15 of March 2023
The Startup Ecosystem Encouragement Act of Spain (“Startup Law”) came into force in 1st of January 2023. The Law creates a special visa for digital nomads applicable to both teleworkers and investors of these companies which will allow them to access the tax advantages established by this new Law.
The goal of the Law is to set forth a legal framework to support the creation and growth of emerging companies in Spain. The Law regulates a series of tax benefits and new types of visa and residence permits in the country.
The “Startup Law” regulates some changes in special Tax Regime for Inpatriates (“Beckham Law”) as well as new types of visa and residence permit for entrepreneurs, investors, highly qualified professionals and digital nomads moving to Spain to carry out the procedures necessary to undertake an innovative, entrepreneurial activity of particular economic interest for Spain.
We are going to explain them in detail.
TAX REGIME
1.- Beckham Law.
The change made by The StartUp Law consists of who is eligible now. There are really no changes to how much tax is paid under the Beckham Law.
Before the StartUp Law, any individual who acquired their tax residence in Spain as a result of traveling for work purposes (known as “inpatriates”) could benefit from the Beckham Law as long as they hadn’t resided in Spain during the previous 10 years.
This was a special tax regime aimed primarily at employees who had not resided in Spain in recent years. However, it was clearly limited, as it left out freelancers, entrepreneurs, and investors.
Since the StartUp Law, not only employees can benefit from the Beckham Law, but also freelancers, entrepreneurs, and investors living in Spain under the following requirements:
- The period that’s required of not having lived in Spain is reduced from 10 years to 5. This also applies to Spaniards, in a clear attempt to repatriate national talent.
- Company administrators will be able to benefit from this regime regardless of the percentage of the company they own. Until now, it was limited to 25%.
- It introduces special visas for non-EU citizens (among them, the visa for international teleworking that eliminates the need for local subsidiaries or intermediaries of foreign companies to have an employment relationship with Spain residents).
- Under certain circumstances, the spouse and children under 25 years of age (that haven’t been emancipated) may benefit from the regime.
2.- Tax advantages of this regime.
As long as the individual accredits their tax residence in Spain, the taxpayer will be taxed in Spain, exclusively for the income obtained in Spanish territory and not for their worldwide income.
Therefore, income obtained abroad (basically, income obtained in a country other than Spain) will not be taxed in Spanish territory, except for employment and professional income, which must always be taxed in Spanish territory, regardless of the country in which it’s generated.
For example, a person who obtained:
- Income from work in Spain for €50,000.
- Income from work abroad for €10,000.
- Income from real estate capital abroad for €15,000.
- Foreign capital gains of €5,000.
Normally, they would be taxed on a taxable base of €80,000, whereas under the Beckham Law, they would only pay taxes on a €60,000 base (of income from work performed both in Spain and outside Spain).
3.- Reduced Income Tax.
In addition, the tax rates levied on the income of inpatriates under the Startup Law are lower than the maximum marginal personal income tax rates.
Income from employment is taxed at a fixed rate of 24% on the first €600,000 and at 47% after that. This is different from the normal personal income tax rates in Spain which have a scale of six brackets in which the last established bracket taxes at the rate of 47% of those incomes that are higher than €300,000.
This means that an employed professional with an annual income of €600,000 per year would pay:
- €144,000 (average rate of 24%) under Beckham Law
- €277,000 (average rate of 45%) in the general regime*
* The Personal Income Tax (IRPF) rate depends on many factors such as the Autonomous Community, education, family situation, etc.
4.- Capital gains and income from movable capital.
Capital gains (dividends, share sales, interests, etc.) obtained abroad will not be taxed in Spain.
However, those obtained in Spanish territory by a person under the special regime must be taxed in Spain. And they will be taxed on a progressive scale different, under rates from 21% to 28%, depending on the amount of income obtained.
5.- Assets.
Under this regime, Wealth Tax is payable, although only assets and rights located in Spain are counted. However, the taxpayer’s assets in Spain must be roughly more than €1,000,000 (subtracting exemptions), so most entrepreneurs and digital nomads who move to Spain aren’t obliged to pay it.
6.- Inheritance and donations.
Inpatriates will have the status of residents for Inheritance and Gift Tax purposes. This means that, in case of inheritance or donation, they’ll have to pay this Tax, for all the assets they receive, regardless of where they are located, whether inside or outside Spain.
7.- Solidarity Tax on Large Fortunes. Law 38/2022 of 27 December 2022.
This is a tax imposed on the wealthiest residents to help the government deal with the cost of living crisis which affects Beckham Law beneficiaries.
The new tax is supposed to be a temporary measure implemented for the first two tax years after its accrual (December 31) since the Law came into force in 29 of December of 2022.
This tax provides that all taxpayers with tax residence in Spain, therefore including digital nomads whose net worth exceeds €3,000,000, are subject to the tax.
So taxpayers under the Startup Law only pay Wealth Tax with respect to their assets and rights located in Spanish territory. However, they will have to pay the Wealth Tax on their entire worldwide wealth. The amount an individual pays in Wealth Tax may be deducted from Solidarity Tax.
VISA FOR ENTREPRENEURS OR STARTUP VISA.
The Law regulates new types of visa and residence permit for entrepreneurs, investors, highly qualified professionals and digital nomads moving to Spain to carry out the procedures necessary to undertake an innovative, entrepreneurial activity of particular economic interest for Spain.
The following family members of the entrepreneur may also obtain the visa:
- The spouse or unmarried partner.
- Children and adult children who are financially dependent on the worker and who have not created a family unit of their own.
- Relatives in the ascending line in the worker’s care.
Visa applications must be submitted in person by the applicant, or by one of their parents if they are a minor. They may also be submitted through a duly accredited representative. You can apply for a visa for entrepreneurs and business activity if you are in your country of origin or if you are already legally living in Spain.
To apply for this type of permit you must meet the general requirements for entrepreneurs, if applicable, and the project must meet the specific requirements. There are no minimums for investment or job creation, although applications are evaluated taking into account, in addition to the characteristics of the entrepreneurial project itself, the socio-economic situation of the geographical environment where they are to be implemented.
TYPES OF PERMITS:
Visa: 1 year to reside and work throughout the national territory. Decision period: 10 days.
After the year, or at any time during the validity of the visa, if the entrepreneur can prove that they have effectively started the business activity, it is possible to apply for a residence permit for entrepreneurs and business activity, without having to apply for a new visa and without requiring a minimum prior period of stay.
- Residence permit: if the applicant is legally in Spain, you will get a permit for 2 years or the duration of the contract if minor to live and work throughout the national territory Decision period 30 days. It is renewable for other 2 years.
Residence permit in the event of training in I+D+I
You can request a residence permit foreigners UE not commuting to Spain, or that while holding a residence permit and residence, wish to conduct training, research, development and innovation in public or private entities.
If the applicant is legally in Spain, you will get a permit for 2 years or the duration of the contract if minor, to live and work throughout the national territory.
Residence Permit in the event of corporate relocation
You can request a visa or a residence permit foreigners UE not commuting to Spain within the framework of an employment relationship, professional or vocational training, with a company or group of companies established in Spain or in another country.
Residence permit in the event of training in I+D+I
You can request a residence permit foreigners UE not commuting to Spain, or that while holding a residence permit and residence, wish to conduct training, research, development and innovation in public or private entities.
If the applicant is legally in Spain, you will get a permit for 2 years or the duration of the contract if minor, to live and work throughout the national territory.
Residence Permit in the event of corporate relocation
You can request a visa or a residence permit foreigners UE not commuting to Spain within the framework of an employment relationship, professional or vocational training, with a company or group of companies established in Spain or in another country.
Residence permit: if the applicant is legally in Spain, you will get a permit 2 years or the duration of the contract if minor, to live and work throughout the national territory.
- Residence permit UE ICT intra-company transfer: The maximum length of the transfer is 3 years in the case of directors or specialists and one in the case of workers in training.
- National authorisation of residence by intra-company transfer: The maximum length of the transfer will be 2 years or the contract if minor, renewable.
