Spains government is gearingPass the country’s first startup law.
A Draft lawLast month, the parliament received the ministers’ agreement. The process of negotiating and agreeing on the details of the startup ecosystem support framework will take anywhere from six to nine months. If all goes according to plan, Spain will finally have a startup law by the end of this calendar year.
The support package looks substantial and includes key areas such as tax breaks for investors, talent incentive like stock options, and a new digital nomadic visa to attract international tech workers. These are just a few of the many measures that will be taken to cut red tape and reduce the time and cost of starting a business in Spain.
The startup law (aka ley de startups) is just one piece of a wider, ten-year strategy the countrys coalition government has been working on since 2020 setting out an ambitious plan to transform and futureproof the economic fortunes of the Southern European nation by making it a Mediterranean paradise for entrepreneurs, plenty of whom flock to cities like Barcelona and Madrid already (if more for the climate and food than the burocracia).
Spain’s government talks of a true levelling agenda. It emphasizes that state support for entrepreneurs who scale disruptive ideas into mainstream platforms must be in conjunction with progressive policies aimed towards ensuring that digital scaling doesn’t just increase social inequality, whether it is regional, socioeconomic, or gender. This component of the Espaa Nacin EmprendedoraStrategy is, inevitably, going to take longer. This is why the decade-long lens.
The startup law will be one the first major deliverables in the strategy’s near future. This key piece of digital transformation is entirely focused on investors and entrepreneurs.
TechCrunch caught up with the high commissioner for Spain Entrepreneurial Nation, Francisco Polo, for an update on what’s been agreed in the draft text of the startup law and to get his views on some of the early feedback from the ecosystem.
This interview was lightly edited to improve clarity.
TechCrunch. The draft of the Startup Law is now available to the Parliament. Are they confident?What support package provides everything an ecosystem needs to thrive?
Polo:We believe the draft of the Startup Ecosystem Law, which was approved on December 10, is a revolutionary step in attracting investment and talent. For us, the High Commission, this is a confirmation of Spain’s position as one of Europe’s best countries for startups. We are thrilled to see this law passed in Parliament and that it is fully in force, in order to continue fulfilling the various measures we discussed in the Spain Entrepreneurial Nation Strategy that we shared a few months back.
TechCrunch: So there’s nothing else you were hoping to include obviously there could also be some amendments that come through the parliamentary process. But, at this point, you’re pretty happy with the package?
Polo: Yeah, because looking at the full picture, it’s actually the first time in our history that we’re going to have a specific legal framework for startups. This new legal framework for startups will be one of the most ambitious in Europe.
Yes, there is always room to improve, but we believe that the law as it is now is very ambitious. And it’s going to really become a great tool for the attraction of investment and talent.
TechCrunch: Do you expect many amendments to pass through the parliamentary process. Is there anything that’s likely to cause much debate? Is there a consensus on these proposals?
Polo:This law is solid because it came from a dialogue we had with different sectors in innovative entrepreneurship. So it’s a very solid law and everything that went in it really reflects the long conversations that we held with innovative entrepreneurship in Spain. We don’t expect any major amendments to this law, as we have the majority to pass it. It should pass very, very quickly as it was passed as a draft to parliament.
TechCrunch – Do you have any idea of the speed at which the law can be put on the statute books?
Polo: So the parliament is going to be leading on this and they have the full direction on how long it’s going to take. But according to what we are hearing from Parliament, it’s going to take between six and nine months. So it’s going to be between June and September of the current year.
According to my understanding, the law will fall under the general regime. The law will be made public as soon as it becomes available. Boletn Oficial destadoIt will be in full force.
TechCrunch – 2022 seems like a very important Year for Startups in Spain
Polo: Absolutely. The most important thing about the startup legislation is that it includes stock options. I’m happy to discuss other measures but if you look at the whole picture, you will see that some of the elements we include in the law, stock option, visas, non resident tax system and carried interest, some of which are better than other regimes in Europe. Others are comparable to the countries we have around. This law is a revolution for entrepreneurs all over the world. We are creating an international hub for startups.
TechCrunch – To be eligible for the support package, local startups must be innovative businesses that are at least five years old (or seven if you’re in biotech), have at most 60% of their employees in Spain, and have revenues in excess of 5 million. Why did you draw these lines? Some critics have suggested that the definition for a startup is too narrow.
Polo:Our High Commission work is driven by data. We use data to help us understand how startups survive for three to five years before they go under or are acquired by another company.
This is the sample data we used to extract business data analysis. We also have You can find a more specific number for Spain. A startup’s average life span in Spain is 2.7 year. Five years should be sufficient to allow the startup to adjust to its needs and grow enough to move on to the next stage. So we really believe that according to data, it’s a good timespan.
TechCrunch: But some startup groups and entrepreneurs have said the definition is too restrictive — including criticising the exclusion of serial entrepreneurs after, I think, three exits, which they argue means its punishing the most experienced/determined or even the best entrepreneurs. What do you think about that kind of pushback?
Polo:We could agree on this point. The law was intended to allow serial entrepreneurs to start different startups. This is something we could agree on. [the text of the law better reflects] when it’s passed in parliament, because the point is to allow student entrepreneurs to start as many startups as they as they can.
Because the point of the law — and the point of the strategy — is to have the strongest startup ecosystem so it has good repercussions on the greater economy of Spain. So that’s the point and if that’s something that needs to be corrected, we are aligned with that ambition.
TechCrunch: There are also concerns about the certification process and whether there is only one body. EnisaThis will lead to a bottleneck. Is that something you’re at all worried about?
Polo:We prefer to focus on the topic rather than worrying. [to cope with the workload].
Enisa and I are working together to prepare for the need to qualify the different companies who will apply to Spain’s startup ecosystem law. This is not a new concept in the world, as countries like Israel and Italy have very similar systems. They work perfectly. So we are just doing the work and I know firsthand that Enisa is taking this very seriously so that it doesn’t become a bottleneck for startups.
Francisco Polo, high commissioner for Spain Entrepreneurial Nation (Image Credits: Complejo de la Moncloa)
TechCrunch – The Economic and Social Council of Spain (CES) has also made a number of criticisms of the startup law including arguing it’s too narrowly focused on startups as limited companies, excluding other options like co-ops and limited liability labor companies. It’s interesting to note that the Entrepreneurial Nation Strategy has a wider goal than just to uplift a few digital elites. Do you think the CES critique contains any important points?
Polo:This is why we want to return to the core of this law. We are creating the first startup law in the history of Spain and that’s the point we want to create a law that is specific for startups.
It has been called for historically by the Spanish startup sector. So that’s why we have put the focus here. We are creating a law to support startups in creating an ecosystem. So that’s the focus.
It is not a good idea to mix the startup law’s goal with the strategy’s broad vision. The strategy has a wider vision than the law. This strategy aims to work with the Spanish startup ecosystem and with the different driving segments of the Spanish economy. We also have specific measures to close the social divides in Spain.
So that’s why the startup law is focused on startups, because we needed a specific framework for them in order to have better tools to attract the investment they need, and better tools in order to also attract and retain and develop the talent that they need in order to turn Spain and take the first steps into turning Spain into a startup nation.
TechCrunch – While the response from investors has been positive, there are still calls for the government’s to go further despite the fact that 2021 was a record year in Spain for VC investment. Do you think the parliament will be able to resist the pressure to be more generous with investors?
Polo:We believe there are great provisions for investors in this law. Carried interest is one example. One of the main things that we are achieving well, I should say that there are three main things for investors, I think that’s important first the first is carried interest.
Carried interest, as you probably know, was not legalized in Spanish law. This created uncertainty for investors looking to invest in Spain. This law will change everything. We’re going to have a full definition of carried interest. The first accomplishment of this law is legal certainty.
This legal certainty and a reasonable tax treatment will allow you to attract more VC funds to Spain than other investors. It will also help you to accelerate the Spanish investments needed to close the gap to other European countries. So that’s one of the main points.
Actually, we are extending the regime of carried interest from Vizcaya to the whole nation. So we’re going to have a really attractive regime for carried interest. This is the first of three things.
The second is something we have been calling for for a very long period of time: International investors identification. This was done by removing red tape.
Before this law, you needed an NIE to become an investor. Nmero de Identidad de Extranjero. This was an extremely difficult requirement to obtain. We changed the criteria, and now the NIF is all that is required.NmerodeIdentificacin Fiscal). Which is much easier. It is a simpler process to obtain it.
Third, and most importantly, we will have a new framework to allow investors to deduct investment taxes. There is an improvement. The current 30% to 50% deduction percentage is now available for startup investments. This deduction can be taken from a maximum of 60,000 to 100,000.
These numbers are not accidental. This topic was chosen because it is comparable to the SEIS, which is the UK’s seed enterprise investment system. Their system allows for a 50% deduction per 100,000. We are essentially emulating the UK system. This is going to be a revolution for investors and business angels.
This deduction is also available for founders of the business. So it’s also going to be great for the entrepreneurs who invest in their own companies.
We believe it is a great package that will help Spain stand out among international competitors. It also sends a clear message to VC funds in Europe and the world to invest and support Spanish startups.
TechCrunch. How quickly do we expect the law’s impact on the investment side to be felt? Perhaps it’s already having an effect as investors are aware it’s coming so might be changing investment behavior ahead of time
Polo: Well, as you know, law and legal framework, it’s only a part of the whole list of features that allow business investment or business angel investment or other funds to invest in Spanish startups. So we have been working on different items that we need to be working on in order to show that it’s really worth it to invest in Spanish companies. So this is going to accelerate the path that we’re recording as you were mentioning, last year, we again surpassed the records of the previous year in terms of investment in Spanish startups. This is the purpose of the entire strategy to accelerate this process, in order to close any gap with other European nations. In 10 years Spain will be the largest country in mainland Europe in terms of investments in startups.
TechCrunch: So you you want to overtake France’s level of startup investment within a decade, for example?
Polo:Our goal? Yes, we are very ambitious about our investment goal. We are determined to close the gap between Germany and France in the next ten year.
TechCrunch. What projections do you have for the future regarding the acceleration in investment in Spain in the next five years? Do you have any figures?
Polo: We don’t have figures on that because there are so many factors that affect investment that we cannot make that kind of prospection. We are actually reducing red tape, creating a better legal environment for Spanish startup investments, and generating the necessary investments to help the ecosystem grow.
The Another tool we have to help accelerate investment in the Spanish startup community is the Next Tech FundThis will help Spanish startups become scale ups, which is the real challenge we face in terms of investment in our country.
This fund will therefore be putting together more 4BN [half public, half private funds]We will help Spanish companies to qualify for rounds exceeding 10M. As you can see, there are many factors that affect the acceleration of investments in Spanish scale-ups and startups. We are working with each one of them.
What we see is that there’s going to be an acceleration, and we are doing everything that needs to be done in order to see that acceleration. We will be able to see the exact numbers when it happens.
TechCrunch – How can you make use of EU coronavirus funding recovery funds to support the growth of your startup ecosystem?
Polo:The Next Tech Fund (not the only measure) is one of many that we are putting together using EU funds.
Under the Spain Entrepreneurial Country strategy [which has a budget of 4.2BN until 2023]We have a lot of money that will be used for different purposes. Renafe, the network between incubators or accelerators, is what you have. We want to launch also One: Oficina Nacional EmprendimientoWe want to be the central point of entry for all things related to this ecosystem.
There are many measures that will be taken to absorb EU funds to make Spain the nation with the highest social impact.
TechCrunch – How will life be different for entrepreneurs and startups in Spain once the Startup law is passed?
Polo:This is going to be a significant shift. We know four main challenges that face the startup ecosystem in Spain. First, investment. Talent is second. Scaling up is the third. Fourth, Spain should be able to demonstrate that it is truly an entrepreneurial country.
The law will have a significant impact on the first two. Because of the many tools I mentioned, the law is going to revolutionize how investors are attracted to it. But it’s also going to be a revolution when it comes to talent. And there, there are three measures that we didn’t talk about yet which are going to have a huge impact. They include stock options, visas, residence permits, and third, the nonresident tax system.
Stock options are a revolutionary tool for attracting and retaining talent. The new stock option in Spain is that we have increased the exemption from 12,000 to 50,000. This exemption of $50,000 can be applied over a period of 10 years, giving you a total amount up to 500,000. The Spanish stock options are considered earned income, which is even more important. Stock option owners are only required to pay taxes after they have obtained liquidity.
In addition to all that there’s another fundamental change in the law that is going be great for startups and it is that the conditions in order to provide stock options to the different workers of the company can be different for different cohorts of workers, which was not a possibility before the startup law.
Let’s sum it all: Spain is a better stock option than countries like the UK or France.
The UK is the country that we often use to reference stock options when working on this. The exemption in the UK is 30,000 and only for three-years. The exemption in Spain now is going to be 500,000, and it’s going to be able to be applied for 10 years, which is a huge improvement compared to the one of the most competitive countries that we have around us. And that’s only for stock options.
Visas were also mentioned. Thats the second thing that’s going to be a great improvement in order to attract and retain talent. We are creating a new visa category for digital nomads. We are now on par with countries such as France, Portugal Estonia, Croatia, Croatia, and the Netherlands. So we’re going to allow international workers to work in Spain to make it easier for them to work from Spain for their companies.
We are also revolutionizing visas and residence permits by extending permits. For entrepreneurs, the current permit to stay in Spain is valid for one year. However, the startup law will allow it to be extended to three. They will also be eligible to apply for permanent residence after five-years.
For investors it’s also extended. Currently, investors in Spain have a one-year residence period. The startup law will extend this to three years. So there’s also going to be a revolution when it comes to visas and residents permits.
Third, I was referring to the non-resident tax system so that people who want to stay in Spain will be able benefit from a tax system for the period they change their residence and for the five following tax periods.
We saw the first change here. It will now be applied to all stakeholders in the startup ecosystem. So it’s going to be applied to entrepreneurs, to investors, and to skilled professionals. We are also improving the system. Currently, you have to be outside of Spain for a minimum of 10 years to be eligible for this program. We are reducing the 10 year waiting period to five years. This means that more people will be able access this tax system. This is also going be a revolution.
Non resident tax systems are, for us, our neighbor Portugal. It did very well and has reduced international tax payments. In order to attract new customers, we are improving the tax system’s treatment in a similar manner. [talent to Spain].
TechCrunch Beckham lawDavid Beckham is the footballer.
Polo:It has a lot to with it. We have special regimes in place for non-residents. We are making Spain an entrepreneurial nation and want to attract top-quality talent. Therefore, we offer tax systems that are very attractive to engineers, designers, and other people who are involved in this new generation of a country that produces higher productivity.
TechCrunch: The startup law also provides for trial licenses for startups in regulated industries — which can apply to test products for, I think, up to a year. These are essentially regulatory sandboxes. How will they work?
Polo:This is a very new idea. [in Spain]. We recently began with financial sandboxes. The Ministry of Economy is still trying to understand and assess how these first sandboxes can help the financial industry to allow startups to market and introduce their own products. What are we doing? [with the startup law]It is clear that this new tool, the Sandbox, will be available for all startups in every sector of the economy. We also allow different ministries to create their sandboxes and encourage them to do so. Each ministry will design the specifics of how each sandbox functions.
TechCrunch: Now the draft startup law is in the hands of Parliament, I’m curious, what are your priorities as the High Commissioner youre presumably very focused on the wider entrepreneurial strategy? How’s that going?
Polo:I appreciate your question. It is important. We really believe that it’s very important to be able to take a step back and look at the full picture. First, let’s look at what we have accomplished in the last few years. In 2020 we created a high commission within the presidency that is leading efforts to make Spain a startup nation with the highest social impacts. We have made great strides in institutionalizing efforts to create a better startup environment in Spain.
Second, the president presented in February 2021 the Spain Entrepreneurial Nation Strategy. So we are showing that we have a full ten year plan, that is made up of 50 measures that are going to define how we’re going to build this startup nation. So it’s not only a big name, it’s it’s a full plan. We are third to support those 50 measures with EU funds.
So there’s no better guarantee that the different measures included in that strategy are going to be implemented and that they have the resources they need in order to become a reality in the coming months and years.
Fourth, we now have the new Startup Ecosystem Law, which will show that we actually walk the talk. We say that we are going create the best environment possible for startups in Europe, and we are taking steps one by one to do that.
The startup law is not the first step that we took, as I just said and it’s not going to be the last. It is one of 50 measures in the Spain Entrepreneurial Nations strategy. There is more to come in the future and more good news for entrepreneurs around the world, if they are looking to establish their ventures in Spain.
For the next month, we’re going to be following very closely what the parliament is doing, talking to everyone in parliament and also keeping the conversations with the different actors and leaders of the Spanish ecosystem. We are confident that this year’s law will pass without major changes. So it’s going to really become a revolution for startups, investors and talent in Spain.