The Startup Law: a major breakthrough for Barcelona

The Startup Law approved in 2022 is a great advance for the Barcelona startup sector. Streamlined bureaucracy, better conditions for attracting and retaining high impact talent, and fiscal advances are the main changes introduced by the law. For Barcelona, this law goes a long way to helping entrepreneurs release their full potential

December 1, 2022 saw the final approval of the so-called “Law for the promotion of the ecosystem of emerging companies” also known as the Startup Law, concluding a process that began in 2018 with a public consultation process. The most important of the 20 different measures are as follows: 

For this reason, Barcelona Global has been working since 2017 with 14 law firms in the city to achieve changes in the Spanish tax system applicable to international talent so that it is neutral, in line with the countries around us, and does not pose a barrier to attraction.  

December 1, 2022 saw the final approval of the so-called “Law for the promotion of the ecosystem of emerging companies” also known as the Startup Law, concluding a process that began in 2018 with a public consultation process. The most important of the 20 different measures are as follows:  

• Inpatriate regime: freelancers may now benefit from the new inpatriate regime that stipulates that they must pay income tax at 24% for 5 instead of 10 years. This means better conditions for freelancers from abroad and for highly qualified professionals wishing to return to Barcelona.
• Startups in Barcelona will be able to remunerate qualified professionals with stock options, a system that has previously been taxed heavily. 50,000 euros per year will now be tax-free, which is a major improvement.
• Expedite the recruitment of international talent by facilitating access to the NIE, allowing a 6-month period to obtain it.

• It will be easier for internationals to register for the NIE residence permit, which will enable them to sign up for social security, sign an employment contract, open a bank account, and invest in companies, etc.
• Favorable tax regime for investors: there will be carried interest tax exemptions for venture capital funds and business angels. This should help to retain investors.
• Attract digital nomads through the granting of three-year renewable residence permits.
• Granting with greater agility the consideration of innovative start-up companies.
• Enable companies with a turnover of up to 10 million euros (with a time limit of 5 or 7 years from their creation) to be considered emerging companies and, therefore, be eligible for the benefits defined in this law.

What does the new Startup Law mean for Barcelona?

According to the latest data collected by Barcelona & Catalonia Startup Hub Acció, in 2021 there were 1,900 startups launched in Barcelona, the 3rd highest number in Europe, according to the Startup Heatmap Europe report. With over 160 rounds of funding worth a total of 1,789 million euros (source: CB Insights), Barcelona is home to some of Spain's top unicorn. Glovo, Wallbox, Travelperk and Factorial are some of the successful businesses that have launched their businesses here.

The approval of the Startup Law is a major step forward. Barcelona will now be in a much better position to compete internationally for high impact talent. The new regulations will mean that Barcelona will be able to:

1. Attract entrepreneurs, investors, and freelancers by bringing taxation more in line with surrounding countries.
2. Attract experienced foreign entrepreneurs to scale up companies in Barcelona.
3. Increase capital available to startups by attracting new investors.
4. Generate competition between startups and corporations by offering stock option plans to new talent
5. Create spin-offs that benefit from startups and enable scientific research to be applied in businesses.
6. Encourage individuals to invest in startups by making investment tax-deductible.

Next steps

Although the Startup Law is a major advance, there is more still to do. There are three further aspects to improve:  

• Inpatriate regime: extend the inpatriate regime to all independent professionals, without the obligation to prove their link to growth. Extend the duration of the inpatriate regime from 5 to 10 years.
• Taxation of large companies at the same rate as for startups: make investment in R + D + i, tax deductible at the same rate as in startups in order to encourage open innovation in large companies.
• Stock option regime: ensure rapid growth for potential unicorns by extending the startup regime to scale-ups.

It is clear that the law will allow Barcelona to compete for talent attraction and retention with other cities such as London, Amsterdam, Paris or New York and this is very good news. However, what is clear to us is that there are many more challenges related to taxation. For this reason, at Barcelona Global we are working to continue identifying incentives to attract talent.  

Strength in numbers

Although the Startups Act was already in as an economic, social and political project in 2018, numerous organizations and companies have acted as proponents of this initiative with the aim of improving taxation and bureaucracy for the attraction and entrepreneurial drive.

Numerous organizations and companies have supported this initiative: Barcelona Global has collaborated with a number of bodies that have done pro-bono comparative studies on taxation for talent, as well as close analysis of the capacity of advanced tax systems to attract talent. The law firms Cuatrecasas, Deloitte, EY, Garrigues, Gómez-Accebo i Pombo, KPMG, Martínez-Comín, Osborne Clarke, Optio, Pérez-Llorca, PWC, Roca Junyent, Toda&Nel-lo, Uría Menéndez and the consulting firm Mercer have all worked together with Barcelona Global to communicate the proposals to the Catalan and Spanish governments and to ensure that Startup Law comes into law.