Benefits for investment in Italian “Innovative” start-ups

With the aim of encouraging the creating and growth of new companies driven by innovation and high-technology value, the Italian government is feeding a corpus of regulations companies can draw upon promoting the development of “innovative” start-ups (according to Law 221/2012) providing several benefits.

Definitions and requirements

The discipline has a view of strengthening enterprise competitiveness and consists of a vast and diversified sets of rules that embrace various aspects of an entrepreneurial activity, providing the company with more flexible corporate management tools and remuneration schemes as well as the simplification of the access to funds and credit.

In order to be labelled as innovative start-ups and take full advantage of the benefits companies shall meet the following requirements:

• to be recently established (all of 60 months);
• not distribute profits;
• the exclusive or prevailing core business shall be the development, production or trade of innovative goods/services having a high technological value;
• to be companies with private shared capital and not to be result of a merger, split-up or selling-off of an ongoing company;
• to be established in Italy or in another member State of the European Union or European Economic Area (In these latter cases, there must be an at least a productive site or branch in Italy); and
• yearly turnover not exceeding EUR 5 million starting from its second year;

Moreover, the innovative company shall meet at least one of the following alternative requirements:

1. being the holder, depositary or licensee of a registered patent (industrial property) or the owner of an original software duly registered;
2. R&D costs equal or higher than 15 per cent of the higher value between:
   1. the production value or
   2. the production cost; and
3. workforce includes:
   1. for at least 1/3 Ph.D. students or carrying out aPh.D. or having completed a research program of three years at research entities or
   2. for at least 2/3 holders of a Master’s degree.

The fulfilment of the above conditions must be declared within the Register of Companies to be updated twice a year.

Corporate benefits

1. Flexibility and tailor-made company regulations according to the specific needs of the company in terms of:

• ownership of financial instrument;
• creation of categories of shares with specific rights being granted (i.e., non-proportional voting rights or non-voting rights);
• postponing the recapitalization obligation in case of losses that have a direct impact on the company’s share capital;
• not subject to the shell and dormant companies’ regulation; and
• not subject to bankruptcy proceeding (a special insolvency proceeding will apply).

2. Access to funds and credit:

• access to equity crowdfunding portals and simplified and facilitated access to bank loans and government’s underwriting fund;
• tax benefit for corporate and private investors;
• tax credit for R&D costs;
• cost saving with reference to stamp duties and fees incurred and due for the obligation of registering within the Chamber of Commerce; and
• exemption up to EUR 50.000 for set-off of VAT credit with other taxes (instead of EUR 15.000).

3. Workforce:

• possibility to adopt a more flexible for remuneration system, paying directors, employees and consultants by giving stock options and work for equity instruments; and
• advantages in working contract in derogation to the labour law provisios in fixed-term contract granting more flexibility.

Benefits for investors

Under certain terms and conditions, investors in start-ups, either corporate and private, could get some tax relief.

Individuals could benefit from a tax credit amounting to 30% of the investment made in the corporate capital up to a maximum amount of EUR 1 million per year. The investment should remain the same for at least 3 years.

Italian corporate entities subject to Corporate Income Tax, IRES, could benefit from a deduction (from corporate taxable income) amounting to 30% of the investment in the capital up to a maximum amount of EUR 1.8 million per year. The investment should remain the same for at least 3 years.

Italian budget law proposal for 2019:

Innovative SMEs

Upon expiry of the five-year period “grown up” innovative start-ups still being characterised by a clear innovative content, could apply for the “innovative SMEs” policy that extend most of the benefits envisaged for innovative start-ups to abroader range of companies regardless of their date of incorporation, the economic sector in which they operate or their stage of maturity.

The above described policy is applicable for companies whose shares are not listed in a regulated market with a total turnover not exceeding EUR 50 million, total asset not exceeding EUR 43 million and less than 250 employees and that meet at least two out of three the requirements of the innovative start-ups:

1. being the holder, depositary or licensee of a registered patent (industrial property) or the owner of an original software duly registered;
2. R&D costs equal or higher than 3 per cent of the higher value between
   1. the production value or
   2. the production cost;
3. workforce comprises:
   1. for at least 1/5 Ph.D. students or carrying out aPh.D. or having completed a research program of three years at research entities or
   2. for at least 1/3 holders of a Master’s degree.

The Financial Statements should be certified by an auditor.

Non-EU Innovative entrepreneurs

Italian Government is promoting a visa policy (Italia Start-up Visa) dedicated to extra-EU innovative entrepreneurs providing a simplified mechanism for granting working visas to applicants that are moving to Italy with the intent to set up an innovative start-up or invest in an existing one.  The program could be extended to extra-EU citizen who are already in Italy with a regular residency permit and wish to extend their stay in order to develop an innovative start up (Italia Start-up Hub).

For more information, contact:
Alessandro Forte – Founding Partner
E: aforte@cmfc.it

Silvia Mina
E: smina@cmfc.it