Do you know the one thing that we are all probably allergic to?
The TAX MAN.
So far in my life, I have only met one person who said he likes paying tax. Yes, his exact words were “I love paying tax. I always pay my taxes on time, and I pay a little more!” I questioned him “Why on earth pay more!” and he answered: “Because this way they never come back to investigate or check on things.”
Do you get it? Even he wasn’t really paying what he should have been paying. He was just paying more than what the tax man would think he was earning but not really what he should have paid.
Yesterday I had the pleasure of chairing the presentation of the New Startup Law with Douglas Goullet and Jesus Nuñez from Fideso Tax Law in Marbella.
If you are a startup founder or startup investor you know that the laws have not been favourable. Startups are risky, the chances of failure are high the time to return on investment is also high.
In addition to this, the cost for setting up a company, employing foreigners, getting foreign investors on your companies share holder lists were also additional hurdles that made startup growth and investment difficult.
The Spanish government has published a draft guideline of upcoming changes that is about to improve startup investment drastically.
These new guidelines include many Tax incentives for startup founders, investors and employees. Amongst these new proposals are:
• CORPORATE TAX (IS) reduced rate of 15% during the first 4 years in which they obtain profits and maintain the Start-up status.
• Possibility of deferring the payment of Corporate Tax (IS) for the first 2 years of profits, without guarantees and without interest: (first year 12 months, or second year 6 months)
• STOCK OPTIONS are encouraged as a payment method. This tax exemption is increased from €12,000 to €50,000 per year. Taxes on Stock options are paid when you transmit the Stock option (Sell) or the company goes public or 10 years have passed
NOTE: within the period of 5 or 7 years you must either transfer the shares or sign a stock option.
– The company is allowed to keep up to 20% of capital in treasury stock to allocate it to stock options
• Displaced regime (Beckham Law) IRPF of 24% > €600.000 salary during 6 years, wealth tax only for what you have in Spain (Equal taxation, but it is allowed) or for administrators and partners of startups with no limit of % (other companies max 25%). Spouses are included as beneficiaries of the regime.
• TAX INCENTIVES for INVESTORS
– Increase in personal income tax deduction up to 50% (other companies 30%) of the amounts invested in start-ups. Maximum base €100,000 (instead of €60,000). In other words, a maximum effective amount of €50,000 deduction.
o Maximum Capital Share of the start-up cannot exceed €400,000.
o Maximum participation of the family group is 40%. (Does not apply to founders).
• TAX INCENTIVES for working founders
• Bonus of 50% of the taxable income from work income for delivery of shares or bonus payment obtained by managers of start-up companies (carried interest). It clarifies regarding the shares received that they are not capital gains, but at least a 50% bonus. For example, if you normally pay 47% for an income of €250.000 you will pay 50% of 47% = 23.5%
• Bonus of 100% of the self-employed social security fee of the start-up administrator when working as an employee for other companies.
All the above plus many other new laws such as:
• Reduced registration time in the Mercantile Registry. 5 days instead of previously taking 2–3 weeks.
• The registration of shareholder agreements in the commercial register is allowed.
• In the first 3 years, no cause for dissolution applies, if the losses reduce the net worth below 50% of the share capital.
The law is in its final stages of being approved. If you are considering setting up a company as a startup or investing in a startup, please consult a lawyer in order to get the full benefit of this new scheme or Contact me for me details.