Start-ups enjoy significant tax advantages
Start-ups have the opportunity to enjoy significant tax benefits, such as the new start-up regime, making them an attractive option for entrepreneurs and investors.
These tax breaks can be invaluable to a business just getting off the ground, providing a significant boost in its efforts to establish itself and succeed.
These advantages offer a much-needed boost in the company’s efforts to establish itself and succeed. Depending on the jurisdiction, they may include exemptions from income taxes, property taxes, and excise taxes or credits for investment or business development costs.
This can present a valuable opportunity for companies to save money during their early stages of development. In addition, they can also make it easier for investors or lenders to obtain financing, who will be more willing to take a risk with a company if they know that they will get some of their money back thanks to the favorable tax implications. Ultimately, they can be an incredibly valuable resource for start-up companies looking to establish themselves in the business world.
The tax savings can be seen in multiple areas, from start-up cost deductions to preferential income tax treatment. In addition, there are also government incentives specifically designed to help start-ups use their resources more effectively.
By taking advantage of these powerful tax advantages, companies can maximize their profit potential while minimizing their overall financial burden.
Application of the new regime for emerging companies
As of 2023, a new regime for emerging companies is applicable, which includes various tax incentives in Corporate Tax:
- Be taxed at a reduced rate of 15% for the first four years, with earnings since incorporation: In the United States, the federal corporate tax rate is 21% and there are no reduced rates for the benefits derived from the incorporation of a company . However, many states offer reduced corporate tax rates for new or small businesses. For example, Georgia offers a 4% corporate tax rate on the first $50,000 of net taxable income for new businesses that file within their first year of existence.
- Facilities when deferring the payment of Corporation Tax:
- Payment in installments: Companies can agree to pay their corporation tax in installments with the Internal Revenue Service (IRS). The IRS can extend the payment term up to six months, and will waive interest and late penalties if payments are made on time.
- Partial Payment: Businesses are eligible for partial payment plans with the IRS, which allow businesses to make reduced payments over a set period of time. Interest and late fees are generally waived as long as all payments are made before the due date.
- Offer in Compromise: Businesses in financial difficulty may qualify for an offer in compromise, which reduces or eliminates their tax liability to the IRS. To do this, companies must show that they cannot pay all their outstanding taxes due to financial difficulties.
- Reduced Penalties: Businesses may qualify for reduced penalties if there is reasonable cause for not paying taxes on time or filing the return on time. The IRS will take into account factors such as death in the family, natural disasters, illness, or errors made by a professional tax advisor when considering requests for penalty abatement.
- Be exempt for two years from making payments on account: To be exempt from making payments on account for two years, you must meet certain requirements. In general, you must have paid all taxes for the previous three years and have no outstanding tax debt. You also must not have had any changes in your income that could significantly increase your potential tax liability for the following year. In addition, you may have to show low income or financial hardship to qualify for the exemption. If you think you may qualify for an exemption from payments on account, please contact the relevant tax authority in your country or region for more information on how to apply.
New or recently created entities that, among other requirements, develop an accredited innovative entrepreneurship project, are not listed companies and have their headquarters, registered office or permanent establishment in Spain are considered emerging.
Emerging entities must meet several requirements to be eligible, including:
- Have an innovative business model, be registered in Spain.
- Being a company that is not listed on the stock market and having an accredited innovative entrepreneurship project.
- They must have been created recently or have been operating for less than three years.
- They must have less than 250 employees and their annual turnover must not exceed 50 million euros.
- Being a company in which the majority is owned by natural persons.
- Have your main economic activity in Spain.
- Have technology transfer operations with universities or research centers.
Promotion of the ecosystem of emerging companies and startups
Fostering the ecosystem of emerging companies and startups is essential for economic growth and innovation. It enables a new wave of entrepreneurs to develop their ideas, create jobs, and bring new products and services to market. This can be done through government initiatives such as tax breaks and grants to support businesses in their early stages of development, as well as facilitating access to resources such as mentoring programs and networking events.
Investing in local infrastructure to support start-ups, such as incubators, accelerators, coworking spaces and other services, can help create an environment that fosters entrepreneurship. In this way, we can ensure that our society has the capacity to foster future businesses and stimulate economic growth.
If you plan to set up a company or have recently set it up, please contact us. We will verify if it can be considered emerging and enjoy the incentives of the new regime of emerging companies. We will also help you understand the incentives and other benefits offered by this new regime, as well as advise you on the best steps to take to maximize the potential of your company. Get in contact with us for more information.