Tax Benefits for Investing in Newly Created Companies
There is no doubt that the entrepreneurial ecosystem is a booming sector, making investment in newly created companies a powerful engine to stimulate our economy. To encourage investors to allocate part of their assets to nascent business projects, the State offers tax benefits. As of January 1, 2018, individuals who invest in newly created companies can deduct 30% of their investments, up to a limit of 60,000 euros per year. This means investors can deduct up to a maximum of 18,000 euros annually on their income tax return (Law 6/2018).
Requirements for Investors
To qualify for these tax benefits, both the investor and the invested company must meet specific requirements:
Investor Requirements:
- Must be a resident of Spain.
- Must not own (together with your spouse and certain relatives) more than 40% of the share capital of the startup.
- Must not have an employment relationship with the startup.
- Must acquire shares of the startup at the time of incorporation or during a subsequent capital increase within 3 years of incorporation, maintaining participation for more than 3 years but less than 12.
- Cannot acquire shares in a startup if it carries out the same activity that the investor previously conducted through another ownership.
Startup Requirements:
- Must be a Stock Company or Limited Liability company, including labor companies.
- Must be incorporated within the last three years, with a registered office and tax address in Spain.
- Must not be listed on any organized market, including the Alternative Stock Market, and this requirement must be met throughout the holding period of the shares.
- Must conduct an economic activity with the necessary personal and material means for its development.
- Must have own funds not exceeding 400,000 euros at the beginning of the tax period in which the investment was made.
Exceptions to Tax Benefits
Tax benefits may not be applicable in the following cases:
- When the company’s main activity is the management of movable or real estate assets.
- When the company was established solely to finance startups, except for investors who acquire at least 5% of the startup’s share capital and maintain that stake for a year, or if the joint venture vehicle is set up to manage participation (e.g., attending meetings or councils).
Additional Tax Incentive
Another tax incentive to consider in personal income tax is the exemption in the reinvestment of profits from the transfer of shares or participations in startups to which the deduction under Article 68.1 of the Personal Income Tax Law was applied. This means that capital gains from the transfer of shares on which the 20% deduction was applied are excluded from tax if the amount is reinvested in the entrepreneurial ecosystem.
Required Documentation
To benefit from the aforementioned deduction, investors must obtain a certification from the startup confirming that all requirements have been met. Simultaneously, the startup must submit to the State Tax Administration Agency electronically, Form 165, which is the informative declaration of individual certifications issued to partners or participants of newly or recently created entities. This form must be submitted in January of each year for subscriptions made in the preceding year.
