With the Legge di Bilancio 2017 (Budget Law), in force since January 1st 2017, the Parliament has implemented a new strategy in order to kick-start the Italian economy with the adoption of a wide array of measures to support startups and small-medium enterprises both financially and fiscally with the purpose of making them more appealing to foreign investors.
The Budget Law has designed a comprehensive plan that involves certain tax breaks, the possibility for SMEs to raise funds through crowdfunding platforms and for the so-called “innovative” startups (meaning early-stage companies that meet certain criteria set by the law: i.e. high level technology of the company’s scope, R&D expenditure or number of graduates employed, etc.) to sell transfer their tax losses to listed companies. Overall, these tools mainly aim at unlocking the economic system that so far has not proved to be capable enough to provide early-stage startups and SMEs both with financial resources and tax benefits they need to develop innovative assets and scale up their business.
This set of measures can be divided under four groups, based on the relevant purposes:
- Fostering entrepreneurship and setting up innovative companies;
- Stimulating private investments directed to innovative startup/small-medium enterprises;
- Supporting R&D expenditure and
- Modernizing existing companies’ assets by their digitalization and automation, along with the development of innovative technologies.
Economic relief for setting up new companies
The strategy laid down by the Parliament involves the Ministry of the Economic Development (Mise), the National Institute for Insurance against Accidents at Work (Inail), and other public agencies, such as Invitalia, in order to boost the incorporation of startup companies and the development of innovative SMEs.
As matter of fact, the endowment of the Fund for Sustainable Growth (FCS – Fondo per la Crescita Sostenibile), aimed at providing soft loans to support the incorporation of innovative startup companies, has increased by Euro 47,5 millions for 2017 and 2018, respectively.
Furthermore, the Budget Law has also allocated the same amount of Euro 47,5 millions for both 2017 and 2018 in order to foster self-employment and entrepreneurship. These funds will be managed by Invitalia, the Government agency for inward investment promotion and enterprise development, and will be mostly employed to sustain the incorporation of companies by women and young entrepreneurs (aged 18 to 35 years). Invitalia shall be able to grant subsidized zero-interest loans for a maximum of eight years, which could cover up to 75% of total expenses as budgeted for specific investments. Companies will then have to fund the remaining amount as allocated in the business plan and carry out the envisaged investment within 24 months of the signing the loan agreement.
The Ministry of the Economic Development (Mise) has also issued a sets of measures that grant subsidies to support development programs carried out by startup companies with a focus to the acquisition of new machineries and technological equipment; hardware and software technologies; patents and licenses along with non-patented technical know-how directly connected to production/managerial needs.
The Budget Law – pending the approval of the relevant Ministries – also introduces the possibility for Inail to invest in closed-end funds dedicated to innovative startups or to directly set up and participate in technological business ventures.
No need for a notary and exemption from stamp duty and other administrative fees are some of the measures aimed at streamlining the procedure to set up a startup company. It will also be possible to draw up the articles of association and its subsequent amendments through the online procedure by means of qualified electronic signature.
Tax breaks for investments in innovative start-ups and SMEs
Pending the final approval of the European Commission, the Budget Law has introduced new incentives for those subjects that will invest in startup companies. Tax breaks concerning this kind of investments are not something new. Introduced in 2012 and originally conceived as temporary, with the Budget Law, these measures has not only been converted into permanent incentives, but also increased from 19% and 20%, for individuals and companies respectively, to 30% with no distinction as to the status of the investor (potential shareholder) for investment capped at Euro 1 million for individuals and Euro 1,8 millions for entities.
Since these tax breaks are aimed at encouraging investments in startups, these benefits are balanced out by the condition that the investment which has benefited from these measures is maintained in the target company for three years (instead of two, as provided for under the previous Budget Law). Furthermore, the Budget Law has extended these benefits also to innovative SMEs, that is all the small-medium enterprises operating in the field of technological innovation, regardless of their date of incorporation, since these companies will be relieved from presenting a plan attesting their innovative assets programs in order to access the benefits, as provided for previously.
A partnership between startups and listed companies that may benefit both parties
In the accompanying report to the Budget Law, the Government also has stressed the importance of involving listed companies in financing directly or indirectly startup projects and therefore it has introduced the possibility for startup companies to transfer the tax losses accrued in the first three fiscal years to a listed company provided that the certain requirements are met.
The transfer will be conducted according to the rule provided for the transfer of corporate tax credits; the transferee will be called to make up for the benefit received from the transferor and the remuneration paid to the startup will not be subject to taxation. Through this mechanism, the companies would benefit one another: the startup would find a financial “sponsor” and the listed company would be able to fully offset its taxable income with the tax losses received, considering also the possibility to carry forward the exceeding part to the following year.
Through a tweak to the Italian Consolidated Law on Finance (i.e. Testo Unico Finanza), the Budget Law got rid of some of the restrictions that prevented crowdfunding market to take off in Italy and introduced the possibility for any kind of SMEs to access equity crowdfunding. Previous legislation limited the possibility to raise funds through this system only to the innovative startups thus limiting the development of both SMEs and crowdfunding industry.
While the rules governing equity crowdfunding will be the same from the operators’ side (i.e. crowdfunding platforms), small-middle size companies will now have a new mean for collecting capital aside from those traditional channels such as bank financing and stock exchange listing.
Tax credit on R&D expenses
The tax credit related to the Research & Development expenses, introduced in 2013, has been extended until December 2020 and enhanced passing from 25% to 50% on all the eligible expenses in R&D activities, with an annual threshold capped at Euro 20 million (five times higher than the previous maximum limit).
Companies will be able to reduce their tax bill and claim compensation as a proportion of their R&D expenditure. The provision is now applicable to all R&D expenses, including the hiring of staff dedicated to R&D activities (with no particular requirement as to their qualification) and to any kind of company (resident and non-resident), group or network of enterprises, regardless of the dimension of the firm, its legal status and industry of reference.
This fiscal incentive can be combined with another one applicable to any employee benefiting the tax incentives provided for under work for equity schemes by innovative startups. Breaking it down, this means that in case the staff carrying out the R&D activities is benefiting of any work for equity plan, the company at issue will benefit of both of the tax breaks.
Development contracts for large investment projects
The development contracts (Contratti di sviluppo) are agreements between the Ministry of Economic Development (Mise), Invitalia and one or several companies (the latter through network contracts) engaged in development projects.
First introduced in 2011, these contracts have been devised to support large industrial/productive investments with a size of at least 20 million euro (7,5 millions only with regards to the agro-food industry).
Development contracts are financed by the Mise, with the participation of the relevant Regions involved (which could also participate in the investment). Invitalia acts as a referent for the promoting companies and it is also the subjects in charge of managing the resources along with the assessment of the applications.
These “contracts” target Italian as well as Italian-based foreign companies and provide financial benefits such as block grants on plant and equipment, soft loans and interest subsidies, whose dimension could vary depending on the size of the company and the type of project at issue (R&D expenditure, innovation-directed investments).
Invitalia sets a fast pace for the admission procedure as well as for the subsequent development plan: once the project has been approved, the companies will have 90 days to submit all the documents required; they will then have 6 months to start and 36 months to carry out the investment project.
As a token of the country’s will to come through, the program also provides for special fast-track courses for particular productive and digitalization-related investment projects.
Super Depreciation and Hyper depreciation
With regard to companies as widely considered, the Budget Law also extends the extra 40% depreciation deduction (which makes up a total tax depreciation of 140%) through 2017. Then, companies could deduct the expenses borne in order purchase tangible assets whose depreciation rate exceeds 6,5%. The incentive will be applicable only to those assets whose purchase order has been accepted by the supplier and paid for at least 20% by 31 December 2017. Aside from this, the Law has introduced a new extra 150% depreciation deduction (the so-called “hyper depreciation” that combined with the existing would make a total 250% depreciation deduction) for the purchase (or lease) of new technological assets, such as digitally-controlled machineries, equipment and so forth (the law outlines the complete range of eligible assets), acquired in order to atomize and digitalize enterprises.
The Budget Law has also reintroduced the so-called “Sabatini”, a special legislation aimed at facilitating the purchase (or lease) of capital goods by small-medium enterprises by covering part of the interests on bank loans between Euro 20,000 and Euro 2 million, that has been extended until 31 December 2018. A specific and more generous measure will apply to the purchase of new assets connected with the Industry 4.0 plan. Part of the resources allocated will be directed to support innovation, efficiency and the creation of a “digital” industrial system that invests in new technological equipment such as cloud computing, broadband connections, cybersecurity, robotics, mechatronics and so forth.
In conclusion, the above-mentioned measures, applicable to any company based in Italy, represent a strategic milestone in the way to making Italian companies more competitive in the global market, in terms of both technology and financial resources. Given the lack of regulatory barriers to entry, this set of new rules can vitalize the Italian economic system also attracting foreign investors.