These are the updates on Personal Income Tax (IRPF) associated with startups.

The Law 28/2022, of December 21, on the promotion of the startup ecosystem (known as the startup law), includes tax incentives in taxes applicable to these types of companies, their investors/shareholders, and their employees.

One of the taxes favored by these incentives is the Personal Income Tax (hereinafter, IRPF), whose self-assessment period (Model 100) has recently begun and ends on July 1, 2024.

Keep reading to stay informed and ensure you don't miss out on any tax benefits!

At the level of investors in startup companies, there are two relevant tax benefits:

• Deduction for investment in shares and participations of new or recently created companies (Article 68.1 of the Personal Income Tax Law).

  Taxpayers can apply a state deduction of 50% on the invested capital, with a maximum base of €100,000. The maximum amount of the deduction must not exceed €50,000.

  The deduction is declared in the following section of Form 100, where you must report the total amount of the investment in shares or participations and the Tax Identification Number (NIF) of the company.

• Exemption of the gain derived from shares in new or recently created companies (Article 38.2 of the Personal Income Tax Law).

  Investors can apply an exemption for the capital gain realized upon the transfer of shares in startup companies. This exemption can be total or partial, depending on whether the reinvestment is also total or partial.

  It is important to note that the reinvestment of the amount obtained from the sale must be made, either at once or successively, within a period not exceeding one year from the date of transfer of the shares or participations.

  The exemption does not apply if the shares are transferred within a certain family environment or to an entity within the scope of a commercial group as defined in Article 42 of the Commercial Code. Additionally, the exempt amount is not included in the self-assessment Model 100.

On the other hand, the regulation introduced a tax benefit, as an incentive compensation, for employees in startup companies. This incentive consists of the free or below-market-value delivery of shares or participations in the company to the employees.

For employees, the amount of the benefit in kind is exempt up to €50,000. The non-exempt income (in case it exceeds €50,000) will be attributed in the tax period in which any of the following circumstances occur:

• That the capital of the company is subject to trading on a stock exchange or any multilateral trading system, whether Spanish or foreign.
• That the taxpayer's asset exits from the corresponding share or participation.

In addition, there are other general tax benefits that may impact the Personal Income Tax (IRPF) declaration for employees of startup companies:

• 30% reduction on irregular income (Article 18.2 and 3 of the Personal Income Tax Law)

  If the employee has received a bonus with a generation period exceeding two years and it has been imputed in 2023, they can apply a 30% reduction on this income. It should be declared in the following section of Form 100.

• Exemption of income from work received for work performed abroad (Article 7.p of the Personal Income Tax Law)

  The employee of a startup company who performs work abroad for the benefit of a foreign company (a foreign client of the company) may consider the income from work associated with those days of work abroad exempt up to the limit of €60,100.

  For this, it is relevant that the destination country has signed a Double Taxation Convention with Spain with an information exchange clause.

  This exemption can be directly applied by the company, not withholding on the employee's salary and declaring the exempt amount with code L15 of Form 190 Annual Summary of Withholdings.

  Another possibility is that, at the time of filing the tax return, the taxpayer applies the exemption by deducting the exempt amount from the total taxable income declared by the employee. However, in this case, the Spanish Tax Agency (AEAT) will issue a request to clarify the difference.

  A more conservative option is to file the return with the amount declared by the company and subsequently amend the return considering the exempt amount that should be taxed. The procedure to request the amendment is detailed by the AEAT through the following link.

  The AEAT develops the applicable criteria for this exemption in the following link.

Finally, there are two other tax benefits applicable to the entrepreneurial ecosystem.

• Income obtained from the management of funds linked to entrepreneurship:

  As a novelty for the 2023 tax year, it is regulated that the income obtained by administrators, managers, or employees of venture capital entities, European venture capital funds, European social entrepreneurship funds, long-term European investment funds, or other investment bodies similar to the aforementioned, are considered income from work and only 50% of such income must be included in their Personal Income Tax (IRPF) provided that:

  1. they derive directly or indirectly from shares, stocks, or other rights, including success fees, that grant special economic rights in such entities, and,
  2. the minimum profitability requirements for the rest of the investors of the venture capital entity, European venture capital funds, etc., and a minimum ownership period of 5 years are met, as indicated in the fifty-third additional provision of the Personal Income Tax Law.

• Special tax regime for inpatriates (Article 93 of the Personal Income Tax Law):

  The special tax regime for inpatriates (Beckham Law) allows self-employed entrepreneurs or highly qualified professionals of a startup company relocated to Spain, and who have not been tax residents in Spain in the five years following their relocation to Spain, to apply this regime.

  This regime allows for taxation at a rate of 24% on worldwide income from work and other Spanish-source income, up to €600,000. The form to be filed is Form 151, and the filing deadline is the same as for tax residents who are subject to the general regime.

You can now complete the self-assessment of the Personal Income Tax (IRPF) for 2023 using the following link, where you can also find the user manual.

If you need more information about the IRPF updates associated with startups, you can consult the website of the Spanish Tax Agency (AEAT).