Alliance Entrepreneur’s Group
Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
Welcome to the Alliance Entrepreneur’s Group Contents Welcome to the Alliance Entrepreneur’s Group
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Introduction
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Corporate aspects
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Tax aspects
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Employment aspects
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Financial aspects
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IP and IT aspects
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Immigration Policy and International Mobility
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Nabarro (UK), Roca Junyent (Spain), GSK Stockmann & Kollegen (Germany) and Nunziante Magrone (Italy) have worked together to create a cross-jurisdictional Entrepreneur’s Group for the purpose of championing the success of fast growth companies across Europe. Together we are creating and developing networks which entrepreneurs in each of our respective jurisdictions can use to obtain straightforward legal advice in a transparent and cost effective way. In this booklet we have brought together the key legal issues which may benefit or otherwise effect entrepreneurs and their investors when looking to enter the market in each of our jurisdictions. Please glance through these pages to get a flavour for the laws and regulations of each Country. While this booklet by no means provides an exhaustive guide, we hope that it will help you to anticipate and identify any areas from which your business could benefit. For more information on our Entrepreneur’s Group, what our Alliance is currently working on and how we can help you, please get in touch. www.nabarro.com/home/ www.rocajunyent.com/ www.gsk.de/ www.nunziantemagrone.it/en/ Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Introduction United Kingdom The economy in the UK improved in 2013 with continued growth forecast for 2014. A number of government schemes (as detailed below) have been implemented across England and Wales to assist in stimulating economic growth. The increase in new enterprises demonstrates the importance of the role played by entrepreneurs in the UK at this time, with the number of active companies in the UK growing in excess of three per cent every six months. The national enterprise campaign, StartUp Britain, reported that 526,446 businesses have been registered in 2013. StartUp Britain also reported that Government statistics show that micro and small businesses make up 95 per cent of all companies and employ more than seven million people in the UK. In addition, in September 2013 the government announced a £69m package of support provided for entrepreneurs and start-up companies under the Start Up Loans scheme and New Enterprise Allowance, which will provide more access to funding and business help for start up companies.
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Germany Germany has been called “a nation of entrepreneurs” as SMEs have ever since been forming the backbone of the economy, contributing 57 per cent to the country’s GDP. However, while GDP is slowly rising, the number of new company registrations has been declining in the course of the last few years. In the first three quarters of 2013 285,000 new businesses have been registered. There is a consensus that in Germany a “funding gap” exists for start-ups and growth companies. On the other hand, Germany aims to encourage entrepreneurship with a good “start-up ecosystem” (e.g. infrastructure, government sponsorship, protection of intellectual property, skilled labour) and a strong positive public attitude towards technology and innovation. The newly elected grand coalition intends to improve the regulatory framework for start-ups by planning to introduce new specific legislation on venture capital and crowdfunding. The coalition has announced that it intends to strengthen the existing government sponsored “high-tech start-up fund” (High-Tech Gründerfonds, HTGF), deregulate the process of setting up businesses, and implement a “digital agenda” to support the internet economy.
Alliance Entrepreneur’s Group
Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Introduction Italy
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Introduction In Spain to date, the approval of the Law 14/2013, 27 September, on support for entrepreneurs and their internationalization (hereinafter, the “Law”) remains the most significant strategy to boost entrepreneurial activity.
The mark “Made in Italy” has always been considered a synonym of quality and Italy has always been a leading country in the fields of luxury and food. Despite that, nowadays Italy is facing a severe economic crisis that hinders the development of entrepreneurial activity.
The Law seeks to facilitate all entrepreneurial and business activity from an early stage through to later stages. Some of the measures specifically affecting entrepreneurs can be highlighted, such as:
For these reasons the government has been adopting several regulations aimed, on one hand, at promoting the competitiveness of Italian entrepreneurs and, on the other, at attracting foreign investors. These measures have been designed to support the economic recovery and to provide benefits in terms of know-how and research. Different Regulations (such as “Decreto del fare”, “Decreto destinazione Italia”, “Decreto Crescita” and “Decreto liberalizzazioni”) have introduced measures, such as:
• the introduction of new types of legal entities for entrepreneurs with limited resources; • the inclusion of tax and labour advantages for entrepreneurs; • measures to help entrepreneurs to access public procurement; • the simplification of administrative proceedings and the reduction of charges; and • the introduction of measures to attract foreign investors, entrepreneurs, workers, qualified professionals and researchers.
• a simplified funding process for entrepreneurs; • a reduction in the administrative charges and simplification of the relevant administrative judicial proceedings; • tax advantages for entrepreneurs; • amendments to the existing legal entities used for carrying out entrepreneurial activity; • liberalization of economic activities; and • the establishment of specialized judiciary court for entrepreneurs.
Spain During 2013, 93,756 new companies were incorporated in Spain, which represents a 7.02 per cent increase from 2012 and is the highest growth rate since 2006. However, it is not yet possible to say that such figures represent a change of tendency, as they are still lower than the statistics from before the beginning of the financial crisis. In light of this, the Spanish Government has adopted certain measures with the aim of promoting the entrepreneurial culture, starting from the educational system. The Government has focused on boosting productivity in business activity and saving resources which are currently directed to fulfilling the requirements of the legal framework. The Government has also boosted financial measures to mitigate the effects of credit restrictions that companies may suffer and has been working on measures to stimulate investigation, development and innovation, as well as market internationalization.
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Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Corporate aspects United Kingdom
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Corporate aspects Germany
Private Limited Companies The Companies Act 2006 (the “Act”) aimed to reduce company regulation for smaller UK businesses. Examples of provisions to help smaller companies are detailed below:
The legal forms most commonly used by start-ups and small and medium-size companies in Germany are the limited liability company (Gesellschaft mit beschränkter Haftung, GmbH) and the limited partnership with a limited liability company as general partner (GmbH & Co. KG).
• No requirement for a company secretary which removes an additional layer of cost;
In 2008, a new, modified type of GmbH has been introduced to German law to meet the specific needs of start-ups: the entrepreneurial company (limited liability) (Unternehmergesellschaft (haftungsbeschränkt), UG), also called “Mini-GmbH”.
• “Micro-entities” (companies with a turnover of less than £632,000, a balance sheet total of less than £316,000 and an average of 10 employees) can take advantage of exemptions and disclose less information than small and medium sized companies when filing their annual accounts; • Micro-entities can file a balance sheet with a reduced amount of information, are exempt from audit, and are exempt from the requirement to file a directors’ report or profit and loss account; • “Small companies” (a turnover of less than £6.5m, a balance sheet total of less than £3.26m and an average of 50 employees) can file simpler and less detailed accounts at Companies House, and can also be eligible for an audit exemption. English Limited Partnership (“ELP”) An ELP is generally a standard vehicle for fund investment and venture capital due to its flexibility, tax transparency and the limited liability protection afforded to investors. An ELP allows one or more general partners to run the business. In exchange for having limited liability, other partners are prohibited from taking an active role in the management of the business. For UK tax purposes, an ELP does not constitute a separate legal entity and is not liable to corporate tax. Partners are treated as if they have directly invested in the assets of the ELP, and are taxed on income and gains arising from participation in the ELP.
The stock corporation (Aktiengesellschaft, AG) is characterized by a higher capital requirement, stricter legal framework and usually more extensive disclosure obligations when compared to a GmbH. This legal design contributes to the fact that the AG is less common among start-up companies. The limited liability company (GmbH) In a GmbH the shareholders’ liability vis-à-vis business partners is – with certain exceptions – limited to the company’s assets, which is at least its initial registered capital, the minimum amount of which is €25,000. A minimum of half of this amount has to be paid in to the company before it can be registered with the commercial register. As the GmbH under German law is designed as a closely held corporation, the sale and transfer of shares in GmbH requires notarization. The entrepreneurial company (limited liability) (UG) The UG is a GmbH with a slightly modified legal regime. The main difference is that there is no minimum capital requirement. Instead, a company of this type must retain 25 per cent of its annual profit as a statutory requirement. When retained profits reach the minimum capital requirement of an ordinary GmbH, they can be converted to registered capital and the legal status of the company can be changed to an ordinary GmbH. German law stipulates model articles for an UG. If these are used, the costs of setting up the company are reduced. The limited commercial partnership with a limited liability company as general partner (GmbH & Co. KG) This legal form combines a corporation’s limited liability with the advantages of a partnership (for example greater legal flexibility, transferability of shares without notarization and a different tax regime that can be beneficial depending on the exact situation). In addition, it is comparably easy for a GmbH & Co. KG to raise new equity capital. However, the legal structure is slightly more complicated as it is a combination of two different corporate forms. This is a disadvantage when compared to a GmbH.
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Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Corporate aspects Italy
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In principle, under Italian law there are eight types of companies. The most common structure used to carry out entrepreneurial activity is the limited liability company (“s.r.l.”) (unless specific needs require a different structure). As mentioned above, one of the ways that has been chosen by the Italian government to face the crisis, has been to create a simplified set of rules regulating companies to develop investments. This has led to two alternative ways to incorporate a limited liability company in Italy: The “ordinary” limited liability company This is the usual type of limited liability company. To incorporate this company a minimum share capital of €10,000 is required and the shareholders must be either natural persons or legal entities.
Corporate aspects Spain Spanish legislation allows for five types of companies. The most common type of company to carry out entrepreneurial activity is the limited liability company (“S.L.”). The S.L. can be incorporated through the so called “express incorporation process” which allows entrepreneurs to incorporate a company in approximately four or five working days. This shorter time frame is a result of the fact that standard byelaws approved by specific regulations are used, and therefore there is no risk that the Commercial Registrar qualifies them negatively. Only companies with individual partners and a share capital between €3,000 and €30,000 can be incorporated by means of this “express incorporation process”. The Spanish Companies Act also provides for the “New Business Company” (S.L.N.E.) which is a subtype of the S.L. For a S.L.N.E. the company must have (among other requirements):
The simplified limited liability company The Law 24 March 2012, n.27 (amended by the Law 9 August 2013, n. 99) introduced article 2463bis into the Italian Civil Code which allows natural persons (of any age) to create a company with a share capital of at least €1 but less than €10,000.
1. a share capital between €3,000 and €120,000; 2. a corporate name consisting of a partner’s full name followed by an alpha-numeric code; 3. a share capital only owned by individual partners; and 4. a managing body which is not a Board of Directors.
For these companies the incorporation costs are reduced. The byelaws for this kind of company must comply with the standard form provided by the Law 24 March 2012, n.27, and cannot be modified by the parties.
If byelaws approved by regulations are used on incorporation, the S.L.N.E. can be incorporated in just 24 hours.
Start-ups The Law 18 December 2012, n. 221 has introduced regulation for start-ups into the Italian legal system. Start-ups are high technological and innovative companies that have been incorporated for less than four years and that comply with certain requirements (such as, among others, having a value of annual production lower than €5m, expenses for research and development and having highly qualified staff). Italian law has granted these companies with corporate, employment and tax advantages. Among the corporate advantages, start-ups are able to: • cover capital losses that exceed one third of its capital by the end of the second year following such loss (rather than within the subsequent year as is required for ordinary limited liability companies); and • offer financial instruments to the public which eventually will be issued through special online portals.
The Law has created two further new subtypes of the S.L. which are specifically intended for entrepreneurs: the limited liability entrepreneur and the limited liability company of successive formation. The limited liability entrepreneur This legal entity allows natural persons (societies are not eligible) to avoid including their main residence as an asset which can be called upon to pay any debts incurred from the fulfilment of their business duties. This breaks the general principle in Spain which states that a debtor is responsible for the fulfilment of his business obligations using all of his current and future assets, personal or otherwise. In order to benefit from the above provision, certain conditions must be fulfilled. For instance, the value of the entrepreneur’s main residence generally must not be higher than €300,000. To protect creditors, the entrepreneur avoidance must be registered at the Commercial and
Start-ups have also been granted with some tax advantages which are discussed below. Alliance Entrepreneur’s Group
Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Corporate aspects Property Registries. Any failure of the company to record the annual accounts at the Commercial Registry within seven months of closure of the previous financial year will imply the loss of such a benefit for any debts incurred prior to the period of time in which the company must deposit the annual accounts. It should also be noted that except where creditors expressly consent otherwise, the responsibility of the debtor will persist for debts assumed before registration at the Commercial Registry as a limited liability entrepreneur.
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Limited liability company of successive formation To lower the costs of incorporation, the Law allows the creation of companies with a share capital lower than €3,000. The legal regime for this new corporate subtype is practically identical to the regulation of regular limited liability companies. It is however, subject to a temporary special regime to protect third parties until the minimum share capital of €3,000 is reached. The Law requires that the annual amount paid to shareholders and directors until the minimum share capital is reached cannot exceed 20 per cent of the amount of the equity in each financial year, not taking into account any remuneration such individuals may receive as company employees or by means of other service agreements. In the event of liquidation, if the company’s 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. We therefore highlight the directors’ responsibility for the non-disbursed amount of share capital, taking into account that directors do not always need to be shareholders. It is not necessary to prove the reality of any non-monetary contributions when incorporating the company. However, founders and shareholders on incorporation are jointly and severally liable before the company and its creditors for such non-monetary contributions. Reducing financial reporting requirements The Law facilitates and simplifies the requirements regarding economical and financial information of entrepreneurs (such as the extension of assumptions to submit abridged financial statements instead of ordinary financial statements). Entrepreneur’s Assessment Points (PAE) PAEs are the regular or virtual offices through which it is possible to perform the procedures concerning the starting, exercise or cessation of the business activity. Entrepreneurs are provided with information, advice, training and support concerning their business activity at these offices.
Tax aspects United Kingdom Seed Enterprise Investment Scheme (SEIS) This scheme provides tax relief to investors who purchase ordinary shares in smaller early stage companies. Provided that: • the investor is not an employee of the company (but they can be a director); • the shares purchased are eligible shares (i.e. new ordinary shares issued fully paid); • the company is a genuine new venture; • the shares are issued to raise money for a qualifying activity and the money is used within two years of issue; • the company raises no more than £150,000 through SEIS and other state aids, and no EIS (see below) or VCT investments have been received before the SEIS shares are issued; • the company’s gross assets do not exceed £200,000; and • the company has less than 25 employees, then the investor can claim income tax relief of 50 per cent of the amount subscribed (subject to a maximum subscription of £100,000) and capital gains tax exemption on a sale as long as the shares are held for at least three years. Any gain made on the disposal of an asset which is reinvested in SEIS qualifying shares within the same or following tax year will be exempt from capital gains. Enterprise Investment Scheme (“EIS”) EIS provides tax relief to investors who purchase ordinary shares in small and medium sized trading companies. Provided that: • the shares purchased are eligible shares (i.e. new ordinary shares issued fully paid); • the shares are issued to raise money for a qualifying activity and the money is used within two years of issue; • the company raises no more than £5m under the EIS scheme in any 12 month period; • the company’s gross assets do not exceed £15m before the issue of shares and £16m after; and • the company has less than 250 employees, then the investor can claim income tax relief of 30 per cent of the amount subscribed (subject to a maximum subscription of £1m) as long as the shares are held for at least three years, and capital gains tax exemption on sale after three years.
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Tax aspects
Tax aspects
This scheme also allows an investor to defer capital gains made on the disposal of assets by reinvesting those gains into a qualifying EIS company.
Utilization of tax-loss carry-forwards The utilization of tax-loss carry forwards is not limited to a certain time period. However, if the total taxable profit exceeds €1,000,000 the offset of loss is limited to 60 per cent of that taxable profit.
Entrepreneurs Relief An individual who sells their business can claim this tax relief so that only 10 per cent of capital gains tax is payable on the profits. This relief can be claimed as many times as it applies, subject to a maximum cap of £10m relief in total during your lifetime. In order to claim this relief, the individual must own at least five per cent of the shares in the business for a year, and be a director, employee or partner of the business. 14
A sole trader can claim this relief provided they have been trading for at least a year. VCT Relief An individual making an investment in a VCT is entitled to income tax relief of 30 per cent of the amount subscribed (subject to a maximum subscription of £200,000) as long as the shares are held for at least five years. Dividends are exempt from income tax and any gain on disposal is free from capital gains tax. Corporation Tax The main rate of corporation tax, which applies if a company makes profits of over £1.5m, is 21 per cent for 2014 (down by two per cent from 2013). The small company rate is 20 per cent and applies to companies whose profits do not exceed £300,000. For companies whose profits fall between these two limits, marginal relief is available. Marginal relief is calculated by multiplying the allowable profits by the standard fraction of 3/400.
Germany Tax reliefs for PE/VC-funds • PE-funds that legally qualify as an Unterneh-mens-beteili-gungs-gesellschaft (PE-fund according to the German Gesetz über Unternehmens-beteiligungs-gesellschaften) are trade tax exempt. • PE-Funds in the legal form of a partnership can be trade tax exempt if certain criteria stipulated by tax authorities are met, for example if the fund does not manage the target company’s business. • If certain criteria are met, 40 per cent of the carried interest of the fund managers can be tax exempt.
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Taxation of dividends and profits from the sale of shares • Commercial income dividends received by individuals are 40 per cent income tax exempt. • If dividends are received by a corporation which owns at least 10 per cent of the shares of the company, the dividend is 95 per cent corporate tax exempt. • Profits from the sale of shares received by an individual are 40 per cent income tax exempt. • Profits from the sale of shares received by a corporation are 95 per cent corporate tax exempt. Income Tax: Privilege for retained profits in partnerships Operating profits of a partnership which are retained can be taxed with a flat tax rate of 28.25 per cent at the shareholders’ level. However, those profits can be subject to a recapture taxation in later years (for example if the profit withdrawn in later years exceeds the profit of the present year). Tax benefits for small and medium sized enterprises Bookkeeping reliefs Entrepreneurs with a turnover not exceeding €500,000 per year and a business profit not exceeding €50,000 per year are not obliged to keep books for tax purposes. However, they may be obliged to do so under other laws (such as the German Commercial Law “HGB”). Cash receipt criterion regarding VAT Entrepreneurs with a turnover not exceeding €500,000 in the previous year need not pay output VAT before they have been paid by their clients. Corporate tax and income Tax deduction for planned investments: Entrepreneurs with a business property not exceeding €235,000 can, in a given year, under certain conditions deduct from their operating profit 40 per cent of the estimated value of an investment in movable assets they plan to make in a subsequent year. If the investment is actually made, the amount that was deducted increases the company’s profit in the year of the investment. This makes it possible to move tax burdens to subsequent business years.
Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Tax aspects Italy
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Cash receipt criterion regarding VAT As of 1 December 2012, the Italian government introduced the so-called Cash receipt criterion regarding VAT. Entrepreneurs whose annual turnover does not exceed €2m and who sell to other entrepreneurs as well as to private customers, are allowed to pay VAT once they are paid by their clients rather than when the relevant transactions take place. Entrepreneurs can also delay the deduction of VAT on purchases until they have paid their suppliers. However, all VAT must be paid within one year of the relevant transaction occurring. Entrepreneurs are not required to provide formal notice to benefit from this relief. Personal income tax deduction Natural persons who invest in a start-up, will benefit from a personal income tax deduction of 19 per cent. If such persons invest in a newly incorporated company that develops products in the field of Energy, the deduction is 25 per cent.
Spain The Law provides certain incentives, particularly for investors. These are as follows: Personal Income Tax deduction Regulations on Personal Income Tax allow a 20 per cent deduction on the amounts used to purchase shares in start-ups. The maximum basis from which a deduction can be made is €50,000 per year, making the maximum amount that can be deducted each year €10,000. To qualify for this deduction, the investment must be made from 29 September 2013 in companies which fulfil certain requirements, such as: 1. performing an economical activity with personal and material means for its development; 2. not being listed in any organized stock market; and 3. not having an equity higher than €400,000 in the financial year in which the shares are acquired.
Tax aspects To further encourage support for entrepreneurial activity, the gains derived from a transfer of qualifying shares are excluded from taxation if the proceeds of transfer are reinvested in other qualifying shares. However, only individuals can take advantage of this tax relief, as investing vehicular companies are excluded. The Law also provides for an important incentive for entrepreneurs: Cash receipt criterion regarding VAT Entrepreneurs with a turnover not exceeding €2m are allowed to pay output VAT once they have been paid by their clients, provided that the VAT is paid by 31 December of the year immediately following the one in which the transaction took place. Entrepreneurs can delay the deduction of input VAT on purchases until they have paid their suppliers, provided again that the VAT is paid by 31 December of the year immediately following the one in which the transaction took place. This could be extremely useful for entrepreneurs with liquidity problems, but the temporary limit clearly mitigates such a benefit. Corporation Tax deduction A company which invests profits in new fixed assets or real estate investments allied to their economic activity can receive a 10 per cent Corporation Tax deduction during each financial year. Only companies with a turnover lower than €10m during the prior financial year and with an accruing interest of 25 per cent up to 30 per cent of the Corporation Tax may benefit from this deduction. There is an incentive to invest in R&D and IT, which consists of a 25 per cent deduction from the expenses in activities concerning investigation and development (although the percentage of the deduction can vary depending on the specific activity performed). The application of this deduction is not subject to the overall limit set for Corporate Tax deductions, and so can be very useful to companies performing R&D or IT activities. The Law also provides for a tax deduction for the creation of employment. The company can benefit from a €3,000 deduction if its first employee is under 30 years of age and is contracted by virtue of an indefinite contract of support for entrepreneurs. If the company hires an unemployed individual who receives a contributory benefit, the company has the right to apply certain deductions under the Law, depending on the circumstances of each case. Similarly, the employment of disabled people provides the company with the right to receive certain other tax deductions.
Additionally, the shares have to be acquired when the company is incorporated, or by means of a capital increase within the following three years, and must remain in the taxpayer’s ownership for between three and 12 years. The shares must also not represent more than 40 per cent of the total share capital.
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Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Tax aspects Personal Income Tax deduction Taxpayers, who receive earnings from economic activities, and incentives for business investment in companies, can apply the same percentages and limits, with the exception of what is established in the Corporations Tax Act concerning the deduction for reinvestment of extraordinary benefits. The Law also allows the following in respect of the deduction for investment of benefits:
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• the net income from economic activities of the tax period, that are invested in new equipment or property linked to the economical activity carried out by the taxpayer, give right to a corresponding deduction. • the deduction is equivalent to 5 per cent if the taxpayer applies the deduction for starting a new economical activity, the net income is determined by means of the “direct estimation” method of job maintenance or creation, or the incomes are obtained in the cities of Ceuta or Melilla. The amount of the deduction cannot exceed the sum of the state and regional quote of the period in which the incomes are obtained.
Employment aspects United Kingdom Enterprise Management Incentive (“EMI”) EMIs are tax advantaged share schemes which help small higher-risk companies recruit key employees. A company with less than 250 employees and gross assets of less than £30m can offer shares which are subject to this option. The employee claiming the option must be an employee of the company whose shares they are buying, and the market value of the shares under the option must not exceed £250,000. The shares under the option will be subject to capital gains tax (at 28 per cent), rather than income tax, and where applicable, entrepreneur’s relief can be claimed (i.e. where the employee held the shares for at least a year from the grant of the option).
Germany Newly established enterprises must generally comply with regular employment law. However, there are some simplifications and privileges. Dismissal protection In general, it is not possible to terminate an employment agreement without cause under German dismissal protection law. Such termination must be based on certain statutorily acknowledged reasons of a personal, behavioural or business related nature. The need to justify a dismissal tends to increase the legal costs of staff reduction remarkably, often leading to severance payments. However, dismissal protection rules do not apply if a company employs no more than 10 full time employees, as is often the case with start-ups. Statutory notice period As the duration of the notice period for employment agreements depends on the duration of the employment status, comparably short notice periods apply to young companies.
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Employment aspects
Employment aspects
Fixed-term employment contracts The time limitation of an employment contract must usually be justified by a statutorily acknowledged reason. Without reason, the contract can be limited to up to two years of employment only. Newly established enterprises however, are allowed to enter into employment contracts with a fixed term of up to four years even if there is no specific reason for such limitation. This privilege aims to simplify the management of personnel costs during the start-up phase.
Self-employed individuals and companies that offer part-time training contracts for unemployed individuals under 30 years of age may receive a deduction from the employer’s contribution to Social Security ranging from 75 per cent up to 100 per cent for a period of 12 months.
Social plan If a start-up enterprise has a works council, it cannot be forced to conclude a social plan in case of staff reduction (including, for example, the obligation to make severance payments) during the first four years after its establishment.
Italy The Law 9 August 2013, n. 99 introduced advantages for companies which employ young people, disabled people and people over 50 who were unemployed for more than a year. A company which hires individuals between 18 and 29 years of age who do not have a high school diploma or who were unemployed for more than six months, with an open ended contract, will receive an incentive from the National Institute of Social Security (“INPS”) of €650 per month per employee. INPS has established, on a trial basis, a fund with an endowment of €2m which is aimed at providing allowances for unemployed people over the age of 50 who participate in training courses. The government has also allocated a pool of €22m for the provision of incentives to those who employ disabled individuals.
Spain Deductions for companies and self-employed individuals that hire workers The deductions in this field are extremely changing in Spain, so it is quite difficult to categorize them. However, there are several reliefs which come with the employment of young, unemployed individuals. The main deductions, subject to the fulfilment of certain formal requirements, are described below.
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Companies and those who are self-employed with a staff not exceeding nine workers, who hire full or part time, unemployed individuals under 30 years of age on an indefinite contract, may receive a deduction of the employer’s contribution to Social Security of up to 100 per cent. Self-employed individuals under 30 years of age who hire for the first time, unemployed individuals above 45 years of age on an indefinite contract, may have a deduction of 100 per cent of all of the employer’s contributions for Social Security. In order to encourage first professional experiences, companies and those who are selfemployed may offer temporary contracts (from three up to six months) to unemployed individuals under the age of 30 who have no previous professional experience. If such contracts are converted into permanent contracts, companies and self-employed individuals may have a deduction from the employer’s contributions to Social Security ranging from €500 per year up to €700 per year, for a period of three years. Companies and self-employed individuals who offer training contracts to employees under 30 years of age are entitled to a deduction from the employer’s Social Security contributions ranging from 50 per cent up to 75 per cent. The offer and indefinite period of the so called “contract of support for entrepreneurs”, which is especially provided for companies with less than 50 employees, also has a relevant bonus system at Social Security. Benefits for self-employed individuals Self-employed individuals under the age of 30 (or under 35, in the case of women) may have a deduction of up to 35 per cent in their contribution to Social Security for a period of 15 months, plus a bonus for the same amount during the following 15 months. Alternatively, those who are self-employed and under the age of 30 who do not hire other employees, may be entitled to certain deductions ranging from 30 per cent up to 80 per cent in their contribution to Social Security, according to a range approved by law, for a period of 30 months. Disabled self-employed individuals are entitled to a more beneficial regime of bonuses. Self-employed individuals are also able to benefit from a flat rate in their Social Security quotes in the case of multiple employments.
Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Financial aspects United Kingdom There are a number of routes of funding for entrepreneurs in the UK including:
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1. government backed schemes; 2. crowdfunding; 3. business angels; 4. venture funds; and 5. corporate investors/private equity. There are a number of government funded schemes which are dedicated to helping start up companies. Such schemes have been a popular source of funding for entrepreneurs in the UK over recent years. Start Up Loans Company This company is a government backed initiative which provides start-up support for entrepreneurs in the form of a repayable loan and a business mentor for qualifying businesses in England and Wales. The loan is provided at a fixed rate of interest with the potential for a 12 month capital repayment holiday if required, and must be paid back within five years. Smart Programme Businesses for which innovation is central, and who plan to research and develop new products or services can apply for grants from this programme. The grants range from funding up to £20,000 for low cost, proof of market/research projects lasting no more than nine months (subject to the business contributing at least 40 per cent of the total project cost), to funding up to £250,000 for prototype development projects lasting no more than two years (subject to the business contributing at least 55 per cent if it is a medium sized business, or 65 per cent if it is a small business of the total project cost).
Financial aspects Germany Financial instruments specifically designed for entrepreneurs In Germany there is a broad variety of public or semi-public financing programmes for company founders and entrepreneurs. Most important among these are the programmes administered by the state-owned Development Loan Corporation (Kreditanstalt für Wiederaufbau, KfW)). The high-tech start-up fund (HTGF) explicitly addresses high-tech companies and combines public and private money. The HTGF as a rule acquires 15 per cent of the companies’ shares in return for a lump-sum capital increase of €0.5m (without any business valuation taking place). In addition to this equity investment the HTGF grants a convertible loan to the company as a means of anti-dilution protection. The HTGF also reserves another €1.5m for subsequent financing. A company must be legally existent for no more than one year and must qualify as a “small company” (according to the EU definition) to be eligible for an HTGF investment. Venture Capital Investment Grant (Wagniskapitalzuschuss) The Venture Capital Investment Grant is a subsidy given by the Federal Office of Economics and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle) to individuals (or investment companies owned by a single individual) investing into start-up companies. The Grant is limited to 20 per cent of the investment amount, which must be between €10,000 and €250,000. The shares must be held by the investor for a minimum period of three years. The start-up company has to meet certain criteria to be eligible for the Venture Capital Investment Grant. In particular the company must: • have less than 50 employees; • be younger than 10 years old; • have annual sales or an annual balance sheet total of less than €10m; • have an innovative company activity (as described in the commercial register); and • be a going concern. EXIST Gründerstipendium Undergraduates and entrepreneurs graduating from university can apply for an entrepreneur grant (Gründerstipendium). European Recovery Program (ERP) Initial Capital Under this program, a subordinated loan of up to €0.5m can be granted to small and medium-sized companies with less than 250 employees and a yearly turnover below €50m for establishment or growth purposes. The loan must be paid back within 15 years.
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Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Financial aspects Italy The regulation “Decreto del fare” simplifies the funding process in Italy. In particular, this decree has amended the requirements a company must meet in order to receive a guarantee from the Central Guarantee Fund (“Fondo Centrale di Garanzia”) and has simplified the procedure and enabled it to be completed through electronic means. 24
Decreto del fare has also provided the Central Guarantee Fund with a substantial refinancing of €50bn, and has granted SMEs access to low-interest loans for the purchase of machinery and equipment.
Spain Government backed schemes In Spain, entrepreneurs can obtain funding from different sources, namely: investors and private equity, business angels, credits granted by public institutions, venture funds, and lately, through crowdfunding entities. There are a number of government funded schemes which are dedicated to helping start-up companies. Such schemes have been a popular source of funding for entrepreneurs in Spain over recent years. The more popular ways for public financing of entrepreneurial business are: 1. the loans granted by the National Innovation Company (ENISA); 2. the Official Credit Institute (ICO) loans for entrepreneurs; and 3. the loans granted by the Center for Industrial Technological Development (CDTI) intended for entrepreneurial projects of R&D and I. Additionally, at regional level, among other offerings there are financial schemes for entrepreneurs of Avalmadrid in the Community of Madrid, and financial schemes for entrepreneurs of the Catalan Financing Institute (ICF) in Catalonia. These public financing routes are separate to the private avenues for obtaining financing, such as business angels, venture funds, investing corporations, private equity and crowdfunding.
IP and IT aspects United Kingdom “Patent Box” tax relief Companies are taxed at only 10 per cent on profits that derive from a technology which they own or exclusively licence in, and which is patented in the EU or European Economic Area. R&D tax relief Small and medium sized companies who are liable for corporation tax can claim an enhanced tax deduction of 225 per cent of their qualifying spend on research and development (i.e. for each £100 of qualifying costs, the company could have the income on which Corporation tax is paid reduced by an additional £125 on top of the £100 spent). If the company has losses, a payable credit up to £24.75 for every £100 of qualifying spend can be claimed.
Germany General IP and IT aspects • In Germany it is very straightforward and fast to obtain preliminary injunctions concerning obvious IP infringements, counterfeit or infringing goods. • IP rights (trademarks, patents, utility models, designs) should be registered as early as possible. The registration process with the German Patent and Trademark Office is standardised and can be done online. • Unregistered IP (such as copyrights, software and know-how) should be protected by reliable licence or non-disclosure agreements. • “Joint IP ownership” should be avoided as the consequences of having joint owners of IP are governed imperfectly by German law. • Compliance with IT security and data protection standards should be maintained as the German Data Protection Authorities have a strict supervisory and enforcement regime. • Legal regulations for websites should be satisfied (for example the regulations relating to Imprint, Terms & Conditions and Privacy Statements). “Patent Box” tax relief The “Patent Box” tax relief has not been adopted in Germany so far.
Repayment agreement in case of insolvency proceedings If a company is involved in insolvency proceedings, entrepreneurs are able to reach a repayment agreement of their debts with their creditors, under the supervision of a mediator. Such repayment agreements can then be validated by the Court. Alliance Entrepreneur’s Group
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IP and IT aspects
Immigration Policy and International Mobility
Italy
United Kingdom
The “Patent Box” tax relief has not been adopted in Italy.
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“Patent box” tax relief Incentives for the assignment of intangible assets to another entity are also supported by Spanish legislation. By virtue of the “Patent Box” relief, only 40 per cent of the amount of the income derived from the transfer of intellectual property rights (including the right of use or exploitation of patents, designs or models, plans, secret formula or processes, of rights over information concerning industrial, commercial or scientific experiences) will be included in the calculation of Corporation Tax, provided that all of the legal conditions are met.
EU citizens are able to move to and carry out entrepreneurial activity in any EU member state. There are however, specific provisions for non-EU citizens which are discussed below. Visas for entrepreneurs and prospective entrepreneurs Prospective entrepreneurs can be granted leave to remain in the UK for up to six months if they are coming to the UK to secure funding to set up a UK business. In order to be eligible, the individual must currently be in discussions with one or more registered venture capitalist firms regulated by the FCA, one or more UK entrepreneurial seed funding competitions and/or government departments, to enter the UK to secure funding to help them join, set up or take over the business in the UK, and be actively involved in the running of that business. Entrepreneurs can apply for leave to remain in the UK for up to three years and four months under an Entrepreneurs (Tier 1) visa. In order to be able to apply for this visa, the individual must meet a number of requirements including having access to: • not less than £200,000; or • not less than £50,000 from a registered venture capitalist firm regulated by the FCA, a UK entrepreneurial seed funding competition and/or a government department; or • not less than £50,000 and be applying for leave to remain having previously been granted leave under a Graduate Entrepreneur visa; or • not less than £50,000, be applying for leave to remain having been previously been granted leave under a Post-study Work visa, have an occupation and be registered at HMRC as self employed or a director of a company. The Global Entrepreneur Programme (GEP) GEP helps overseas-based technology entrepreneurs to relocate to the UK by connecting the entrepreneurs with investors, management talent, strategic partners and other key networks in the UK.
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Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
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Immigration Policy and International Mobility Germany As a rule, EU citizens are not restricted in moving to or carrying out any entrepreneurial activity in any EU member state. EU law guarantees labour mobility and freedom of trade.
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However, non-EU citizens generally need a visa or a residence permit (Aufenthalts-erlaubnis) to enter, stay, or work in Germany. Exceptions apply to visits of up to 90 days for nationals of certain countries for which there is no visa requirement under EU law. Other nationals can apply for a Schengen visa for short-term stays (no longer than 90 days). Persons entering the country in order to take up gainful employment require a special form of visa or a residence permit. To receive a residence permit for the purpose of self-employment certain requirements must be met (for example, there must be an economic interest or regional need, expected positive effects on the economy and secured funding). Requirements are less strict for persons who, among other things, have successfully completed studies at a university. A settlement permit (Niederlassungserlaubnis), allowing for permanent stay, can be obtained after holding a resident permit for five years. For direct investments, German law does not distinguish between Germans and foreign nationals. The legal framework for foreign direct investments (FDI) is laid down in the Foreign Trade and Payments Act (AuĂ&#x;enwirtschafts-gesetz).
Immigration Policy and International Mobility Spain Requirements for foreign investors A foreign individual or company must meet certain requirements in order to be able to invest in the share capital of a Spanish company. These requirements are as follows: 1. they must obtain a Foreign Identification Number (NIE), which must appear on all documents issued or processed; and 2. they must file Form D-1A in the Registry of Foreign Investment for each of the investments made if the relevant Spanish companies are not listed on the Stock Exchange. Visa and authorization of residence The Law allows foreign individuals to obtain a visa or an authorization of residence in certain cases, as its aim is to attract investors, entrepreneurs, workers, qualified professionals and researchers. The novelty of the Law lies in the agility of the procedure, which is handled by a sole authority. The time resided in Spain by the foreigner may also be used to obtain its naturalization if all immigration conditions are fulfilled. A visa is required for stays in Spain which are no longer than three months, while an authorization of residence will be required for investors who carry out significant investments. The geographical scope of the visa or the authorization of residence is valid in the whole national territory.
Italy EU citizens can freely carry out entrepreneurial activity in Italy. Non-EU citizens require a visa or an authorization of residence to work or invest in Italy. A visa is not required for an individual to stay in Italy for less than three months. For longer periods it is necessary to obtain the authorization of residence.
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Alliance Entrepreneur’s Group
Main legal issues concerning entrepreneurial activity and fundraising in UK, Germany, Italy and Spain
Nabarro
Nunziante Magrone
London Lacon House 84 Theobald’s Road London WC1X 8RW
Rome 00186 Roma Piazza di Pietra, 26
T +44 (0)20 7524 6000
www.nunziantemagrone.it Also with offices in Milan and Bologna.
T +39 06 695181
www.nabarro.com Also with offices in Sheffield, Singapore and Dubai.
Roca Junyent
GSK Stockmann + Kollegen
Barcelona Aribau, 198 1st floor, 08036 Barcelona
Berlin Mohrenstraße 42 10117 Berlin T +49 (30) 20 39 07 - 0
www.gsk.de Also with offices in Munich, Frankfurt, Hamburg, Heidelberg, Stuttgart, Düsseldorf and Singapore.
T +34 93 241 92 00
www.rocajunyent.com Also with offices in Madrid, Girona, Palma de Mallorca, Lleida and Shanghai.
Joint office Brussels 209A Avenue Louise 1050 Brussels Belgium T +32 2 626 0740
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