Questions and answers on Spain’s startup lawTax benefits for entrepreneurs, investors and professionals; streamlined red tape; and new innovation testing environments are some of the measures covered by the government’s recently approved draft bill. This follows in the wake of the initial draft, with improvements that respond to the specific needs of the startup ecosystem. Here’s everything you need to know to get the most out of it.
The founders of startups face a number of hurdles when they embark on transforming their concept into a viable project. They need to sow the seed, nourish it with funding and talent, and care for it well, finding space to grow in an increasingly swamped market. Spain’s innovation ecosystem may be maturing – more than €4 billion were invested in startups in 2021, the highest figure to date according to El Referente – but it still needs a boost.
This backing has now arrived, courtesy of Spain’s Council of Ministers who approved the Draft bill to promote the start-up ecosystem as part of the country’s wider Spain: Entrepreneurial Nation Strategy. “The unique nature of startups is being recognised for the first time, along with their significance to the economy, with measures to facilitate creation and growth”, summarises Carlos Mateo, President of the Spanish Startups Association, which has been working on getting the startup law approved for some five years.
The law will also benefit companies with a focus on open innovation. “Any initiative contributing to increased investment in startups will enjoy advantages, attracting international talent, strengthening the ecosystem and giving large corporations like ours more opportunities to innovate”, states a BBVA Open Innovation representative.
If you’re an entrepreneur, you might be wondering exactly how this new law is going to help your project prosper. And we’re making it easier for you, with a little help from the experts. Here’s a snapshot of five key aspects of the forthcoming law in a question and answer format, so you’ll be ready to take full advantage of it as soon as it is approved.
First of all, your business needs to comply with the requirements set out in the draft law. It’s aimed at innovative companies that have been operating for under five years (seven in the case of sectors such as biotechnology, industry and energy); aren’t listed on regulated markets; haven’t distributed any dividends; and have an annual turnover of less than €5 million.
Unlike the previous draft bill, startup founders are given three opportunities to reap the benefits of the law. “This is an important change – whether it’s enough remains to be seen. Serial entrepreneurs galvanise a proportion of the ecosystem, and excluding them implies limiting potential growth”, explains Miquel Martí, CEO of Tech Barcelona, an association that promotes innovation in the city. As such, any entrepreneurs who fail to succeed with their first startup (a common outcome when getting such projects off the ground) will have the chance to start a further two business ventures under the same terms.
If you meet the requirements above, the law enables you to go to ENISA, a public sector company responsible for accreditation. Martí stresses how streamlining this process will be fundamental to startups taking full advantage of the law.
The law sets out a package of measures that can be used from the moment a company is created.
A fundamental element of making a project succeed is having a team of qualified professionals with the right digital skills, but a scarcity of talent is an issue. The draft includes proposals for attracting national and international talent:
The law incorporates a more favourable framework for raising funds, giving your startup the impetus it needs to grow. Firstly, it removes the requirement for an NIE (foreign ID number), making it easier for non-resident investors to invest.
Secondly, there will be tax deductions. One measure being introduced is to raise the maximum deductible amount for investments in startups from €60,000 to €100,000. This “encourages investors to consider increasing their capital investment over the year”, states Daniela Leal of EJASO. Additionally, it sets out a favourable tax regime for carried interest (a fee paid to venture capital fund managers for successful work).
“We’re hoping the law will give our sector the final push it needs. We don’t just want to be on a level with neighbouring countries, we want to lead startup regulation”, says Carlos Mateo, President of the Spanish Startups Association. “It will increase the number of companies being created and foster better conditions for digitalisation and innovation”, adds Leal. Having said that, the experts we consulted remained cautious when it came to offering a concrete assessment of the impact – at least until the final text is approved. Parliamentary process has now started and the government expects the law to be approved in mid-2022.
The amendments to the initial draft may have been praised, but there are areas for improvement. These include removing social security contributions for recently launched startups, increasing the turnover limit to be recognised as such, and approving specific measures for scale-ups with a proven growth trajectory. Nevertheless, the draft bill represents a major step forward on the route towards a regulatory system tailored to the needs of startups, providing an extra dose of nourishment to enable the fruits to grow.
There are also other ways of sourcing nourishment and support, such as open innovation. BBVA, for example, offers Fast Track (part of its Open Innovation programme), an agile framework for collaboration between banks and fintech projects. And the addition of key players such as entrepreneurs, investors, professionals, corporations and public bodies this year is set to help this ecosystem flourish further.