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What the experts think about Spain’s new law for startups and digital nomads

Spain’s highly anticipated startups law was finally approved last week, but do Spanish entrepreneurs, business associations and commentators think it's really as good as the government is claiming?

What the experts think about Spain's new law for startups and digital nomads
(Photo: Claudio CRUZ / AFP)

There have been discussions about Spain’s new startups law and digital nomad visa for the last 16 months, but on November 3rd the legislation was finally approved by the Spanish Parliament and is expected to come into force in January 2023.

Simply put, the law aims to attract international investors, digital nomads and new companies to Spain with visa incentives, tax breaks, fewer bureaucratic hoops and other benefits.

Among its main perks are that startups and investors will get a reduction in Corporation Tax and the legislation will also include a new visa that will allow digital nomads to stay and work in Spain for a period of one year and then extend it up to five years.

READ MORE: 15 things you need to know about Spain’s new startups law

In 2015, Spain ranked among the worst OECD countries to start a business in, and seven years on entrepreneurs and business owners are still complaining about the lack of support and facilities, complicated tax models and high social security fees.

Noting the need for change, the law passed with an overwhelming majority in parliament. 177 MPs voted in favour, with 75 abstentions (by far-right party Vox and Catalan parties Junts and ERC) and 88 votes against (mostly from MPs belonging the right-wing PP).

Spain’s ruling left-wing coalition government has understandably applauded the approval of the new startups law, referring to it as “pioneering” and “important”. But how has Spain’s business community reacted to the news?

Positive reactions

Many entrepreneurs and business owners have reacted positively to the news, noting that this law has been a long time coming.

The Spanish Association of Startups (AES), the Spanish Association of the Digital Economy (ADigital), Capital for a Sustainable Future (SpainCap), Endeavor, the Cotec Foundation, Startup Valencia, South Summit, Tech Barcelona and the Spanish Association of Biocompanies (AseBio) have all celebrated the approval of the law and referred to it as “a very important step for the Spanish entrepreneurial ecosystem and our economy as a whole”.

“The Spanish government has shown awareness when taking note of the demands of the sector and has approved a bill with a very similar structure to what we proposed,” the associations said in a joint statement.

Juan López, partner of Kibo Ventures financial advisors in Madrid, told Business Insider: “It’s not a law that has been passed in dribs and drabs and in bad faith by a single party. For us, the best news is that the startups (law) creates consensus, which means that it is a great time for startups”.  

Joan Jofra, Platform Director at venture capital company Seaya echoed these sentiments by saying: “The process itself has been a success. We have achieved a public debate that has united the business ecosystem. There were associations, entrepreneurs, investors and large companies in the Spanish Parliament; this law is very unifying.

“We now have a Spanish government which understands what it is to set up a business. It’s an everchanging business environment and there will be new challenges but the important thing is to find ways to adapt to them.”

Íñigo Peña, CEO of Tetuan Valley, an early-stage startup operating in Madrid told the website: “Of course, the law provides a little hope to everyone. The simple fact of defining what a startup is, is already a big step. It was difficult to compete with other countries that have more flexible legislation. If we want to compete with hubs like England, France and Germany you have to have the same tools”.  

Shortcomings and criticism

While most commentators seem to be in favour of the new law, several Spanish business news outlets and politicians have been pointing out its downsides too.

An opinion piece in El Periódico de España stated: “It is true that the law has shortcomings, such as the fact that five years is too short a period to define a startup, or that the regulatory ability of Spain’s regions should be taken into account, but the comparison with the current framework makes this law necessary and timely…. Although a similar awareness is lacking regarding other companies that are not startups, that are just as or more crucial for employment and economic growth in the country”.

Spain’s right-wing Popular Party was the outlier in the parliamentary vote on the startups law, with most of its MPs voting against the legislation for not being far reaching enough. PP MP Victor Píriz said the law was “shy on tax benefits for startups”. Far-right party Vox abstained, claiming the ruling Socialists vetoed certain amendments which could have helped Spanish business owners, self-employed workers and SMEs.

Centre-right party Ciudadanos voted in favour of the legislation, but its MP María Muñoz said it comes “a bit late”. The Republican Left of Catalonia (ERC) also supported the bill but referred to it as “watered down”.

Spain’s media has also been weighing in on the debate.

Financial newspaper El Economista believes that the real problem with the law is that it does not distinguish between self-employed workers (autónomos) and those who work remotely for a company, who in addition to being digital nomads would be corporate nomads, and therefore often fall into a kind of legal limbo. 

Furthermore, tech website Xataka argues that it will take more than a visa for Spain to become a good place for digital nomads and investors. They wrote that “To promote the startup ecosystem in our country, many changes are still needed”. They go on to explain that Spain is a paradise, except when it comes to tax matters. “Our country offers an excellent environment for remote working, but the economic conditions are not so attractive”, they added.  

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‘Spain must invest in Spaniards rather than turning to migrants’: EU work chief

The European Commission’s head for jobs and social rights has said Spain “must first find a solution for young people, women and the elderly” with regard to its labour market and “see later if they need immigrants”.

'Spain must invest in Spaniards rather than turning to migrants': EU work chief

The European Commissioner for Jobs and Social Rights Nicolas Schmit recently took part in a summit on job security in Bilbao, where he spoke with Spain’s Labour Minister and Second Deputy Prime Ministers Yolanda Díaz about the state of affairs for workers in the country. 

When discussing potential solutions to Spain’s high unemployment rate, Schmit explained “I would not exclude immigration, but when I analyse the data, I see youth unemployment of 30 percent, more than double the European average”.  

“The priority for Spain must be to invest in its people,” Schmit continued.

“They must first look at their labour market and find a solution for young people, women and the elderly. They will see later if they need immigrants”.

Despite high unemployment levels which currently amount to three million people, Spain has worker shortages in a wide variety of sectors. 

READ ALSO: The ‘Big Quit’ hits Spain despite high unemployment and huge job vacancies

The Spanish government recently changed its immigration laws to make it easier for employers to hire non-EU citizens for sectors with shortages, from waiters to plumbers, whereas previously recruiters were required to prove that they couldn’t find an EU candidate for the job and the skills shortage list was limited and outdated. 

READ MORE: How spain is making it easier for foreigners to work in Spain

In 2023, Spain’s Ministry of Inclusion, Social Security and Migration wants to hire 62,000 third-country workers to cover an array of construction and trades jobs, something the country’s Labour Ministry has not agreed to yet. 

READ ALSO – EXPLAINED: Spain’s plans to recruit thousands of foreigners for construction and trade jobs

The government also recently passed its new startups law to attract foreign investors, digital nomads and talent to the country.

Could Spaniards not be trained to do these jobs as Schmit alludes to? Currently, low wages and unstable working conditions are dissuading many locally trained professionals from staying.

This includes almost 20,000 doctors who have moved abroad in recent years as salaries in other European countries are significantly higher than in Spain, with a newly qualified doctor’s salary only around €1,600 gross per month.

Staff shortages in the health sector are not helped by the fact that foreigners with non-EU qualifications wait for several years for their qualifications to be recognised in Spain through an unnecessarily laborious administrative process known as homologación. This applies to a number of regulated fields, from engineering to dentistry, all of which face shortages. 

READ MORE: How Spain is ruining the careers of thousands of qualified foreigners

Spain’s Socialist-led government has partly addressed some of its labour market issues by reducing the rate of temporary contracts and increasing the minimum wage (SMI), but voices within the opposition have accused Sánchez’s administration of “dressing up” the dire reality.

When asked about the rise in minimum wage, Schmit said that he believes “it will not mean significant changes for Spain, which already has a tradition of updating the minimum wage on a regular basis… but the government must take into account factors such as the cost of living and the economic context”.

“Spain must question whether the SMI allows for a decent life or creates poor workers. Its economy cannot be supported by low wages and low productivity,” he continued.  

When asked if salaries and inflation have to go hand in hand, Schmit argued “wages must be set by collective bargaining. We are experiencing very high inflation because of the explosion in energy and food prices. If there is a large lag between wages and inflation, there will be an impact on demand and the risk of recession will increase”.

With regards to pensions, Schmit explained: “I don’t think that pensions are very high in Spain and if you leave a gap between the rise in benefits and inflation, you can create a situation of poverty among the elderly. Spain has a disadvantage in that it has one of the fastest-ageing societies… The solution is to modernise the economy to make it more productive and attract more people to the job market”.  

Despite these issues, the commissioner acknowledged that the Spanish labour market has surprised many with its resistance this year. “Employment will remain strong if there is no deep recession,” he said.  

“The national plan for access to European funds has a good combination of measures to invest in green energy, digitisation, education and public employment services… Spain experienced its economic miracle due to the real estate boom, which exploded, and now it has to transform to go in the right direction”.

According to a report carried out by human resources company Hays on work trends in Spain in 2022, 77 percent of Spaniards surveyed said they would change jobs if they could. Furthermore, 68 percent of them confessed that they are actively looking for another job and the main reason they argue is to get a better salary. 

According to Eurostat data from January 2021, 37 percent of Spain’s workforce is overqualified, 17 percent higher than the EU average.

READ ALSO: Why more people than ever in Spain are overqualified for their jobs