Spain: Approves Draft Law on Entrepreneurship and Internationalization
On May 24th, Spain’s cabinet approved a draft Law on Entrepreneurship and Internationalization that Madrid hopes will encourage more startups in Spain. Its intent is to sweep away many of the administrative burdens faced by new businesses while it promotes new incentives. These include tax breaks for new businesses, a new form of limited-liability company, and other regulations designed to promote foreign investment flows in Spain, including a new electronic processing system for the establishment and implementation of a business and a faster system for obtaining a residence permit. The news is welcome, particularly among the young in Spain, where unemployment clocked in at over 27% in April.
The tax proposals included in Spain's draft bill of the Law on Entrepreneurship and Internationalization include the following:
- Promoting the reinvestment of profits in the economic activity: companies with a turnover of less than € 10M may deduct up to 10% of the profits made in the tax period if they are reinvested. This system also apply to self-employed.
- Tax incentives for R&D+I investment: The deductions for R&D+I (technical innovation credit) that can be applied in an exercise may be recovered by a standard system of tax returns in Spain
- Extension of tax incentives to certain intangible assets ("patent box” – e.g. patents, drawings or models, plans, formulas or secret process and know-how): income resulting from their transfer will benefit from a reduction of up to 60% in the taxable base, subject to certain conditions.
Individual income tax
- Tax incentives for individual investors that participate temporarily in new companies and start-ups (seed capital and "business angel"):
- 20% deduction in income tax quota when investing in a company. Maximum basis for the deduction up to of €20,000 per year.
- Full exemption from capital gains in divestitures, provided proceeds are reinvested in a new or recently created company.
VAT taxpayers with a turnover not exceeding EUR 2 million would be able to opt for a special VAT cash accounting regime, under which they would pay VAT due on sales only once they have received payment of an invoice from their customer, and they would claim VAT on supplier´s invoices when they have paid them.
Under the proposed new electronic processing system for the establishment and implementation of a business, which the government aims to have in place before the end of 2013, entrepreneurs would be able to obtain all the necessary permits in one place – in most cases within 24 hours. Other specific measures designed to reduce administrative burdens are those focused on
- Reducing burdens linked to statistical services and to the management for the prevention of occupational risks
- Reducing accounting charges, enlarging the possibility of presenting a synthesized balance sheet
- Possibility of telematic legalization in the Commercial Register
- Implementing a new eBook for labor inspections
The response to the draft has been enthusiastic, though it is generally acknowledged that Spain has a long way to go to boost its appeal to entrepreneurs. The World Bank ranks Spain 136 out of 185 countries ranked according to the ease of starting a business. Spain, according to the bank, requires 10 procedures and takes 28 days to start a business. Bloomberg, reports that entrepreneurs are leaving Spain in droves in search of venture capital. Spain, though the euro region’s fourth-largest economy, ranks 27th out of 118 in the U.S.’s Global Entrepreneurship and Development Index, trailing France, Germany and 14 other European countries, though ahead of Italy, Poland and Portugal.