Capital gain is the gain resulting from the difference between the purchase price and the selling price of a given financial instrument.
The calculation of capital gain is very simple. In absolute terms, it is derived from the difference between the sale price and the purchase price of a share or other financial instrument. In percentage terms, it is calculated as the difference between the sale price and the purchase price in relation to the purchase price:
Capital Gain (%) = (P. sale - P. purchase) / P. purchase
Capital gains fall under what is called 'other income', which includes both the buying and selling of financial instruments and real estate, as well as compensation on insurance mandates and other limited cases.
How equity crowdfunding taxation works
Innovative forms of financing and investment such as crowdfunding need to find their own balance. At the two opposite poles are the need to protect investors and avoid the red tape of an often obsolete bureaucracy.
One of the growth factors for this type of investment is clarity for investors regarding the treatment of their investments. The certainty of the taxation that will be applied according to the investor's profile and the case in point is therefore a factor of great importance. The willingness to introduce measures to support and encourage innovative investments that result in tax savings for the investor is a step in this direction. The growth of the crowdfunding sector also depends on decisions on taxation.
The taxation system varies depending on whether the investor is a natural person or a legal entity:
- in the first case, the company withholds 26% from the total gain as a withholding tax on the capital income generated;
- In the second case, the income is configured as financial and will contribute in part to the taxable business income, with a further distinction to be made depending on whether the other party is a corporation or a partnership or a sole proprietor. The transaction is exempt from VAT.
What changes with the Decreto Sostegni Bis
Italy has seen its ecosystem of innovative start-ups and SMEs grow in recent years, as confirmed by data from the Ministry of Economic Development, but there is still much work to be done on the financing front. There is no longer any doubt that these businesses play an important role in the social and economic growth of a country. They increase the availability of jobs, stimulate innovation and create healthy competition.
The stop of taxation on capital gains until 2025, introduced by the new ‘Decreto Sostegni Bis', will hopefully encourage savers to invest, simplifying the transfer of money between individuals and giving a boost to the real economy. It is also expected that the public funds provided by the Next Generation EU will arrive, for digitisation and ecological transformation that need an entrepreneurial push and innovation.
How the new incentives work
The capital gains tax relief just introduced by the Government is specifically aimed at innovative start-ups and SMEs. Basically, on the one hand the 26% substitute tax on capital gains on investments made by individuals in innovative start-ups and SMEs between 1 June 2021 and 31 December 2025 is eliminated, provided they are held for at least three years. On the other hand, capital gains are to be taxed, this time on the shares sold by any corporation, provided they are reinvested within one year in innovative companies.
With this type of tax relief, it is possible to imagine operations that can benefit from multiple advantages. It is enough to think of an entrepreneur who disposes of his own investment (a traditional company shareholding) to acquire a shareholding in an innovative startup. This type of transaction immediately entails the first tax deduction of the capital gain resulting from the sale of the shareholding in the traditional company. Moreover, if the shares in the innovative startup are held for at least three years, this second divestment could also be fully taxed. In addition, there may also be IRPEF bonuses linked to investments in the capital of the innovative SME. This is an IRPEF deduction of 30% (or 50%) of the amount financed. Moreover, the possible sale of the participation would be exempt from capital gains.
How to apply for incentives
Invitalia has assisted the Directorate General for Industrial Policy, Innovation and Small and Medium Enterprises of the Ministry of Economic Development in defining and developing the IT platform dedicated to the incentives and in drawing up the access specifications. The verification of the possession of the requirements and the verification of the capacity for the investment are carried out in real time during the compilation of the application, using SPID for the certain identification of the applicant, and through cross-checks with the Register of Companies to verify the powers of signature and subjective requirements of the company and at the National Register of State Aid for the capacity of the "de minimis". At the end of the application, authorisation is automatically issued to the applicant.
The operational provisions for accessing and operating the IT platform are set out in the MiSE circular of 25 February 2021. Applications can only be submitted via the IT platform
What the data say
According to the latest tax statistics published by the Ministry of Finance, the "facilitated" operations of investors in innovative start-ups and SMEs in 2019 flowed almost €146 million into the ecosystem of Italian innovative companies. And, despite the pandemic, the figures are growing: according to Aifi, for the early stage segment, 2020 closed with 306 operations (+82% compared to 2019), for a total of €378 million invested, up 40% compared to the previous twelve months. This result is also the result of the boost introduced with the Dl Rilancio by the tax bonus raised to 50% on smaller amounts, for which the platform of the Ministry of Economic Development at the end of April 2021 has already "certified" over 102 million euros invested.
These figures tell the story of an ecosystem, that of innovative start-ups and SMEs, which is growing in Italy and increasingly attracting the interest of investors. The benefits provided should be read with a systemic approach and, in order to obtain the maximum advantage, it is necessary to plan the various stages in the best possible way, taking into consideration the entire range of existing measures.
#innovation #taxbenefits #startup #SMEs