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Wednesday, 25 January 2017 11:04

What is "Crowdfunding" and how does it tax?

The Crowdfunding, or micromecenazgo, in Spanish, is a network of collective financing, usually online, that through monetary or other contributions, they manage to finance a certain project in exchange for rewards, participations or, in some cases, altruistically.

In general terms, it consists of the public dissemination, by the person seeking financing of the cause or the business that wants to start up and the joint financing by independent lenders who simply sympathize with the cause or want some revenues to Their participation, normally higher than those established in the usual financial market.

The micromanaging is used for a multitude of projects, from political campaigns, social project financing, artists seeking the support of their followers and business projects.

Currently there are five models of micromecenazgo:

  • Donations: contributions that are made altruistically without benefits in exchange.
  • Actions: in exchange for the contribution, participations are received in the project.
  • Rewards: in exchange for the contribution a reward is received (monetary or non-monetary).
  • Loan or Crowdiending: This is a mass financing, through loans from a company in exchange for an interest rate for the money borrowed for the project.
  • Royalty: When investing in a particular project or company and is expected to obtain a part, even if symbolic, of the benefits obtained, usually in the medium and long term.

Some features:

  • They can mean significant savings in financing costs for companies and better returns to individuals
  • It does not generally have associated financial products such as bank accounts, insurance, policies, etc.
  • No prior or subsequent relationship between lender and borrower
  • Digital platforms serve as a connection between the two parties and transactions are carried out through them. They also provide information on companies to investors, as well as payment systems and verifying the accuracy of the data.
  • Both platforms and borrowers publicize their needs and look for lenders in the network to complete their projects.
  • Typically, companies have a time limit to get funding.

If this is not achieved, the project is closed and money is returned to the lenders.

See more:

Law 5/2015, of April 27, on promoting business financing, Title V. 

Writings SF Lawyers