Introducing the new startup laws in Spain and Portugal
Spain and Portugal have implemented fresh laws aiming to foster the expansion of their respective startup ecosystems. These legislations introduce novel approaches toward stock options, provide tax deductions for investors, offer corporate tax incentives, acknowledge crowdfunding as a viable financing option, and grant income tax exemptions.
Antler in Iberia
Antler's Iberian location runs simultaneously in Lisbon and Madrid. Since launching in 2022, Antler in Iberia has supported founders from over 25 nationalities who are creating the next generation of startups.
May 22, 2023
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Recently, both Spain and Portugal have passed new legislation to promote the growth of their startup ecosystems.
In both ecosystems, these laws bring new ways of treating stock options, tax deductions for investors, corporate tax incentives, recognition of crowdfunding as a financing option, and income tax exemptions.
In this article, we will explore the key measures included in these new laws and their potential impact on the Iberian Peninsula's startup ecosystem.
Spain's “Fomento del Ecosistema de Empresas Emergentes” Law
The Spanish Congress recently passed the Law of “Fomento del Ecosistema de Empresas Emergentes,” commonly known as the Startup Law. This new legislation has been met with positive reactions from the Spanish startup community—11,100 startups with a combined total valuation of 83 billion EUR in 2022 and investors—as it provides a legal framework for startups in Spain and offers improved tax benefits for entrepreneurs. The law also puts Spain at the forefront of innovation, positioning the country on par with other European nations, such as Ireland, Netherlands, Germany, Sweden, France, and Estonia.
One of the most relevant measures is the improved tax treatment for stock options of startup employees. This allows employees of emerging companies to receive shares or social participation without having to pay taxes until they decide to sell them.
The income tax (IRPF) exemptions are raised from the previous 12,000 to 50,000 euros annually, and the 10-year holding period (the time the employee owns the stocks) is maintained. Another important measure included in the law is the modification of residence permits for entrepreneurs, investors and key employees, making it easier for them to stay in the country and contribute to the growth of the startup ecosystem.
The obtainer of those resident permits will have a 5-year window to benefit from the IRNR (foreign income tax), and the requisite for obtaining this status has been reduced from 10 years without being a fiscal resident in Spain to only 5.
The law also allows crowdfunding as a financing option, enabling startups to raise capital through small investments made by a large number of people. This will provide a new alternative to traditional forms of financing and will help increase the number of investment opportunities available to the public, while providing more opportunities for entrepreneurs to raise capital and grow their businesses.
Portugal’s new proposal for the “Startup Law”
Similarly, in Portugal, the government has approved a new proposal for the so-called Startup Law, which includes significant changes to the tax regime designed to stimulate startup activity.
The proposal includes a more favorable tax regime for stock options for startup employees, which has been a longstanding ambition for the ecosystem—2,000+ active startups in 2022, including seven unicorns. The Startup Law defines the legal concept of startups and scale-ups for the first time and recognizes a special framework for these companies.
Now the employees will only pay capital gains related to their stock options when they sell the shares. Furthermore, the tax rate sits at 14%, unless the taxable event is related to someone who owns more than 10% of the company and/or is the manager of the company, in which case this person will not be qualified for the new conditions, and will need to comply with the previous law—a quite controversial exception, criticized by local unicorn founders.
These laws also aim to create a more favorable environment for startups to grow and flourish, by positioning both Spain and Portugal as attractive destinations for entrepreneurs, investors, and talent. The startup ecosystem in both countries should see benefits from the implementation of these measures, becoming better prepared to compete with other European technology hubs.
The new legislation in Spain and Portugal marks a positive step forward for the Iberian Peninsula's startup ecosystem. Both laws include significant changes; when implemented, they will create a financial and regulatory environment more conducive to startup growth.
While it may take time to evaluate the impact of these laws fully, similar proposals in other geographies have yielded a jump in investment volume and consequently attracted talent to the region, promoting innovation and economic growth. With the Iberian Peninsula poised to become a more attractive destination for entrepreneurs and investors, the stage is set for a dynamic and thriving startup ecosystem in the years to come.
It is important to note that it is difficult to evaluate the tangible impact of the new legislation in the short term; we will need to wait a few years to fully understand the repercussions. For the past year, 2022, Portugal has been one of the fastest-growing ecosystems in Europe, whilst Spain maintains its position as the biggest ecosystem in all of Southern Europe.
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