The Spanish IP Box
The digital revolution has completely transformed our world. If we think of the tools available to our parents as they were growing up, we might probably find many familiarities with what we have today, but also many differences: old cable tv cannot be compared to the streaming service Netflix provides, braking news are not the same as the Google news feed, mother’s moka pot is not a Nespresso machine, grandmother’s home phone is not the same as FaceTime, and all the information of ALL libraries is now available through the same smartphone that we use to post in Instagram. Today everything is digital, and the most interesting startups tend to have at least some digital elements in their business plan.
If you have in mind an innovative idea that will turn your company into the new tech giant, or simply want to develop a product and then sell it to Apple, Alphabet (Google), Facebook, Amazon or Microsoft, Spain is a good destination to set up business. In addition to access to skilled labor from all over Europe, Latin America and the EMEA region, Spain offers a favorable climate and good tax benefits for startups and R&D, good conditions to channel investments in other jurisdictions (especially in Latin America), and reasonable rules for venture capital. All this will allow you to develop your business within a favorable climate and plan your exit strategy with certainty.
The IP Box is one of the legal instruments that contributes to the health of the technological startups’ ecosystem in Spain. This is a special regime provided for in the Corporate Tax Law, which allows companies that have developed their patents and/or R&D in Spain to benefit from a 60% reduction in the corporate tax base that will be applicable to the profits from licensing these types of IPs. The system is designed to support the internationalization of the Spanish economy and to encourage R&D in the country.
Plainly speaking, this means that your company will only have to pay corporation tax on 40% of the profits from licensing an IP it owns. The other 60% belongs to your company, so that it can invest in more R&D, increase capital, invest in another business unit, or whatever you decide.
So, for example, if your startup got €100 of profit for licensing its innovative optical character recognition (OCR) software to your college’s research department, you will only have to pay to the tax authorities (in Spain that would be “Hacienda”) for corporation tax (whose general rate is 25% and 15% for a newly created company) 15% of €40, or €6; instead of the €15 you would have paid if the IP Box did not exist. Not to mention the €25 you would have had to pay if not for the reduction of the general rate for startups, a subject we talked about that in another article.
You might be wondering where the catch is. Well, first of all, this incentive does not apply to all forms of IP, but exclusively to “patents, utility models, complementary protection certificates for medicines and plant protection products, legally protected designs and models deriving from [R&D] and technological innovation activities, and advanced registered software deriving from [R&D]” (art. 23.1 of the Law on Corporate Tax). On the other hand, in no case will you be able to take advantage of this regime if:
The IP license generates in your company a tax-deductible expense;
The licensee is resident in a tax haven;
Your company does not have a detailed accounting record of the operations linked to the R&D of its IP;
The object of the transaction is the exploitation or sale of a trademark, literary, artistic or scientific work, image rights, or software that does not derive from R&D activities.
In other words, if you sell the rights to the indie video game developed by your company in Spain to the subsidiary of a AAA studio residing in Liechtenstein, then you will not be able to take advantage of this benefit. On the other hand, if you license your motion capture software developed in Spain to the subsidiary of the same AAA studio in the Netherlands, then you will be entitled to the benefit. Seems simple enough, right?
Well, like everything else in tax law, getting this benefit can be complicated, so you will need professionals to help you get the go-ahead from Hacienda: accountants who can handle corporate tax and tax lawyers who know about IP Boxes and have experience requesting tax rulings to Hacienda.
Don’t worry, all this is possible at an affordable price. If you need help, we can help you navigate through the pitfalls of the administrative procedure and put you in contact with the most competent lawyers in Spain. Simply click HERE and the best prospects will contact you.