A key novelty of the law is that it introduces a legal definition of “startup company” and requires an official certification to access its benefits. The public entity ENISA (National Innovation Company) has been designated as the single window responsible for evaluating and certifying which companies meet the innovative startup requirements. This certification by ENISA is necessary for the company to be eligible for all the tax and social advantages provided by the law.
Below, we summarize the requirements to be considered a startup company in Spain, and detail the main tax and legal benefits granted by the law, as well as a comparison with incentives in other countries.
Requirements for the consideration as a “startup company”
To fully benefit from the provisions in the Startup Law, the company must fit within the category of startup company. The main criteria established are:
- not to be older than 5 years since its incorporation (7 years in strategic sectors such as biotechnology),
- not to originate from a merger or split of non-startup companies,
- not distributing dividends,
- not listed on the stock exchange,
- having its headquarters or permanent establishment in Spain,
- at least 60% of the workforce under contract in Spain,
- not billing more than 10 million euros annually, and
- developing an innovative and scalable entrepreneurial project, meeting a series of requirements such as being recently created, innovative, with high growth potential, and fulfilling conditions of independence and size, among others.
It is necessary to request from ENISA the evaluation of these requirements and the issuance of the Startup Company Certificate. ENISA analyzes the degree of innovation of the project, the scalability of the business model, and other factors, in a fairly agile process (maximum three months) and free for the entrepreneur. Once certified, the startup can enjoy from that date the benefits of the Startup Law.
Main tax incentives for startups in Spain
The Startup Law contains important tax measures to minimize the tax burden of startups in their first years and encourage investment in them. Here are the most notable tax benefits offered by Spanish legislation to startups, their founders, employees, and investors:
Reduced Corporate Tax rate to 15%
The Corporate Tax rate (and its equivalent, the Non-Resident Income Tax, IRNR) is reduced from the general 25% to 15% for startups, during the first four fiscal years with positive taxable base. That is, the year the company starts making profits and the following three years, provided it maintains startup status, will be taxed at a reduced rate of 15% instead of the usual 25%.
This tax cut aims to ease the fiscal burden during the initial growth phase.
Deferral and facilitation of tax payments
Besides the reduced rate, startups can defer the payment of their initial taxes. Specifically, the law allows requesting the deferral of tax debt for the first two profitable fiscal years, without interest or guarantees. In practice, this means that when the company first obtains profits, it can defer the payment of that year’s Corporate Tax for up to 12 months, and for the following year up to 6 months, without incurring late interest.
Startups are also exempted from making advance installment payments of Corporate Tax during the first two years since their creation, improving their short-term liquidity.
Increase in personal income tax (IRPF) deduction for investing in startups
To encourage private financing, the law improves the IRPF deduction for individuals who invest in new or recently created companies. The maximum deductible investment base is increased from 60,000 to 100,000 euros per year, and the deduction percentage rises from 30% to 50%.
In other words, an investor (business angel) can deduct 50% from their IRPF quota of up to €100,000 invested annually in a startup, obtaining a tax saving of up to €50,000 per year. Additionally, conditions are made more flexible: the timeframe to materialize the investment extends from 3 to 5 years since the company’s incorporation (up to 7 years if it belongs to certain technological sectors).
The law allows the founders and their family members to apply this deduction even if they hold majority shares. This corrects the previous situation where founders owning more than 40% of the capital could not benefit; now even in FFF rounds (Friends, Family and Fools), initial founders can apply the investment deduction, which is an additional incentive to start and reinvest in the project.
Improvement in the treatment of stock options for employees
Stock options are a common mechanism to attract and retain talent in startups, allowing employees to acquire shares of the company. The new law makes their use more attractive with two important tax changes:
- Raises the tax-exempt amount for receiving shares from €12,000 to €50,000 annually.
- Changes the timing of the tax imputation for the remaining benefit, deferring tax payment until a future liquidity event.
Previously, when an employee exercised options and received shares, they had to pay IRPF at that moment on the unrealized gain (market value minus purchase price), even if no cash was received.
Now, startups can grant up to €50,000 in shares/equity annually to each worker without triggering tax. If the granted value exceeds that amount, the excess is no longer immediately added to the taxable base; instead, the law allows deferring taxation for up to 10 years or until a sale of the shares (or another liquidity event), whichever comes first.
In summary, an employee will not pay taxes on their stock options until they can actually convert them into cash (company sale, IPO, etc.), which removes a significant tax barrier. This improvement in stock options, along with the expanded exemption, facilitates startups offering equity participation as part of employee compensation, making them more attractive for talent.
Incentives for Fund Managers (Carried Interest)
In line with promoting investment, the law introduces a specific tax regime for carried interest, which is the share of profits received by venture capital fund managers when investments succeed. From now on, these gains for managers will be considered employment income but only 50% will be included in the taxable base for personal income tax (IRPF).
In practice, half of that income is exempt, and the other half is taxed at the general employment income rate.
This effectively reduces the tax burden for venture capitalists in Spain (who previously could be taxed near 47%), bringing it closer to the taxation on savings income (around a maximum of 30%). This alignment aims to make Spain more attractive to managers and encourage the local venture capital industry, aligning with practices in other competitive jurisdictions.
Special Regime to Attract Foreign Talent (“Beckham Law”)
The Startup Law also facilitates entrepreneurs, investors, and highly qualified workers from other countries to settle in Spain. To this end, the special tax regime for inbound expatriates (popularly known as the “Beckham Law”) was reformed.
Now, not only highly paid executives but also entrepreneurs who relocate their residence to Spain to found or participate in startups, foreign investors, and so-called digital nomads can opt to be taxed as non-residents (IRNR at 24% up to €600,000). Additionally, the prior requirement was relaxed: it is enough not to have been a tax resident in Spain in the last 5 years (previously 10). Under this regime, beneficiaries pay a fixed 24% rate on their worldwide income up to €600,000 (instead of the progressive IRPF rates which can exceed 45%), during the year of the residency change and the following 5 years. It is a strong tax incentive to attract international talent and digital workers, complementing the new visas for digital nomads (described later), allowing these professionals to settle in Spain with tax advantages.
Together, these tax measures represent an interesting package of financial and tax support for the Spanish entrepreneurial ecosystem.
Many of these incentives respond to longstanding demands from domestic startups, and although their real impact will depend on their use, they represent a clear advance in the country’s pro-entrepreneurship taxation. However, as we will see, there is still debate on whether they fall short or are practically at the starting line compared to incentives in other countries.
Other Legal and Administrative Advantages for Startups
Beyond purely tax matters, the Startup Law introduces legal, commercial, and administrative facilities to reduce barriers to the creation and development of startups in Spain. Among the main non-tax advantages are:
Acceleration of Company Formation Procedures
The process to establish a startup is significantly simplified and made cheaper. The law provides for express online formation of limited liability companies (SRL) through a Single Electronic Document, with rapid registration (possible registration in 6 hours using standard bylaws, or no more than 5 working days in general cases). Additionally, notarial and registration fees are eliminated or minimized: electronic registration of a newly created SRL will have minimal or no fees, as will publication in the BORME, reducing initial costs. The minimum share capital is also reduced to 1 euro (this was actually introduced through the “Ley Crea y Crece” but also benefits startups).
Commercial Flexibility in the First Years
Aware that many startups operate at a loss initially while scaling their model, a legal moratorium is established on certain obligations. For example, during the first three years after incorporation, a startup will not be required to dissolve due to losses that reduce its net equity below half of the share capital. The Commercial Code normally requires dissolution or recapitalization of companies with equity imbalances; now startups have a 3-year grace period to absorb losses without a legal cause for dissolution. This gives them room to invest in growth before becoming profitable, without the immediate risk of closure for accounting reasons. Likewise, startups can request temporary or provisional licenses to operate in regulated sectors while processing definitive permits, avoiding paralysis in their initial activity. These changes introduce greater legal flexibility adapted to the reality of high-risk innovative businesses.
Social Security Contribution Discounts for Entrepreneurs
Another significant novelty is the relief on social security contributions for founders with multiple employment situations. If an entrepreneur launches a startup while maintaining salaried employment, the law grants a 100% discount on the autonomous worker quota for 3 years, avoiding double contributions to the Special Regime for Self-Employed Workers (RETA) during this period.
In other words, workers who combine salaried jobs with self-employment when creating a startup will not pay the monthly self-employment quota during the first three years of the new business. This measure reduces the personal cost and risk of “part-time” entrepreneurship and aims to encourage more professionals to start startups without immediately giving up their current jobs. It is an important labor advantage, added to others already existing (such as the flat rate for new self-employed workers, although that is general and not specific to this law).
Visas and Attraction of International Talent
The Startup Law incorporates migration facilities to attract entrepreneurs and foreign workers. In particular, it creates a visa for digital nomads, a new type of visa/residence permit for foreign professionals who work remotely from Spain for foreign companies or their own projects. This visa allows them to reside and telework legally in Spain for one year (renewable), or even directly obtain a residence permit for up to 3 years if applied for from within Spain.
Applicants must meet some requirements (for example, demonstrate sufficient foreign income and remote work), but essentially a legal framework is offered for non-EU “digital nomads” to live and contribute talent in Spain.
Additionally, the law strengthens the existing entrepreneur visa, facilitating entry for foreign founders of innovative startups with a faster process. Complementarily, as already mentioned, they can opt to be taxed under the inbound expatriate regime, which also provides a tax incentive. Moreover, the period of stay for foreign graduate students looking for work or wanting to start a business in Spain is extended from 1 to 2 years, trying to retain talent trained at our universities.
Favorable Regulatory Environment (Sandbox)
The regulation includes the promotion of regulatory “sandboxes” in innovative sectors. A fintech sandbox already existed in Spain, but the law proposes to promote regulatory testing benches in other technological fields so startups can pilot projects with more supervised freedom. This, along with a startup ecosystem monitoring commission, points to a more dynamic and experimental regulatory approach, aligned with practices in the UK or Singapore where sandboxes have helped reconcile innovation and regulation. While its practical implementation will depend on future developments, it is a positive sign of regulatory modernization.
Altogether, these legal and administrative reforms address many traditional obstacles to entrepreneurship in Spain: cumbersome procedures, initial costs, legal uncertainty, and difficulty attracting global talent. The Startup Law, complemented by other recent laws (Ley Crea y Crece, bankruptcy reform, etc.), aims to reduce the gap that separated Spain from more startup-friendly environments. However, debate remains on whether these measures are sufficient compared to those existing in other leading countries.
Next, we briefly analyze Spain’s international standing.
International Comparison: Has Spain Fallen Behind in Incentives?
Although the Startup Law represents a significant step forward for the Spanish ecosystem, many observers point out that other countries have offered greater incentives for years. Historically, Spain has had a less competitive fiscal and bureaucratic environment for entrepreneurship, and while it improves with this law, it “falls short” in several key aspects compared to leading economies. Let’s look at some comparisons:
Investor Incentives (Business Angels)
The new Spanish 50% deduction up to €100,000 annually is positive, but the UK has had the SEIS scheme since 2012 with a 50% deduction up to £100k and, additionally, total capital gains exemption when selling shares after 3 years. The UK’s EIS program, active for decades, offers a 30% deduction up to £1 million invested and also exempts capital gains tax after 3 years. In other words, a UK investor can recover through taxes a portion of their investment similar to Spain’s, and additionally pay no tax on gains if the startup does well, which greatly multiplies the incentive to bet on startups.
In the United States, there are no initial income tax deductions for investing, but there is the Qualified Small Business Stock (QSBS) provision: if an investor (or founder) holds their shares for at least 5 years, they can exclude up to $10 million in federal capital gains (or up to 10 times their initial investment) from tax. This 100% exemption on gains (up to that high limit) is a huge stimulus to invest in high-potential startups in the US (in addition to a more developed capital market). In comparison, in Spain, startup capital gains are taxed (~19-23% IRPF) even after applying the investment deduction, with no exemption equivalent to QSBS or the UK scheme, unless reinvested in another new company to defer payment. Therefore, although Spain improves treatment of private investors, it still lags behind Anglo-Saxon countries in fiscal incentives for business angels and early-stage investment.
Corporate Tax and Profit Reinvestment
The reduced 15% rate in Spain for 4 years is competitive in Western Europe (where the general rate is around 25% in many countries). However, other countries offer different advantages: for example, Ireland has a general corporate tax rate of 12.5% for all companies, regardless of age, which has attracted tech multinationals for years. Estonia applies a unique regime where corporate tax is not paid as long as profits are reinvested in the company; only when dividends are distributed is tax due. This type of scheme especially benefits startups that dedicate their revenues to growth rather than profit distribution.
Spain, on the other hand, after those four years at 15%, returns to the standard 25%, and does not provide exemptions for retained earnings (although startups typically reinvest, any accumulated profit is still taxed). In France, there are fiscal incentives for jeunes entreprises innovantes (JEI), such as corporate tax exemption in the first year and 50% in the second, plus significant R&D tax credits. Spain does have deductions for R&D and the possibility to request a refund (cash-back) if they cannot be applied, but that regime existed before and is not specific to certified startups. In summary, the corporate tax burden in Spain remains relatively high, and the law does not introduce advantages like those in Estonia or other reinvestment-oriented models.
Labor and Staffing Flexibility
A critical point for startups is labor costs and hiring flexibility. In this area, Spain has historically had high social security contributions and rigid labor laws compared to the United States or even other European countries. The Startup Law partially addresses this with a discount on social security for multi-activity freelancers and promotion of stock options, but does not lower general social contributions nor create special startup contract categories (beyond those already existing in the 2022 labor reform for internships or the indefinite growth contract that could be used).
Bureaucracy and Speed of Company Formation
The law promises company formation in hours and less paperwork, which is progress. Still, it should be noted that in the UK forming a limited company online usually takes less than 24 hours, and in countries like Estonia there is the famous e-Residency program allowing full remote company formation and management with great agility. Spain is still refining the implementation of express formation (the electronic system and standard models must effectively work). Also, aspects like opening bank accounts, obtaining digital certificates, etc., may cause delays in practice. In previous international indices (such as the World Bank’s Ease of Doing Business), Spain traditionally lagged behind in the company startup indicator.
According to the OECD, Spain holds a very unfavorable position in ease of entrepreneurship.
In conclusion, the Spanish Startup Law brings us closer to international standards of incentives and agility, but does not yet place us at the forefront. Pioneer countries in startup support, like the UK or the US, have an advantage with very attractive fiscal schemes for investment (capital gains exemptions, ongoing incentives beyond the early years) and more flexible regulatory environments. Other European countries have experimented with ambitious measures (for example, France with tax and social security exemptions for young innovative companies, Germany recently improving deductions for VCs, etc.).
Spain started behind in this “race” and the new law was a necessary demand; in fact, it has been generally well received. But the ecosystem’s general opinion is that the regulation “falls short” on fiscal support, investor incentives, and simplification of procedures, and further reforms will be needed to match the most dynamic environments. Still, this legal framework establishes for the first time a specific consideration of startups with their own advantages, which is undoubtedly a milestone.
Conclusion
The certification of an emerging company by ENISA has opened up a range of unprecedented fiscal and legal benefits in Spain until recently. Reduced corporate taxes, interest-free deferrals, strong deductions for investors, improved taxation of stock options and manager remuneration, together with administrative facilities (express creation, lower costs, suspension of dissolution causes) and tools to attract global talent (visas and impatriate regime), configure a much more favorable environment for tech-based startups.
This set of measures responds to the goal of turning Spain into a competitive hub for innovative entrepreneurship, stopping the flight of projects to other countries and encouraging more investors to bet on our entrepreneurial fabric.
However, Spain must maintain the pace of improvement if it wants to position itself as a preferred destination for entrepreneurs. In analysts’ words, the law is “well-intentioned but perhaps insufficient,” opening the door but not completing the task.
While there is still work to fully match ecosystems like the US or UK, this law lays the foundation for a stronger and more attractive entrepreneurial ecosystem in our country, something long awaited.
Article written by:
Lawyer – Tax and M&A
jose.perezfuster@metricson.com
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