Italy to stimulate foreign investment with new tax incentives
Italy has implemented a growth decree designed to encourage research & development (R&D). Hager & Partners' Gian Luca Nieddu and Barbara Scampuddu discuss the key tax implications of the decrees 32 articles.
On April 4 2019, Italy’s government approved a growth decree (decreto crescita) designed to stimulate economic recovery as well encourage foreign investment by offering foreign entities the same tax incentives (as well as subsidised loans and cash grants) available to Italian enterprises. The decree is comprised of 32 articles and is divided into the following main sections:
Fiscal measures to foster economic growth;
Measures to relaunch private investment;
Protections for anything “Made in Italy”; and
Other measures to sustain growth.
Pending the final version of the text, the following measures seek to encourage investment from corporations as follows.
Super-amortisation and hyper-amortisation
The super and hyper-amortisation measures are aimed at facilitating business investment by allowing extra-amortisation on the purchase of certain tangible assets, ultimately in order to stimulate the renewal of capital goods.
The 2019 Budget Law confirmed the only hyper-amortisation measure for the whole of 2019, changing the benefit according to the amount of investment made in order to support small and medium enterprises. The purchase cost increase applies as follows:
170% for investments up to EUR 2.5 million ($2.8 million);
100% for investments over EUR 2.5 million and up to EUR 10 million; and
50% for investments over EUR 10 million and up to EUR 20 million.
With regard to super-amortisation, the draft edition of the Growth Decree provides for a return of the incentive measure of up to 130% for investments in capital goods up to EUR 2.5 million from April 1 2019 to June 30 2020.
Patent box regime
The patent box regime is a tax bonus introduced in order to improve the development of intellectual property (IP), granting tax benefits to resident and non-resident taxpayers carrying out research and development (R&D) activities.
Under this regime, taxpayers can partially exclude up to 50% from their tax income qualified income derived from the direct exploitation of intangibles or from licensing of the IP, net of all IP-relating costs.
In order to obtain this tax bonus, an irrevocable and 5-year valid option shall be exercised in the tax return and a negotiation (ruling) shall take place with the tax authorities in order to define the deductible amount. This ruling procedure is mandatory to determine the amount of benefited income arising from the direct exploitation of the qualified intangible assets. Conversely, it is optional in case of intangible assets indirect exploitation.
The draft Growth Decree provides for the elimination of compulsory ruling in case of direct exploitation of the IP and the simplification of the procedure for determining the tax benefit deriving from investments in innovation of intangible assets.
Research & development tax credits
The R&D tax credits seek to encourage R&D investment activities, and it is available to any enterprise. This includes Italian entities or non-resident taxpayers with permanent establishments (PE) in Italy performing R&D activities on the basis of agreements with non-Italian company’s resident in EU member States, or in a European Economic Area (EEA) country. It can also apply to other country partners with which an exchange of information (EOI) instrument in force.
The size of the tax credit relating to investments in R&D with the new 2019 Budget Law has largely decreased from 50% to 25%. The maximum annual amount that can be granted to each company has gone from EUR 20 million to 10 million.
The draft Growth Decree extends the possibility of benefiting from the incentive by 25% between 2021 and 2023.
For calculation of the expenditure, the average of the investments in R&D activities carried out in the three tax periods prior to December 31 2019 will be taken as reference.
New Sabatini law
The new Sabatini law aims at facilitating access to corporate credit and increasing the competitiveness of the country's production industry.
The measure supports investments that purchase or lease machinery, equipment, facilities, production assets and hardware, as well as software and digital technologies.
The bonus is determined in an amount equal to the value of the interest calculated. Conventionally, on a 5-year loan for an amount equal to the investment, at an annual interest rate equal to:
2.75% for ordinary investments; and
3.575% for investments in digital technologies and in waste tracking and weighing systems (investments in so-called “industry 4.0” technologies).
These are all confirmed by the draft Growth Decree. However, the 2 million limit per applicant has been replaced with a new limit of 4 million.
Furthermore, the verification procedure is simplified with the admission of self-declarations, and in the case of a loan of up to EUR 100,000, the contribution is paid in a single solution, rather than the initial six installments.
Gian Luca Nieddu
This article was written by Gian Luca Nieddu (email@example.com) and Barbara Scampuddu (firstname.lastname@example.org) of Hager & Partners.