New Income Tax deduction for investments in the Madrid Region: 20% of the investment will be deductible

New personal income tax deduction for new investments coming from a foreign country to the Region of Madrid. The regional government has announced an ambitious measure, a pioneer in Europe, which will allow all people, nationals and foreigners, who make an investment in the Community of Madrid after having lived outside Spain for more than 5 years, to deduct 20% of the investment through a reduction in the regional income tax bracket.

The measure will apply to any type of investment, be it real estate, financial or business. In the case of financial assets, it will not be necessary for them to be located in Madrid Region, something that will be required for real estate assets.

There is no limit to the amount of tax relief; in other words, it will be applied from the first euro invested. As for the ceiling, it will be the IRPF quota itself on which the 20% deduction is applied; in other words, if it is sufficient to compensate for the entire deduction, it can be made in the first year of the investment. If not, it will be spread over six years, the minimum time the investment must be maintained in the Community of Madrid.

The measure will be implemented following the amendment of the Consolidated Text of the legal provisions of the Region of Madrid on taxes ceded by the State, approved by Legislative Decree 1/2012 of 21 October. Following its validation by the Regional Government Council and its subsequent parliamentary processing, this measure is expected to enter into force this year.

According to estimates, this new measure will have a major impact on the regional economy, since for every billion-euro invested, it is expected to contribute €886 million to the regional GDP, as well as generating 13,000 new jobs.

Setting up a company is easy, quick and cheap

In Spain it is now possible to set up a limited company for just one euro. On 19 October, Law 18/2022, of 28 September, on the creation and growth of companies, better known as the “Crea y Crece” (Create and Grow) Law, came into force. This law, passed in the summer in the Spanish Congress of Deputies, seeks to promote the creation of companies and encourage their expansion through regulatory improvements, the elimination of obstacles to economic activities, the fight against commercial delinquency and financial support for business growth.

The most important measure included in this law is the incorporation of a Limited Liability Company with a share capital of €1. Until now, the legal minimum required was €3,000. This measure is incorporated with two safeguards to protect the interest of creditors:

  • A figure at least equal to 20% of the profit will be allocated to the legal reserve until this reserve reaches three thousand euros.
  • In the event of liquidation, voluntary or compulsory, if the company’s assets are insufficient to meet the company’s obligations, the shareholders will be jointly and severally liable up to €3,000.

The law seeks to boost the digitalisation of the public administration, promoting the creation of companies telematically through the Information Centre and Business Creation Network (CIRCE). This would reduce incorporation times, registration and notary costs.

Fight against late payments

The regulation includes measures to combat late payment in commerce, one of the main causes of the liquidity and profitability problems of many Spanish companies, especially SMEs.

  • It promotes electronic invoicing, extending the obligation to request it within the framework of a supplier-customer relationship. This provides traceability and control of payments between companies, obtaining reliable and agile information to ascertain effective payment deadlines, an essential requirement for effectively reducing late payments.
  • Incentives to reduce payment periods. For example, they will be taken into account when assessing the granting of a public subsidy.
  • Creation of the National Late Payment Observatory, which will be in charge of monitoring and developing payment data.

Improvements for business financing

The law incorporates measures to improve the instruments for financing business growth as an alternative to bank financing, such as crowdfunding or participatory financing, collective investment and venture capital.

Crowdfunding

National regulation is adapted to European regulations, introducing more flexibility for these platforms to provide their services:

  • Possibility of offering individualised loan portfolio management service.
  • Single individual investment limit per project for retail investors.
  • Project limit of €5M.
  • Possibility to create pooling mechanisms for investors.

 

Collective investment and venture capital

The type of companies in which Venture Capital Entities can invest is extended:

  • SMEs: The maximum number of employees of invested companies is extended: from 250 to 499.
  • Financial companies with a high technological component are included

European long-term investment funds (ELTIFs) are incorporated.

  • Both SGIICs (Sociedades Gestoras de Instituciones de Inversión Colectiva) and SGEICs (Sociedades Gestoras de Entidades de Inversión Colectiva de Tipo Cerrado) may be SLs and may administer, represent, manage and market ELTIFs.
  • Closed-ended Loan-type Collective Investment Undertakings whose main purpose is to invest in invoices, loans, credit and commercial papers commonly used in the course of trade are created.
  • The minimum initial paid-up share capital of the ECR is now 25% (€300,000 for ECRs; €225,000 for SME ECRs). The remaining 75% must be paid up within 12 months of registration with the CNMV.

Entrepreneur Service Points

Bureaucracy reduced to a minimum. Carrying out all the administrative procedures for opening a company is increasingly simple thanks to the Entrepreneur Service Points, a series of in-person and telematic offices that handle the processing of almost all the documents required to set up a company for the first time. Through this one-stop shop, the entrepreneur can carry out the necessary procedures for the start, exercise and termination of his or her business activity.

The Entrepreneur Service Points (PAE) are responsible for facilitating the creation of new companies through the provision of information services, processing of documentation, advice, training and support for business financing. Specifically, they focus their work on two pillars:

Providing face-to-face information and advice services to entrepreneurs in the definition and telematic processing of their business initiatives.
Initiating the administrative process of incorporating the company through the Single Electronic Document (DUE).

Specifically, the information that can be provided by a PAE is related to the characteristics, the legal framework, the most important commercial aspects, tax advantages, accounting aspects, processing systems and applicable regulations of the most common commercial companies.

They can also provide guidance to entrepreneurs on the aid and incentives for which their business may be eligible, the applicable social security system and, in general, any doubts that may arise during the opening of their business.

The PAE can depend on public or private entities, professional associations, business organisations or chambers of commerce. These centres must sign an agreement with the Ministry of Industry, Trade and Tourism in order to operate as such.

Madrid Region manages three face-to-face Attention to Entrepreneurs offices: two in Madrid and one in Getafe.

  • PAE CENTRO DE EMPRENDEDORES GETAFE
    Avenida de Arcas del Agua, 2, GETAFE
    Horario: de 9:00h a 14:00h
    Contacto: 91 276 11 66 / emprendedores@madrid.org
  • PAE E-Social HUB:
    Calle Reina Mercedes 1-3, MADRID.
    Horario: Lunes a Jueves de 09.00 a 14.00 y de 15.00 a 18.00 y Viernes de 09.00 a 14.30.
    Contacto: 91 737 51 57 / esocialhub@esocialhub.es

In addition, the Directorate General for Industry and Small and Medium-sized Enterprises of the Spanish Ministry of Industry, Trade and Tourism offers, on its CIRCE portal, a telematic Support Point for Entrepreneurs where you can access all the information available for entrepreneurs, as well as the telematic processing of many documents.

The Golden Visa: immediate residence for investors

Red carpet for investors.

Since 2013, Spain has had a specific investor attraction plan that grants highly qualified profiles a residence permit almost immediately, as long as they meet a series of economic requirements when they land in our country. The “Residence Programme for Investors and Entrepreneurs”, better known as the Golden Visa, is a specific mechanism that speeds up the entry of non-EU investors into Spain, reducing the period for obtaining a visa to just 10 days; 20 days for the residence permit. The ultimate objective of this programme is to promote economic growth and job creation by attracting foreign investment.

The “golden visa” is a special permit that allows its holder to live and work in Spain for an initial year plus two years’ residence permit, which can be extended to five years in the case of investors. After that period, permanent residence may be applied for. This visa does not require the minimum stay in Spain required by the general law on foreigners to grant residency (183 days a year), but it is sufficient for the applicant to travel to Spain once a year. With that, both the bearer and his or her family members will be able to move freely throughout the 26 countries of the Schengen area.

Why is there a difference between a Golden Visa and a normal visa? Because the purpose of the Golden Visa is to attract investors, entrepreneurs and highly qualified personnel to our country. This is why its regulatory development is not regulated in the law on foreigners, but in Law 14/2013 on Support for Entrepreneurs and their Internationalisation, which creates a specific office for its application and processing, the “Unit for Large Companies and Strategic Groups”, UGE-CE.

As a general rule, in order to obtain both the initial visa and the subsequent residence permit, applicants need several mandatory documents:

  • Passport or NIE
  • Public or private health insurance.
  • Criminal record certificate. No criminal record in Spain or in the countries where you have resided in the last 5 years.
  • Proof of sufficient financial means for themselves and their family members during their period of residence in Spain.

In addition to this, depending on the applicant’s profile, additional documents will be required.

In this way, different strategic groups have been identified as eligible for the residence permit granted by the Golden Visa. In this article, we explain what requirements each of them must meet.

Investors

An investor is considered to be any foreigner over 18 years of age who has made a minimum investment in our country of:

  • Two million euros in Spanish public debt
  • One million euros in companies with real activity, in investment funds or in bank deposits.
  • 500.000 euros in real estate
  • A business project considered to be of general interest by the Directorate General for Trade and Investment. This must be requested before applying for the visa.

In these cases, if the applicant resides outside Spain, he/she can apply for a one-year visa at the diplomatic mission or consular office of Spain in his/her country. This application must be resolved within ten days. Once in Spain, and before the visa expires, you must apply for a two-year residence permit at the Large Companies Unit. Residence may be renewed for a further five years, after which permanent residence may be requested as long as the investment is maintained.

Entrepreneurs

Here the programme is aimed at non-EU citizens who want to develop an innovative business activity of special economic interest for Spain. This requirement must first be assessed by the Spanish economic and trade office in the entrepreneur’s country of origin or, if already residing in Spain, by the Directorate General for International Trade and Investment, following an ex officio request by the UGE-CE.

Unlike the investor, who makes an immediate financial outlay on one of the aforementioned assets, the extension of residency for entrepreneurs is for a more limited period of time. After the initial year of validity of the visa and the two subsequent years of residence, the entrepreneur may apply for an extension of another two years as long as the conditions that granted the authorisation in the first instance are maintained.

Highly qualified personnel

When a Spanish company needs to immediately incorporate highly specific and qualified profiles, it can apply for these permits to immediately incorporate workers from outside the European Union. In this case, companies must prove that they meet certain requirements related to size, annual net turnover, equity, net worth or investment.

The profiles eligible for this formula are managers and highly qualified personnel, as well as graduates and postgraduates from universities and schools of recognised prestige. All must have a job offer in Spain.

In addition to these professional profiles, the Residence Programme for Investors and Entrepreneurs includes special conditions for researchers, staff affected by an intra-corporate transfer and workers in the audiovisual sector. In addition, a law for digital nomads is currently in the pipeline.

More information on the PRIE PORTAL of the Spanish Ministry of Industry, Trade and Tourism.

Also, if you have any doubts about how to apply for this special visa, do not hesitate to contact Invest In Madrid. We are here to facilitate your landing in Madrid.