News from Decreto Rilancio - 50% tax deduction
As of the date of entry into force of Law Decree no. 34 of 19 May 2020 (the "Decreto Rilancio", in force since 19 May 2020, converted with amendments by Law no. 77 of 17 July 2020), as an alternative to the 30% tax relief, only individuals are allowed to deduct from their IRPEF an amount equal to 50% of the sum invested in the share capital of one or more innovative start-ups or SMEs, either directly or through undertakings for collective investment that invest primarily in innovative start-ups or SMEs.
The 50% deduction applies only to innovative start-ups/SMEs registered in the special section of the Companies' Register at the time of the investment and is granted pursuant to Regulation (EU) No 1407/2013 of the European Commission of 18 December 2013 on de minimis aid.
The maximum deductible investment benefiting from the 50% rate cannot exceed, in each tax period
- the amount of € 100,000 in the case of investment in innovative startups;
- the amount of Euro 300,000 in the case of investment in innovative SMEs.
On the part of the investment that exceeds the above limits (within the annual ceiling of €1,000,000), only the 30% deduction is available.
Investments in startups and innovative SMEs must be maintained for at least three years;any transfer, even partial, of the investment before the expiry of this period, results in the forfeiture of the benefit and the obligation for the taxpayer to return the amount deducted, together with statutory interest.
Ministerial decree implementing the 50% tax relief
The methods for implementing the new 50% relief will be established by a ministerial decree to be issued shortly.
Other novelties of the Relaunch Decree
The Decreto Rilancio provides for further facilitating interventions in favor of innovative startups or SMEs. To learn more, consult the summary of the interventions approved by the Relaunch Decree, available on the MISE website.
Tax treatment of investments in innovative startups and SMEs
Investments in the share capital of companies are subject to the ordinary tax rules provided for in the Consolidated Income Tax Act (DPR 917/1986) for capital income.
Investments in the share capital of 'eligible' innovative startups and innovative SMEs registered in the special section of the Companies' Register reserved, respectively, for innovative startups and SMEs, benefit from the tax benefits for income tax purposes (the benefit does not apply, however, for IRAP purposes) provided for in Article 29 of Law Decree no. 179 of 18 October 2012 converted with amendments to Law no. 221/2012 (the "Growth Decree").
SMEs 'eligible' for the benefits
The Ministerial Decree of May 7, 2019 establishes the modalities for the implementation of tax incentives for investment in innovative start-ups and innovative SMEs and, among other things, identifies the innovative SMEs that fall within the perimeter of the facilitation.
According to the Ministerial Decree of May 7, 2019, "eligible innovative SMEs" are those SMEs that:
- fall within the definition of innovative SME under Article 4, paragraph 1, of Decree-Law No. 3 of January 24, 2015
- receive the initial investment under the measure prior to their first commercial sale on a market or within seven years of their first commercial sale.
Innovative SMEs, after the period of seven years from their first commercial sale, are considered 'eligible' as they are still in the expansion or early stages of growth:
- up to ten years after their first commercial sale, if they attest, through an evaluation performed by an external expert, that they have not yet sufficiently demonstrated their potential to generate returns;
- with no age limit, if they make a venture capital investment on the basis of a business plan relating to a new product or a new geographic market that is more than 50 percent of the average annual turnover of the previous five years, in line with Article 21(5)(c) of Regulation (EU) No 651/2014;
These facilities apply to individuals subject to personal income tax, as per Title I, of the Consolidated Income Tax Act (the "TUIR", Presidential Decree no. 917 of 22 December 1986) and to companies subject to corporate income tax, as per Title II of the same TUIR, who make an investment in the capital of eligible innovative startups or SMEs in a subsidized tax period.
The subsidized investment can be made indirectly through undertakings for collective investment or other capital companies that invest primarily in eligible innovative start-ups or innovative SMEs; However, in the case of investments made through other capital companies that invest primarily in innovative start-ups or eligible innovative SMEs and whose shares are not listed on a regulated market or a multilateral trading system, the subsidies are due in proportion to the investments made in innovative start-ups or eligible innovative SMEs by these companies, as resulting from the financial statements for the year in which the subsidised investment is made.
Other companies investing mainly in eligible innovative start-ups or innovative SMEs" means those companies which, at the end of the tax period in progress on the date on which the facilitated investment is made, hold shares or quotas of eligible innovative start-ups or innovative SMEs, classified in the category of financial fixed assets or in any case not held for trading, with a value of at least 70% of the total value of the financial fixed assets recorded in the balance sheet closed during the aforesaid tax period.
The tax benefits do not apply:
- in the case of investments made through undertakings for collective investment and companies, directly or indirectly, with public participation;
- in the case of investments in innovative start-ups or eligible innovative SMEs that qualify as:
- enterprises in difficulty as defined in the European Commission Communication "Guidelines on State aid for rescuing and restructuring non-financial firms in difficulty" (2014/C 249/01);
- undertakings that have received unlawful State aid that has not been fully recovered;
- companies in the shipbuilding, coal and steel sectors;
- innovative start-ups, eligible innovative SMEs and certified incubators, undertakings for collective investment, as well as other limited liability companies investing predominantly in innovative start-ups or eligible innovative SMEs;
- in the case of direct investment, or indirect investment through the other limited liability companies investing predominantly in innovative start-ups or eligible innovative SMEs and whose shares are not listed on a regulated market or a multilateral trading facility, to persons owning participations, securities or rights in the innovative start-up or eligible innovative SME that is the object of the investment, with the exception of additional investments under the conditions set out in Article 21(6) of Regulation (EU) No 651/2014.
Individuals are entitled to deduct from their annual tax return an amount equal to
- 50% of the investment made in the capital of one or more start-ups or innovative SMEs in the relevant period within the limits set out in the "Decreto Rilancio" (EUR 100,000 per year for investments in innovative start-ups and EUR 300,000 for investments in innovative SMEs). The eligible investment may also be made 'indirectly' through collective investment undertakings investing primarily in innovative start-ups or SMEs;
- for the part of the investment exceeding the limits of the Relaunch Decree, 30% of the investment made in the capital of one or more start-ups or innovative SMEs (up to a maximum of €1,000,000 per year). The eligible investment may also be made 'indirectly' through undertakings for collective investment or joint stock companies investing primarily in innovative start-ups or SMEs.
- The amount of the relief not deductible in the tax period can be deducted from personal income tax in subsequent tax periods, but not beyond the third.
Companies investing in the capital of innovative start-ups or SMEs< are entitled to deduct from their overall taxable income an amount equal to 30% of the investment made in the capital of one or more innovative start-ups or SMEs, with a maximum of €1,800,000 per year. The eligible investment may also be made 'indirectly' through undertakings for collective investment or joint stock companies investing primarily in innovative start-ups or SMEs.
The amount of the relief not deductible in the tax period can be deducted from personal income tax in subsequent tax periods, but not beyond the third.
Benefits for investment in innovative start-ups
The EU Commission has authorised (SA 47184) the facilities for investment in innovative startups, provided for in the 2017 Budget Law, making them permanent for the period 2017-2025, subject to the adoption by the Italian authorities by 2020 of the appropriate measures necessary to bring this scheme into compliance with the rules applicable after that year.
Benefits for investment in innovative SMEs
The European Commission announced that it authorised tax incentives for investment in the venture capital of innovative SMEs on 18 December 2018, as indicated in the following communication from the Ministry of Economic Development.
Causes of disqualification
The right to the benefit related to the investment in innovative startups or SMEs lapses if, within 3 years from the date on which the investment is detected, one of the following causes occurs:
- the sale, even partial, for consideration, of the participations or shares received in exchange for the subsidised investment;
- the reduction of capital and the distribution of reserves or other funds constituted by share premiums on the shares or quotas of eligible innovative start-ups or innovative SMEs or of other companies investing mainly in eligible innovative start-ups or innovative SMEs and whose shares are not listed on a regulated market or a multilateral trading facility;
- the withdrawal or exclusion of investors;
- the loss of one of the requirements provided for by Article 25, paragraph 2, of Decree-Law No. 179 of 18 October 2012 by the innovative start-up company;
- the loss of one of the requirements under Article 4(1) of Decree-Law No. 3 of 24 January 2015 by the eligible innovative SME.
On the other hand, transfers free of charge or due to the death of the taxpayer, as well as transfers resulting from extraordinary transactions referred to in Chapters III and IV of Title III of the TUIR do not constitute grounds for forfeiture.
For innovative start-ups, the loss of the requirements provided for by article 25, paragraph 2 of decree-law no. 179 of 18 October 2012, due to:
- to the expiry of the five years from the date of incorporation (recently extended to six years);
- if the annual production value threshold of €5,000,000 is exceeded;
- the listing on a multilateral trading system;
- the acquisition of the requirements of an eligible innovative SME, pursuant to Article 4(1) of Decree-Law No. 3 of 24 January 2015.
For eligible innovative SMEs, the loss of the requirements set out in article 4, paragraph 1, of decree-law no. 3 of 24 January 2015 due to:
- exceeding the size thresholds laid down in the Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises (2003/361/EC);
- listing on a regulated market.
Effects of forfeiture
Forfeiture takes effect in the taxable year in which one of the causes indicated in the preceding paragraph occurs and entails the obligation to repay the total tax savings enjoyed as a result of the deduction or deduction previously made (with statutory interest). This also applies in the event of a partial transfer of the investment before the three-year compulsory holding period has expired.
Methods for applying the investment incentives in eligible innovative start-ups or SMEs
The incentives for investments in innovative start-ups and SMEs apply both to direct investments and indirect investments through UCITS and other companies investing primarily in eligible innovative start-ups or SMEs.
On the Official Gazette no. 156 of 5 July 2019, the Decree of the Ministry of Economy and Finance of 7 May 2019 - Modalities for the implementation of tax incentives for investment in innovative startups and innovative SMEs, which contains the provisions for the implementation of tax incentives for investment in innovative startups and innovative SMEs provided for in Article 29 of the Decree-Law of 18 October 2012, was published.
This decree has implemented the provisions on incentives for investments in innovative start-ups made by individuals and legal entities contained in Article 29 of Section IX of the Decree-Law No. 179 of 18 October 2012.
The Agenzia delle Entrate Circular No. 16/E of 11 June 2014 on 'Article 25 et seq. of Decree-Law No. 179 of 18 October 2012, converted with amendments into Law No. 221 of 17 December 2012 - Tax benefits for innovative start-ups and certified incubators' clarifies the implementation aspects of the tax benefits granted to eligible innovative start-ups and SMEs (and certified incubators).
Investors interested in the initiatives proposed on the portal www.2MEET2BIZ.com are advised to contact their tax advisors for the correct and best management of the benefits due.
MAIN BENEFITS FOR INNOVATIVE STARTUPS
Innovative startups and SMEs, in addition to the possibility of raising venture capital through online portals (extended to all SMEs that meet the parameters set out in Consob Regulation 18592/2012), are allowed the following additional benefits:
- Possibility to draw up the articles of association using a standard online template using digital signatures;
- Exemption from stamp duty and secretarial fees due for registration in the companies' register and from the annual fee to the chambers of commerce;
- Tax relief for directors, employees or collaborators remunerated through financial instruments (e.g. stock options): the amounts paid in the form of financial instruments or option rights do not contribute to the taxable income of the recipients;
- Exemption from the requirement of conformity for the offsetting of VAT credits up to €50,000 (compared to the ordinary threshold of €5,000);
- Option to extend by 12 months the period for the so-called "carry forward" of losses and, in cases of reduction below the legal minimum, option to postpone the decision on recapitalisation until the end of the following financial year
- Inapplicability of the discipline on shell companies: the innovative SME is not required to carry out the operation test to verify the status of non-operating company.
- Faculty of using, for innovative startups established as limited liability companies, institutions allowed only in limited liability companies, in particular, the free determination of the rights attributed to shareholders or the issuance of participatory financial instruments;
- Exemption from the absolute prohibition of transactions on own shares when the transaction is carried out in implementation of incentive plans that provide for the assignment of financial instruments to employees, collaborators, members of the administrative body or providers of works or services, including professional ones (stock options and work for equity);
- The right to issue financial instruments providing equity or administrative rights, excluding voting rights in shareholders' decisions;
- Support for internationalisation, through the services made available by the ICE Agency for the promotion abroad and internationalisation of Italian enterprises and by Desk Italia;
- Greater possibilities in crisis management in the innovative startup company;
- Possibility of hiring staff with fixed-term contracts of a minimum duration of 6 months and a maximum of 36 months that can be extended by another 12 months (thus reaching a total of 48 months);
- Simplified, free and direct access to the Fondo Centrale di Garanzia, the government fund that facilitates access to credit by granting guarantees on bank loans;
- Research and development tax credit: a tax credit equal to 50% of the annual increase in expenditure on research and development activities is recognised, both for intra-muros research costs and extra-muros expenses;
- "Start-up sponsor": transfer of losses of start-ups to listed companies. For all companies in which at least 20% of the shares are held, the possibility of assigning, against remuneration, the losses incurred in the first three years of operation. In return, the company to which the losses are transferred ("sponsor") may carry their amount as a deduction in the same way as for the transfer of tax credits, provided that its shares are listed on a regulated market or a multilateral trading system (Law No. 232 of 11 December 2016 (Budget Law 2017), Article 1, c. 76 -80);
- Patent box: allows 50% of the income derived from the commercial exploitation of intangible assets to be excluded from taxation.
MAIN BENEFITS FOR INNOVATIVE SMES
In summary, the following benefits are provided:
- Exemption from stamp duty: innovative SMEs are exempt from paying the stamp duty due for the fulfilments related to the registrations in the Business Register of the Chambers of Commerce.
- Derogations from ordinary company law: the most significant derogations are provided for innovative SMEs established as limited liability companies (s.r.l.), for which it is allowed: the creation of categories of shares with special rights; the possibility to carry out transactions on their shares; the possibility to issue participatory financial instruments; the public offering of capital shares.
- Inapplicability of the discipline on shell companies: the innovative SME is not required to carry out the operation test to verify the status of non-operational company.
- Loss relief: in case of systematic losses, innovative SMEs enjoy a special regime on the reduction of share capital, including a one-year moratorium on loss relief for losses of more than one third (the deadline is postponed to the second subsequent financial year).
- Inapplicability of the discipline on shell companies: the innovative SME is not required to carry out the operation test to verify the status of non-operational company.
- Remuneration through equity instruments: the innovative SME can remunerate its employees through equity instruments (such as stock options), and external service providers through work-for-equity schemes. These instruments are subject to a favourable tax and contribution regime, i.e. they do not form part of taxable income but are only subject to capital gains taxation.
- Recourse to equity crowdfunding: innovative SMEs, like innovative start-ups, can also launch campaigns to raise widespread capital through authorised online portals.
- Simplified, free and direct intervention in the Guarantee Fund for Small and Medium-sized Enterprises, a public fund that facilitates bank financing by granting a guarantee on loans. This guarantee covers up to 80% of the credit provided by the bank to the innovative SME, up to a maximum of EUR 2.5 million, and is granted on the basis of extremely simplified access criteria, with an inquiry that benefits from a priority channel.
- Support in the internationalisation process from the ICE Agency: includes assistance with regulations, corporate law, taxation, real estate, contracts and credit, free hospitality at the main international trade fairs and events, and activities to encourage innovative SMEs to meet potential investors.