Tax credit on investments in R&D
Provided that the annual R&D expenses exceed EUR 30,000, a tax credit is granted for expenses relating to R&D qualified activities carried out over each FY from 2015 to 2020. The tax credit is granted only on annual incremental expenses, compared to the average expenditure sustained during FYs 2012 through 2014, and may be used to offset tax payments (CIT, VAT, withholding tax [WHT], and social contributions). From 2019, the tax credit could be up to EUR 10 million.
Qualified activities concern: fundamental research, industrial research, experimental development, and activity of test and validation, as defined by a specific Decree issued by the Ministries of Economics and Economic Development.
From 2019, the R&D tax credit is equal to 50% of the incremental amount of eligible expenses relating to:
- employees with subordinate employment contracts and
- R&D activities commissioned to universities, research centres, and similar bodies, as well as resident enterprises qualified as innovative start-ups and small and medium-sized enterprises (SMEs), provided that such companies do not belong to the same group as the beneficial one,
and to 25% of the incremental amount of eligible expenses relating to:
- employees with a self-employment relationship
- R&D commissioned to other companies different from those mentioned above, excluding those belonging to the group of the beneficial one
- amortisation costs of instruments and equipment used in R&D activities, and
- acquisition of technical skills and industrial property rights.
Tax credit on training expenses for Industry 4.0 plan
A tax credit is granted equal to 40% of the expenses relating to costs of employees for the period in which they are employed in training activities and is recognised up to a maximum annual amount of EUR 300,000 for each taxpayer.
The tax credit can be offset in the F24 form starting from the following tax year in which the costs are incurred (therefore, for the expenses incurred in 2019, the credit may be used from 2020).
In order to be eligible for the tax credit, the costs must be certified by the statutory auditor or a professional listed in the register of statutory auditors, even for those companies without audited financial statements. This certification must be attached to the financial statements.
Advertising campaign tax credit
This is a tax credit for taxpayers who increase their investments in advertising means, such as daily press, magazines, local television, or radio. The tax credit amounts to 75% of incremental investments (increased to 90% for small, medium, and innovative start-ups).
The tax credit is calculated on the incremental investment in advertisements compared to the previous fiscal year, provided that such incremental investment exceeds 1%. As of FY 2019, the eligible investments include on-line press, daily press, and magazines.
A non-refundable grant for expenses incurred in 2019 and 2020 is recognised for micro, small, and medium-sized enterprises and companies that are part of a network agreement.
The voucher is intended to subsidise the purchase of specialist consulting services aimed at supporting the processes of technological and digital transformation enabling technologies set out in the Plan Industry 4.0 and the modernisation of the management and organisational structures of enterprises, including access to financial and capital markets. The grant for each period is equal to:
- 50% of the costs incurred, up to a maximum credit of EUR 80,000 for network or EUR 40,000 for micro and small enterprises.
- 30% of the costs incurred, up to a maximum credit of EUR 25,000 for medium-sized companies.
Patent box regime
Italian resident companies and PEs of non-resident entities that carry out R&D activity, either directly or by outsourcing it to universities or other research institutes or equivalent institutes, may elect to apply the Italian patent box regime. The regime exempts a portion of the income derived from the exploitation, either directly or by licensing, of ‘qualifying intangible assets’.
The general exemption is 50%, the percentage was limited to 30% for 2015 and 40% for 2016.
The regime can be applicable to PEs only if the non-resident entity resides in a country with which Italy has concluded a tax treaty and that allows adequate exchange of information.
The election is effective for five years and cannot be revoked during that period. Qualifying intangible assets initially included software protected by copyright; patents; know-how, such as processes, formulas, industrial, commercial, or scientific information; trademarks; designs; and models that are potentially capable of legal protection. Although the rules are based on the OECD BEPS nexus approach, the range of assets for which the exemption has been made available was greater than those in the report issued in October 2015 of the BEPS project. From 2017, trademarks have been excluded by the patent box regime. The income that can benefit from the tax exemption is in proportion to the ratio of qualifying expenditure to total expenditure incurred to develop the assets.
Taxpayers must request a specific ruling from the Italian tax authorities to benefit from the regime when the qualifying intangible is used directly by the company. The ruling is optional where the qualifying intangible is licensed to a related party.
Furthermore, Law Decree No. 34 dated 30 April 2019 introduced an alternative procedure to get the Patent Box relief without undertaking an APA. This procedure requires preparing a proper documentation set and declaring its possession in the annual tax return. In this case, each early deduction is split over 3 years and no penalty should apply in case of challenges during tax audits. Further instructions from tax authorities are waited in a specific Regulation.
Foreign tax credit
Where foreign-source income definitively is taxed abroad, a tax credit can be claimed for use against a company’s IRES liability. The amount of the tax credit that can be claimed is the lower of the foreign tax incurred and the proportion of the IRES liability related to the foreign-source income. For partially exempt income (e.g. dividends), the foreign tax credit is reduced in proportion to the amount of the income taxable in Italy.
If an Italian company receives foreign income from more than one country, this limitation is applied separately to each country.
Foreign taxes borne by the foreign PE of an Italian resident company are allowed to be offset against the overall consolidated tax liability (IRES).
Any excess of foreign tax credit over the maximum amount allowed for recovery in the same tax period can be carried back or carried forward for eight years and recovered if specific conditions are met (e.g. same source country of the income, occurring because of an excess of the IRES liability related to the foreign-source income).
Other tax incentives
In addition, further incentives are introduced or extended, aimed to support or facilitate:
- access to financial credit for purchasing of new machinery, plants, and equipment, as well as digital technologies and software (i.e. Nuova Sabatini)
- purchase of recycled plastic products
- energy requalification of buildings
- donations to finance interventions on public buildings and lands
- investments in innovative start-ups, and
- sport industry.
Due to their specificity, such incentives are not treated in detail.