The new Personal Income Tax Law could jeopardize the growth of technology start-ups

The draft bill, which is being processed in the Senate and is expected to come into force in 2015, would leave Spanish startups at a clear competitive disadvantage when it comes to attracting and retaining talent.

The draft Personal Income Tax Law, which is being processed in the Senate and is expected to come into force in 2015, eliminates stock options and hinders the development of the digital economy in our country, according to the Spanish Association of the Digital Economy

The new draft Personal Income Tax Law, which is currently being processed in the Senate and which is expected to come into force in 2015, completely curtails the already weak tax benefits that exist in the current Personal Income Tax regulations with respect to the delivery of stock options by companies, eliminating article 42.2 that established the limit of 12,000 euros so that they would not be considered income in kind and also eliminates the 40% reduction included in the standard. current because it is considered irregular returns.

Stock options, better known as stock options, can be defined as purchase rights on shares that are usually used by companies in order to incentivize workers.

They are an essential instrument for attracting talent and key employees in technology start-ups and SMEs and allow them to compete for the best talent against larger companies. In the initial stages of a company, resources are scarce and, especially in Spain where access to credit is complicated and private investment instruments are not fiscally attractive, attracting qualified human capital is very difficult and represents an obstacle to the generation and growth of new technology-based companies and, therefore, to job creation.

These share purchase options have a completely different tax treatment in the rest of the countries around us and in the West, where they are a common tool for start-ups to offer their workers the possibility of linking a significant part of their remuneration to the evolution of the company, the only way to compete with already established companies.

In the opinion of the Spanish Association of the Digital Economy, the Government, “far from meeting the demands of entrepreneurs and associations to correct a situation of competitive disadvantage of Spanish SMEs and allowing these options to only be taxed when they are sold, as happens in the vast majority of Western countries, has decided to eliminate the already scarce possibilities of these companies to compete with foreign companies and with greater resources in the recruitment and retention of qualified professionals, an essential element for the growth of a sector that, in the words of the President of the Government himself “It will generate 300,000 jobs in the coming years.”

Competitive disadvantage

For example, in the United Kingdom, more than 380,000 startups were created in the 12 months of 2013, where programs such as Enterprise Management Incentives (EMI) have been instrumental in achieving that goal. This system is exempt from taxation with a limit of 250,000 pounds until its sale is effective, at which time it is taxed as capital gains. They have similar treatment in the United States, Germany, France and other Western countries.

This new rule leaves Spanish startups at a clear competitive disadvantage when it comes to attracting and retaining talent.