The awaited Law on Support for Entrepreneurs and Their Internationalisation was finally approved by the Spanish Parliament on September 19th, 2013. The main changes introduced by the Law can be highlighted as follows.
One of the main innovations introduced by the Law is the creation of a new legal entity: the limited liability entrepreneur. Through this entity, natural persons (societies are not eligible) will be able to avoid the inclusion of their main residence as an asset within the responsibility derived from fulfilment of their business duties. This breaks the general principle established in Spain whereby a debtor is responsible for the fulfilment of their business obligations using all his current and future assets, personal or otherwise.
The avoidance of such a responsibility will be subject to the fulfilment of certain conditions. For instance, as a general rule, the value of the entrepreneur’s main residence must not be higher than €300,000. To be valid, this avoidance will be subject to inscription at the Commercial and Property Registries in order to protect creditors. However, failure to record the annual accounts at the Commercial Registry within seven months as from the closure of the previous financial year will imply the loss of such a benefit with regard to debts assumed before the termination of the aforesaid legal term to deposit the annual accounts. Additionally, except where the creditors expressly consent to it, the universal responsibility of the debtor will persist with regard to those debts assumed before registration at the Commercial Registry as limited liability entrepreneur.
Another important novelty introduced by the Law is the limited liability company of successive formation, which, in order to lower the costs arising from its incorporation, will allow the creation of companies with a share capital under €3,000. The legal regime of this new corporate subtype will be practically identical to that of regular limited liability companies. However, it will be subject to a temporary special regime in order to protect third parties until the minimum share capital of €3,000 is reached, pursuant to certain Law provisions.
Among these, the annual amount paid to shareholders and directors until the aforesaid condition is fulfilled cannot exceed 20 percent of the equity corresponding to each financial year, without prejudice to the retribution they may receive as company employees or by means of services agreements.
On the other hand, in the event of liquidation, if the equity is not sufficient to pay the debts, shareholders and directors will be jointly and severally liable for the minimum share capital amount established by Law. In this regard, we highlight the directors’ responsibility for the non-disbursed amount of share capital, taking into account that directors do not always need to be shareholders.
Additionally, it will not be necessary to prove the reality of the monetary contributions when incorporating the company, although founders and those who acquired shares in the incorporation will be jointly and severally liable before the company and its creditors for such monetary contributions.
The most important tax modification introduced is the cash receipt criterion regarding VAT, by which entrepreneurs with a turnover not exceeding €2m will be allowed to pay the output VAT once they are paid by their clients (the limit date being December 31st of the year immediately following the one in which the transaction took place).
In contrast, entrepreneurs will delay the deduction of input VAT on purchases until they pay such acquisitions to their suppliers, with the same limit date as above. This provision could be extremely positive for entrepreneurs in avoiding currently liquidity problems, but the temporary limit clearly mitigates such a benefit.
Other tax incentives introduced by the Law refer to the 10 percent Corporation Tax deduction of the benefits obtained in a financial year where these benefits are invested in new fixed assets or real estate investments allied to the economic activity. Also a Personal Income Tax quote deduction up to €50,000 per year in case of investment in newly or recently incorporated companies with equity not exceeding €400,000.
However, only individuals will be able to take advantage of this latter deduction, as investing vehicular companies are excluded. On the other hand, incentives for the cession of intangible assets are also foreseen, including the so-called ‘patent box’ incentive. Likewise, self-employees will be able to benefit from a flat rate in their Social Security quotes in case of multiple employments.
The Spanish Government argues the tax measures will imply a decrease of the State’s revenue of €2,000m. However, some studies show that the mobilisation of 10 percent of collective investment institutions’ total worth (€220,000m estimated for 2013) to entrepreneurs’ activities would increase the tax contribution to €97,137m and would create 168,667 new jobs over 15 years. This would represent 33 percent of total revenue from taxes and social insurance in 2012 (€287,000m).
On the other hand, the Law establishes certain measures to support financing for entrepreneurs, which, in our opinion, do not fulfil their aim. For instance, one of these measures focuses on insolvency situations rather than the initial phases. It would have been a good time to foresee other measures that could facilitate entrepreneurs’ access to bank financing or to regulate other instruments that could facilitate access to alternative financing ─ for example, the possibility for limited liability companies to issue debentures convertible into shares, equity crowd funding instruments, etc.
The Law also simplifies administrative charges concerning entrepreneurs, establishing measures to promote public procurement, simplifying the requirements regarding economical and financial information and, in order to attract foreign talent and investment, facilitating the issuance of visa and permanent residency status.
On the other hand, even though it is focused on entrepreneurs, this Law modifies 50 different regulations, even in unconnected fields such as tobacco and railways.
In view of the above, the Law has not entirely fulfilled entrepreneurs’ expectations. However, it is a strong indication of the Spanish Government’s awareness of the importance of the entrepreneurship movement as one of the decisive factors in boosting our economy in this time of crisis.
Fede Segura is a Partner at Roca Junyent. He can be contacted at firstname.lastname@example.org