The startup law tax benefits gather advantages for those investing in emerging companies and for employees receiving stock options. These are measures with strict requirements, such as the ENISA certificate and maintenance periods.
The startup law tax benefits are the set of incentives that Law 28/2022, promoting the ecosystem of emerging companies, makes available to those investing in young tech companies and those working for them. The regulation came into force at the end of 2022 with a declared goal: to retain the talent and capital that had previously been leaving for other European countries with more attractive rules for entrepreneurship.
Before discussing taxes, it is important to clarify what is considered an emerging company, as the law does not grant benefits to just any recently established entity. The company must be less than five years old, not listed on the stock exchange, and not exceed five million euros in annual revenue. Additionally, it needs the emerging company certificate issued by the National Innovation Company (ENISA), which is the document that certifies to the tax authorities that the entity meets the requirements.
Deductions for Investors
The most talked-about incentive is the deduction in personal income tax for individuals who purchase shares or stakes in an emerging company. According to the approved text, the investor can deduct 50% of the investment from their tax liability, with a base limit of 50,000 euros per year. This means that the maximum reduction per fiscal year is 25,000 euros, a figure that has sparked interest among business angels and small investors who typically provide capital in early rounds.
The deduction has an important condition: the investment must be maintained for at least three years. If the investor sells before this period, they will have to regularise the deduction claimed, meaning they must return the tax benefit they received at the time. Therefore, advisors recommend viewing the operation as a medium-term investment rather than a shortcut to reduce a specific year's tax bill.
The regulation also excludes certain transactions between related parties, meaning that not all investments within the same business group qualify for the deduction. Anyone planning such an operation should review their conditions before signing, as a misclassification could nullify the incentive.
Stock Options for Employees
The second major block of measures affects workers. Startups often pay salaries below those of large companies and compensate for this difference with stock options, an instrument that grants the right to purchase shares of the company at a pre-set price. Until the law came into effect, the value of these options was taxed as income in kind at the time of exercise, which could force the employee to pay taxes without having received any money, as shares of an emerging company are rarely liquid.
The law introduces an exemption of up to 50,000 euros per year for these in-kind compensations, provided the conditions set out in the regulation are met. For the staff of a growing startup, this measure can make a difference when accepting an offer compared to a position in a well-established company that pays more in salary.
It is important to remember that the exemption does not turn the option into tax-free income. When the employee sells the shares, the capital gain will be taxed under the general savings rules, meaning the tax savings are concentrated at the time of exercise and not throughout the life of the investment.
Other Support for Companies
Beyond tax advantages, the law creates a framework of public support for emerging companies. The certificate issued by ENISA acts as a kind of access key to financing and support programs, allowing companies that obtain it to apply for grants and calls reserved for such projects. For a founder seeking their first round, having this document adds credibility in front of potential investors and facilitates negotiation.
The regulation also aims to reduce bureaucracy in the creation of companies and in managing funding rounds, although the practical scope of these measures largely depends on regulatory development and how each administration applies its criteria.
Key Considerations
Anyone wishing to apply any of these benefits should keep three basic points in mind:
- Obtain the emerging company certificate issued by ENISA before claiming the deduction or exemption.
- Maintain the investment for the required period, which is three years for the personal income tax deduction.
- Respect the annual limits for the base and exemption, which apply per taxpayer and per fiscal year.
The Tax Agency is responsible for verifying compliance with the requirements and may request additional documentation during an inspection or review of the declaration. Therefore, keeping contracts, partnership agreements, the ENISA certificate, and proof of investment is as important as the operation itself. Investors and employees who have doubts about their specific case should consult a tax advisor, as the rules regarding linkage and deadlines allow for nuances that can change the final outcome.
Overall, the startup law tax benefits aim to make the Spanish ecosystem more attractive compared to neighbouring countries. Its success will depend on companies obtaining certification, investors trusting in the stability of the framework, and the practical application being clear for those without a tax department behind them.
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