Angel investing has an image problem in Spain. It reads as something for the already wealthy, a way for people with money to spare to make bets they can afford to lose. That image keeps a lot of capable people on the sidelines, including many here in the Balearics who have built successful businesses and could back the next generation of local founders, but who assume the economics do not work for them.

The economics are friendlier than that image suggests, and the reason is a piece of legislation most people file under founder news rather than investor news. Spain's Startup Law changed the tax treatment of early-stage investment in a way that lowers the cost of writing a check. If you pay personal income tax in Spain and you back a qualifying young company, the state effectively covers a large share of the investment through a deduction. Most would-be angels we talk to either do not know this exists or have a rough sense of it without the specifics, and the specifics are the part that changes minds.

What the Startup Law Actually Gives Investors

Spain's Startup Law (formally Law 28/2022, in force since the end of 2022) raised the personal income tax deduction for investing in new or recently created companies from 30 percent to 50 percent, and lifted the maximum deductible base from 60,000 to 100,000 euros per year.¹ In plain terms, an individual who pays Spanish income tax can deduct half of what they put into a qualifying startup, on up to 100,000 euros invested in a given year, for a maximum deduction of 50,000 euros.

A worked example makes it concrete. Put 20,000 euros into a qualifying company and 10,000 of that comes back as a reduction in your income tax for the year. Put in the full 100,000 and 50,000 returns through the deduction. The capital still goes to work in the company. The deduction changes what the position costs you on a net basis, which is the part that tends to surprise people the first time they run the numbers.

The Conditions That Have to Be Met

Strictly speaking, the 50 percent deduction applies to investments in companies meeting the tax law definition of a new or recently created company, which does not require ENISA certification on its own. In practice, ENISA certification (issued under the Startup Law by Spain's national innovation body) serves as the standard route and strong evidence of qualifying status, and it unlocks the broader package of Startup Law benefits alongside the deduction.² In broad strokes, a qualifying company has to be young (under five years old, extended to seven in biotechnology, energy, industrial, and other strategic sectors), independent rather than the result of a merger or restructuring, based in Spain with most of its workforce employed here, and absent from public markets.³

There is also a window on the investment itself. You generally need to acquire the shares at incorporation or through a capital increase within the company's first five years, again stretched to seven for companies in the qualifying sectors. And the shares have to be held: the rules require a minimum holding period of three years and set a ceiling of twelve years, so this is not a mechanism for quick in-and-out positions. In a useful change from the older rules, founders investing in their own companies can now claim the deduction even when they hold a majority stake, which the previous regime blocked.

What This Does to the Risk Math

None of this removes the underlying risk of angel investing, and it would be dishonest to pretend otherwise. Early-stage companies fail more often than they succeed, and any angel portfolio has to be built on the assumption that several positions will return nothing. The deduction does not change that. What it changes is the cost of taking the position in the first place.

Think of it as the state sharing the downside, with one important caveat: the deduction reduces your tax bill, so you need sufficient taxable income for it to land. It is not a cash refund beyond your liability. For someone with a meaningful income tax burden, though, the effect is real: when up to half of the deductible portion of an investment comes back as a reduction in what you owe, your effective exposure on that portion is cut substantially from the start. That does not turn a weak company into a strong one, and it should not nudge anyone toward deals they would otherwise pass on. But for someone deciding whether the math of angel investing works for them at all, a structure that can return up to 50,000 euros a year against a tax bill is a different proposition than one without it. It widens the pool of people for whom backing local companies is a sensible move rather than a wealthy person's pastime.

Why the Math Favors a Portfolio

There is a second-order effect in how the deduction is structured that is easy to miss. The 50,000 euro ceiling applies per year, not per company, which means an investor can spread 100,000 euros across several startups and still claim the deduction on the whole amount. That lines up neatly with how angel investing actually works.

The first rule of angel investing is that it is a portfolio activity. Picking the one company you believe in and putting everything behind it is among the fastest ways to lose money in this asset class, because even strong-looking early-stage companies fail at high rates and the outcome of any single one is close to unpredictable. The returns in a well-built angel portfolio come from a small number of companies that do far better than expected, which only works if you hold enough positions for one of those to be among them. In practice that means more, smaller checks rather than one large one. The deduction quietly rewards that behavior, because it caps at an annual amount rather than a per-deal one. An investor putting 10,000 euros into each of ten companies claims the same headline deduction as one writing a single 100,000 euro check, while holding a far more sensible spread of risk. For a first-time angel in particular, that is the right shape: several modest positions built up over a couple of years, with the tax benefit lowering the cost of each.

Why This Matters More in the Balearics

The Balearics have something this incentive suits well: a deep base of people who have built wealth in tourism, hospitality, nautical services, real estate, and the businesses that support them, alongside relatively little of that capital flowing into local startups. The money is here. The habit of putting it into early-stage companies is not, at least not yet.

Some of that gap is the misunderstanding this article is about, the assumption that angel investing is someone else's game. Some of it is the absence of an obvious on-ramp, a way to see local deals, meet other investors, and learn how the process works without committing blind. The second part is what Balearic Business Angels exists to provide, and it is a large part of why Max Ventures built a local investor network rather than only a fund.

There is a structural reason this matters beyond any single company. Spanish venture funding concentrates heavily in Madrid and Barcelona, which between them account for the large majority of the country's deal activity. Capital that sits in a few hubs tends to fund companies in those hubs, which leaves founders elsewhere, the Balearics included, reliant on investors who already understand and believe in their region. Local angels are not a nice-to-have in that picture. They are often the only early money a regional founder can realistically reach.

There is also the longer argument about the islands themselves. An economy built heavily on tourism is exposed in ways a more diversified one is not, and a layer of technology companies, funded and supported locally, is one of the more durable forms of diversification available to the region. Angel capital is where that layer starts. Every founder who can build here rather than leaving for Barcelona or beyond is a small contribution to an economy that does not rest on a single season or a single industry.

Timing matters too. The past year has been a slower one for venture funding across Spain, and in quieter markets local capital carries more weight. Founders who cannot easily raise from Madrid or Barcelona, let alone London or Berlin, gain the most from investors close to home who understand the regional context. An incentive that makes local angel investing more approachable, arriving when local capital matters more, is a combination that should not go unused.

What to Check Before Writing a Check

For anyone the case here lands with, a few practical points before acting. Confirm that the company meets the qualifying criteria for the deduction, and ideally holds or is pursuing ENISA certification, since that is both the standard route and the gateway to the full Startup Law package. Check where the company sits in the five or seven year window, because the timing of the investment relative to incorporation affects eligibility. Be ready to hold the position for at least three years, and be aware the benefit applies for a maximum of twelve: the deduction is built for patient capital, not short-term trades. And run your own situation past a tax adviser, because the figures and conditions interact with the rest of your tax position, including how much taxable income you have available to offset, in ways no article can speak to.

None of this is meant to make the process sound forbidding. It is meant to make it sound like what it is: a considered financial decision with clear rules, not a lottery ticket, and one that a growing number of people in the islands are in a good position to make.

A Few Honest Caveats

Two things to be clear about. First, this is general information rather than tax or legal advice. The rules carry conditions, thresholds, and edge cases that depend on individual circumstances, and anyone considering an investment on this basis should confirm the current treatment with a qualified tax adviser before acting. Tax law shifts, and figures that hold today may not hold in a few years.

Second, the deduction is a Spanish personal income tax benefit, so it helps people who pay income tax in Spain. Non-resident investors do not access the IRPF deduction directly, which means the case made here is specifically for investors who are tax resident in Spain. For the many international residents who have made the Balearics their home and pay tax here, that is the point: the incentive is built for this situation, a resident with capital and a local ecosystem that could use it.

Balearic Business Angels and Max Ventures are the local on-ramp for angel investing in the islands, whether you are weighing a first check or already investing and looking for local deal flow. Learn more, and find out how to get involved, at maxventures.eu / maxventures.eu/bba

Sources

1. Spanish Government / ENISA, personal income tax updates for startup investors (one.gob.es): https://www.one.gob.es/en/contents/these-are-updates-personal-income-tax-irpf-associated-startups

2. Spanish Government / ENISA, Startup Law and emerging-company certification (one.gob.es): https://www.one.gob.es/en/startups-law

3. Osborne Clarke, Main tax measures included in Spain's Start-up Law (osborneclarke.com): https://www.osborneclarke.com/insights/main-tax-measures-included-spains-start-law

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The Tax Case for Angel Investing in Spain