In this article, we look at the tax benefits of setting up a start-up in Spain, a key market both for projects originating from other countries and for new ventures launched by entrepreneurs already living in the country.
Spain: The preferred destination for tech start-ups seeking to carry out R&D&I projects
In recent years, Spain has established itself as a key destination for foreign companies, particularly tech start-ups, wishing to develop their research and development (R&D) projects outside their home countries. Dozens of companies from various sectors have already taken this step, and many of them have relied on the support of a consultancy firm specialising in this field, such as INCOTEC, to maximise their chances of success in the country.
Among Spain’s main attractions are its access to public funding in the form of non-repayable grants or subsidised loans, the full compatibility of R&D&I tax deductions with public subsidies, and the availability of a highly skilled workforce at a significantly lower cost than in other European countries, such as France, Germany or the United Kingdom.
Access to public funding: a key opportunity for start-ups
Tech startups in Spain can access a wide range of public funds designed to drive innovation.
At regional level, each autonomous community has specific funds to support research and development projects, tailored to the particularities of each region. At national level, the country has highly competitive calls for proposals offering substantial funding for companies developing innovative projects.
Furthermore, Spain also facilitates access to international funding, particularly through the Horizon Europe programmes, which aim to drive R&D projects at a European level.
However, one of the main factors that has made Spain such an attractive destination for tech start-ups is its tax regime.
R&D&I taxation in Spain: a competitive advantage
One of Spain’s greatest attractions for foreign companies wishing to carry out R&D&I projects is its tax system. Research and Development projects and those related to Technological Innovation can benefit from significant tax deductions, with a rate exceeding that of most European countries. Specifically, deductions can reach up to 59% of expenditure on staff dedicated exclusively to R&D activities.
The key? The Canary Islands. This region of Spain offers a special tax regime that allows companies to obtain even greater deductions. In fact, in the Canary Islands it is possible to achieve up to a 75.6% deduction on R&D expenditure, which can even reach 100% for expenditure on in-house staff dedicated exclusively to research and development activities.
Compatibility of tax deductions with public grants
Another aspect that sets Spain apart from other European countries is the compatibility of its tax incentives with public grants. Whilst in countries such as Ireland or Germany, tax deductions for R&D cannot be combined with public grants, in Spain this is not an issue. Regional, national or international grants coexist harmoniously with tax deductions, meaning that entrepreneurs can maximise the financial support available for their R&D projects.
This flexibility offers companies significant financial breathing space, particularly for start-ups operating in their early stages or seeking to expand their research and innovation capacity without incurring high investment costs.
The R&D&I Tax Lease: one of the most powerful incentives for tech start-ups and innovative companies
R&D&I tax deductions allow companies to recoup a significant portion of the investment made in innovation. Through mechanisms such as the Tax Lease, these deductions can be converted into liquidity even in the early stages, when the company is not yet generating profits.
What activities can be considered R&D or technological innovation
Activities aimed at generating new knowledge or developing non-existent technological solutions are considered R&D activities. These include:
- Development of new products or processes
- Prototypes and pilot projects
- Advanced software with technical innovation
Technological innovation (TI) refers to substantial improvements to existing products or processes.
Why this incentive is particularly relevant for technology and innovation start-ups
Tech start-ups tend to concentrate a significant portion of their investment in phases where they are not yet generating profits. In those early years, product development, technical validation or the recruitment of specialist staff absorb a large proportion of resources.
For this reason, the Tax Lease, through the tax incentives it generates, is particularly valuable for this type of company: it reduces the actual cost of innovation and improves the financial viability of the project at a key stage of growth.
Key sectors for taking advantage of the R&D Tax Lease incentive in Spain
The Tax Lease scheme applied to R&D&I deductions is particularly relevant in sectors where innovation is central to the business and there is ongoing investment in technological development.
Key sectors include:
- Technology and software, including platform development, artificial intelligence, cybersecurity and SaaS solutions.
- Industry and advanced manufacturing, with projects focused on process improvement, automation or new materials.
- Energy and sustainability, particularly in renewables, energy efficiency and decarbonisation technologies.
- Health, biotechnology and pharmaceuticals, with the development of new products, processes or diagnostic solutions.
- Agri-food, in projects for production improvement, traceability or product innovation.
In all these areas, investment in innovation is structural, making the Tax Lease a particularly effective tool for optimising project financing and reducing the risk associated with their development.
The R&D&I Tax Lease: one of the most powerful incentives for tech start-ups and innovative companies
If you are considering undertaking an R&D&I project, Spain is a highly attractive destination for doing so. Its favourable tax environment, combined with accessible public funding and highly qualified talent at competitive rates, makes the country a preferred choice over other European destinations.
INCOTEC, with over 25 years’ experience in funding innovation and a track record of dozens of success stories involving foreign startups that have come to our country to carry out their projects, is the ideal company to advise you on managing your R&D&I projects in Spain. With their support, you will be able to optimise available resources, maximise tax deductions and ensure the success of your project in the most competitive and innovation-friendly environment.
Frequently Asked Questions
Can a foreign company set up a start-up in Spain?
Yes. A foreign company or entrepreneur can incorporate a company in Spain and operate from within the country. Spain allows international investors to set up companies, access public funding and benefit from tax incentives if they carry out innovative activities.
What tax advantages does Spain offer to innovative start-ups?
Start-ups can benefit from various incentives, including:
- A reduced rate of corporation tax for emerging companies.
- Tax incentives for investors.
- Tax deductions for R&D&I activities.
- R&D&I tax leases.
- Public funding programmes and European grants.
These instruments help reduce the tax burden and finance part of the company’s technological development.
Which activities carried out by a start-up are eligible for R&D&I tax deductions?
Tax deductions may apply to projects involving:
- Development of new products or technologies.
- Significant improvement of industrial processes or software.
- Scientific or technological research.
- Development of prototypes or pilot tests.
Many technology, deep tech or science-based start-ups can apply for this incentive if their activities meet the requirements set out in tax regulations.
Can a start-up take advantage of the tax deductions generated even if it is not yet making a profit?
Yes. In certain cases, R&D&I tax deductions can be utilised through the Tax Lease scheme, enabling short-term financing even without generating profits. The deductions can also be monetised if there is insufficient tax liability to apply them directly.
Which firm can help a start-up exploit R&D&I tax deductions in Spain?
There are consultancy firms specialising in innovation financing that help identify eligible projects and manage tax incentives.
Incotec, with over 25 years’ experience in R&D&I financing, supports start-ups and technology companies in identifying innovation activities, applying tax deductions and optimising incentives such as the Tax Lease scheme to maximise the return on their projects.