After a long legislative process, the Spanish Parliament approved the long-awaited Startup Law on 3 November 2022.

In a nutshell, the law aims to attract international investors, digital nomads and startups to Spain through visa incentives, tax breaks, reduced bureaucracy and other benefits.

Originally presented in 2019, the bill has been amended 271 times throughout its passage through the Economic Affairs and Digital Transformation Committee, the Spanish Council of Ministers, as well as, the Parliament. The last stage before becoming law was ratification by the Senate. Given the strong support the bill already had from the main political parties, its approval took place without incident. Entry into force was in January 2023.

So what should foreign entrepreneurs, and digital nomads planning to relocate to Spain, know about this "landmark" legislation?

Here are fifteen key points of this law:

1. What Spain considers an emerging company: To qualify for the benefits of the new law, companies must be new or emerging, meaning they must be new or less than five years old, or seven years old for biotech, energy and industrial companies, and must have a scalable business model. Technology-based companies would also be included here, i.e. those whose activity requires the generation or intensive use of scientific-technical knowledge and technologies for the generation of new products, processes or services and for the channelling of research, development and innovation initiatives and the transfer of their results.
2. There can be no mergers: The new company may not have been created through mergers or spin-offs of existing companies.
3. Innovation in focus: The start-up company must be considered innovative and try to solve a problem or improve an existing situation. To this end, the ENISA agency will accredit both this status and that of a "start-up" company.
4. Tax incentives for start-ups: One of the main advantages of the law is the reduction of corporate tax from 25% to 15% for up to 4 years.
5. Tax deferral for startups and digital nomads: Startups can also apply for deferral of corporate income tax and, in the case of digital nomads, non-resident income tax (IRNR) for 12 and 6 months, respectively, without interest.
6. Tax breaks for startups: The Startup Law also increases the maximum deduction base for investments in startups (from EUR 60,000 to EUR 100,000 per year) and the deduction rate (from 30% to 50%).
7. Be established in Spain: Newly created companies must have a permanent establishment in Spain. In addition, 60% of the company's employees must have contracts in Spain.
8. Disqualification: A startup company will be excluded from the benefits of the law if it is acquired by a non-startup company, if its annual turnover exceeds EUR 10 million, if it causes "significant damage" to the environment or if one of its partners, with a 5% stake in the company, is convicted of a criminal offence.
9. Dividend ban: Start-ups cannot distribute dividends or net income per cooperative member, nor can they pay contributions on a regulated market.
10. Less bureaucracy: The new law also aims to remove some of the bureaucratic hurdles faced by foreign investors, such as the requirement for international investors to obtain a NIE (Número de Identificación de Extranjero) in order to incorporate such companies. Now, both investors and their representatives will only have to obtain a Spanish Tax Identification Number (NIF).
11. Retroactive nature: The law is retroactive, which means that anyone who has set up a new company before the entry into force of the legislation can benefit from it, provided they meet the conditions.
12. Spain defines a digital nomad: According to the law, digital nomads are "persons whose work allows them to work remotely and regularly change their place of residence".
13. Tax exemptions for digital nomads: For the first 4 years, digital nomads earning money in Spain can pay Non-Resident Income Tax (IRNR) instead of Personal Income Tax (IRPF). IRNR is generally 25% in Spain. To be subject to IRNR, they must prove that at least 80% of their income comes from business abroad.
14. New visa for digital nomads: The Startup Law creates a visa for international telecommuting that allows non-EU citizens to enter and stay in Spain for up to 1 year. If they apply from Spain, they can directly obtain a residence permit for up to 3 years.
15. Foreign students: The period during which foreign students can stay after graduation to work or set up a business (job-seeking residence) has been extended from one to two years.

Conclusion

Now that Spain has passed its new law on startups, all foreign entrepreneurs and digital nomads who want to live and work here can expect a number of tax breaks and other incentives, but there are also certain restrictions to comply with.

Individuals from the European Union or third countries will be eligible for the legislation, provided they have not been resident in Spain for the last five years. This law will allow people to obtain a special visa, renewable for a maximum of 5 years.

Spain's position in the OECD ranking for business start-ups was unfavourable in 2015. Many hope that the new legislation will improve this perception. Time will tell the final word.