Startup law and its role in attracting global talent

The startup law has been long-awaited in Spain’s entrepreneurial and talent attraction ecosystem. Recognizing the particularities of this type of company and creating a legal norm to support them should promote investment and encourage talent attraction at a global level.

However, although the preliminary draft of the Startup Law presented is an undeniable step forward, some points should be reviewed before the final law is approved.

In the specific case of talent management, experts have identified some key issues:

Effectiveness of the exemption to taxation of stock options as a strategy to attract talent.

Legal flexibilities announced for digital nomads.

In this insight, I invite you to take a quick review of these two points. Let’s start at the beginning.

Which companies will be considered a startup?

The benefits and regulations provided for in the preliminary draft of the Startups Law will apply to “innovative-based startups.” Specifically, for a company to be recognized as a startup (according to the new regulation), it must meet the following requirements:

It must be headquartered in Spain

60% of the employment generated must be hired in Spain.

The company must have been in existence for less than five years (except those dedicated to biotechnology, energy, or industry, which are extended to seven years).

The company cannot arise from the spin-off of another company, be a listed company, or have distributed dividends.

Turnover cannot exceed 5 million euros per year.

For some specialists, this definition of startup “falls short.” First, a company is not considered a startup if its founders have already benefited from the law. You could only start up once, and this does not seem realistic in the Spanish scenario, at least if you consider the ‘Map of Entrepreneurship 2020’ statistics.

On the other hand, the 5 million annual turnover limit has also been questioned. “A company that invoices 5 million is an entrepreneur, but not a global competitor,” commented Antonio Iglesias to Business Insider Spain, who has also pointed out the importance of supporting both the creation of companies and their growth to turn the country into a Hub of talent.

What are Stock Options plans, and what does the draft Startup Law establish?

Stock options, or stock options, are used by startups as part of their employee compensation. The increase in the exemption of these compensation plans has been widely demanded by company leaders, as this could be a resource to attract candidates of high executive levels.

The draft Startup Law allows the delivery of 20% of companies’ capital as part of their stock options and raises their tax exemption, as earned income, from 12,000 to 45,000 euros per year. However, this figure may not be competitive for companies starting to grow and intend to attract multinational talent.

The reason is clear: professionals who work in a mega-company and are willing to bet on a startup often aspire to participate in the shares. Forty-five thousand euros per year may not be enough to attract talent at these levels, in addition to the fact that taxation must be complied with even if the profit has not materialized.

For specialists, these points must be taken into account before the approval of the Startups Act.

New regulations for digital nomads (more info at https://www.paperhelp.org/research-papers/)

Intending to turn Spain into an international talent hub, the proposed Startups Law aims to facilitate attracting professionals from other countries. The document includes facilities for teleworkers and digital nomads, such as creating a new visa and reducing the rate for the payment of the Non-Resident Income Tax (IRNR).

Taxation for people with incomes of up to 600,000 euros per year would be reduced from 24% to 15% for a maximum period of four years; a proposal that has been highly questioned because it is a “symbolic” range of time taking into account that most startups do not generate large profits in their first years.

In addition, the preliminary draft of the Startups Law contemplates including foreigners who telework from Spain in the payment of IRNR under the following requirements:

The obligation of not having been a tax resident in Spain is reduced to the five years before applying for this tax regime.

A non-resident will be able to enjoy this tax for ten years.

Those who request to benefit from this tax regime will have to demonstrate their condition of “teleworkers with the international character”.

Visa for foreigners teleworking in Spain

The new visa for teleworkers, foreseen in the draft bill on startups, contemplates “foreign employees of companies located outside the national territory who travel to perform their work duties in our country by telematic means or independent foreign professionals, who work remotely by digital means and whose remuneration comes mostly from foreign companies, with a limit of income from Spain of 20%.”

The authorization will be valid for one year and, once it expires, a residence authorization for international telecommuters may be requested. This second authorization will be granted for a maximum period of two years provided that the teleworker maintains the initial conditions of his visa.

Finally, according to the draft proposal, non-resident investors will not be required to obtain a foreigner identification number (NIE), and tax identification numbers (NIF) will be sufficient.