves the treatment of share options for employees.
- The advantages come with requirements: it is wise to check case by case whether the conditions are met, with the help of a commercial and tax adviser.
The law to foster the ecosystem of emerging companies, known as the startups law, was passed as Law 28/2022 of 21 December. It cuts corporation tax for startups and improves the treatment of share options for employees. It also includes tax incentives and visa facilities for entrepreneurs, with the intention of attracting talent and capital to Spanish emerging companies. It is a rule designed for a particular type of company, so it does not affect all businesses equally.
Startups are young companies with an ambition to grow fast, often technology-based, and they usually need more investment and talent than income in their first years. A legal and tax framework designed for them can make the difference between staying and moving to another country. For entrepreneurs, investors and employees of such companies, knowing the law helps to take decisions with information. Anyone thinking of starting up does well to distinguish between general advantages and those obtained only by meeting specific requirements.
What the law contains
The startups law is a rule designed for emerging companies, young and with an ambition to grow. It cuts corporation tax for these companies and improves the tax treatment of share options for employees, a common instrument for attracting talent to companies that cannot yet pay large salaries.
A share option is a right to buy shares in the company in the future at a price fixed today. For the employee, it is a way to benefit from the company’s success; for the company, to retain and motivate the team without committing cash. Its tax treatment determines how much the employee keeps and when they are taxed, so improving those rules makes the instrument more attractive. Employees who receive options should understand that they are a conditional right and that their value depends on how the company fares, which is not guaranteed.
Barcelona and startups
Barcelona is one of the main startup hubs in southern Europe. The law gave new tools to attract talent and capital to an already established ecosystem, and strengthened the city’s ability to compete with other European hubs.
A startup ecosystem is fed by universities, investors, technology firms, workspaces, events and a culture of collaboration. Regulation is just one more piece, but a piece that can ease or hinder the hiring of international talent and the entry of capital. For the city, improving that piece is part of its competitiveness strategy. Attracting talent does not depend on taxes alone: quality of life, access to financing and ease of growing all weigh, and the city competes on all of them.
Requirements case by case
The advantages come with requirements that should be reviewed case by case. A company wishing to take advantage of the incentives must analyse whether it meets the conditions, what procedures it requires and how the share options are structured, with the help of a commercial and tax adviser, before taking decisions that affect the partners and the workforce.
Tax incentives are usually defined by criteria of age, size, innovative nature or type of activity, and a company that considers itself a startup may not meet all of them. It is also worth checking how compliance is to be demonstrated, the deadlines and the reporting obligations. Documenting well from the start avoids problems if the authorities later review the application of the benefits. Having an adviser from the moment the corporate structure is planned avoids having to correct it later.
A tax incentive is only useful if its conditions are met, and understood.
This article is general information. It is not legal, tax or investment advice, and it does not take anyone’s particular circumstances into account.
