Tax credit for reorganisations
The 2021 Budget Law introduced an incentive for reorganisations, providing that in case of mergers, de-mergers, contributions in kind, resolved during the period 1 January 2021 and 31 December 2021, the receiving company is allowed to convert the deferred tax assets, also not accrued in the Financial Statements, related to the net operating losses (NOLs) and notional interest deduction (NID) in a tax credit. Specific conditions are provided to take advantage from such conversions.
Tax credit for investments in new capital assets
All enterprises can benefit from this tax credit, regardless of the legal form, the economic sector in which they operate, the size and the regime applied for income determination. As for 2020, the following assets are not eligible to access the tax credit: vehicles indicated in art. 164 CIT, assets for which the Ministerial Decree dated 12/31/1988 provides depreciation rates lower than 6.5%, buildings, constructions, pipelines and infrastructural networks and freely transferable assets of enterprises operating under public concession.
“Ordinary” material assets:
For enterprises and taxpayers operating arts and professions who make investments in tangible assets different by the ones included in Annex A of the Law 11th December 2016 n. 232, with a purchase cost not exceeding 2M€ and/or make an investment in intangible assets different by the ones included in Annex B of the Law n. 232 of 2016, with a purchase cost not exceeding 1M€, it is recognized a tax credit equal to:
- 10% of the purchase cost if the investments are made between the 16th November 2020 and the 31st December 2021, or within 30th June 2022, provided that within the 31st December 2021 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the whole purchasing price;
- 6% of the purchase cost if the investments are made between the 1st January 2022 and the 31st December 2022, or within 30th June 2023, provided that within 31st December 2022 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the whole purchasing price.
Tangible assets “4.0”:
For enterprises that invest in new tangible assets included in Annex A of Law n. 232/2016 (so called “assets 4.0”) different benefit rates are provided based on the tax period in which the investment is realized and based on the acquisition cost. Specifically, if investments are made between the 16th November 2020 and the 31st December 2021, or by the 30th June 2022, provided that by the 31st December 2021 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the cost, the tax credit is recognized in the following measures:
- 50% of the cost for investments up to 2,5M€;
- 30% of the cost for investments between 2,5M€ and 10M€;
- 10% of the cost for investments between 10M€ and 20M€.
If such investments are made between the 1st January 2022 and the 31st December 2022, or by 30th June 2023, provided that by the 31st December 2022 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the purchasing cost, the tax credit is recognized in the following measures:
- 40% of the cost for investments up to 2,5M€;
- 20% of the cost for investments between 2,5M€ and 10M€;
- 10% of the cost for investments between 10M€ and 20M€.
Intangible assets “4.0”:
For enterprises that invest in intangible assets included in Annex B of the Law n. 232/2016 between the 16th November 2020 and the 31st December 2022, or by 30th June 2023, provided that by the 31st December 2022 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the acquisition cost, it is recognized a tax credit equal to 20% of the purchase cost for investments up to 1M€ overall.
Tax credit on investments in R&D, technological innovation, and design and aesthetic ideation: Common rules
Such tax credits are available until FY 2022 to all enterprises that invest in eligible activities, regardless of the legal form, the economic sector in which they operate.
R&D tax credit
For R&D tax credit, in line with the legislation in force until 31 December 2019, the eligible activities consist in fundamental research, industrial research, and experimental development as defined respectively of the letters m), q) and j) of point 15, par. 1.3 of the Communication no. 198/2014 of the European Commission.
For eligible R&D activities, the tax credit is equal to 20% (12% in FY 2020) of the eligible costs incurred, with a maximum annual amount of EUR 4 million (3 million for FY 2020). The Budget law 2021 extended for two years also the increased benefit rates provided for if the R&D activities are carried out in the South Italy regions.
To determine the cost basis of the benefit, the following expenses are eligible:
- Personnel costs;
- Depreciation charges, costs of the financial or simple lease and other expenses related to movable tangible assets and software used in R&D projects.
- Expenses for extra-muros research contracts concerning the direct execution of eligible R&D activities by the provider.
- Depreciation charges related to industrial privatives.
- Expenses for consultancy services and equivalent services related to R&D eligible activities.
- Expenses for materials, supplies, and other similar products used in the R&D projects.
Tax credit for technological and digital innovation and ecological transition
A tax credit for enterprises that invest in technological and digital innovation activities '4.0' and in projects aimed at the ecological transition is also applicable.
This tax credit is equal to 10% (6% in FY 2020) of the eligible costs incurred, with a maximum annual amount of EUR 2 million (1.5 million in FY 2020). The applicable rate is increased to 15% (10% in FY 2020) in case the eligible activities consist of technological innovation aimed to reach an ecological transition goal or a digital innovation goal compliant with the so-called '4.0' model, without prejudge of the maximum annual amount of EUR 2 million (1.5 million in FY 2020).
To determine the tax credit, taxpayers shall consider the same eligible expenses as for R&D credit, under the same conditions, except for those relating to industrial property rights as indicated in (iv) of the paragraph above.
Tax credit for design and aesthetic ideation activities
This measure is addressed mainly to enterprises operating in the textile and fashion, footwear, eyewear, gold, furniture, and ceramic sectors that have carried out design and aesthetic ideation activities for the conception and realisation of new products and samples.
The tax credit is equal to 10% (6% in FY 2020) of the relevant eligible costs incurred, with a maximum annual amount of EUR 2 million (1.5 million in FY 2020). To determine the tax credit, taxpayers shall consider the same eligible expenses as for the R&D credit, under the same conditions, except for those relating to industrial property rights indicated in (iv) above.
Tax credit on training expenses for Industry 4.0 plan
The Budget Law 2021 amended also the regulation of the tax credit for training 4.0. From the tax period following the one in course on 31 December 2019, the tax credit for training 4.0 is calculated on whole amount of the following costs:
- trainers' personnel costs, for the hours during which the trainers participate in the training activities;
- trainers' and trainees' operating costs directly relating to the training project;
- costs of advisory services linked to the training project;
- trainees' personnel costs and general indirect costs (administrative costs, rent, overheads) for the hours during which the trainees participate in the training.
The tax credit is available to:
- small enterprises, for an amount equal to 50% of eligible expenses, up to a maximum of EUR 300,000, and
- medium-sized enterprises and large enterprises, for an amount respectively equal to 40% and 30% of eligible expenses, up to a maximum of EUR 250,000.
Advertising campaign tax credit
There is a tax credit available for taxpayers who invest in analog and digital daily press and magazines. The national budget available from 2021 is EUR 50 million. In the event of requests exceeding the maximum budget, a proportional division will be made between the beneficiary companies. From FY 2020, the tax credit amounts to 50% of investments actually incurred.
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. All relevant instructions are included in Regulation No. 658445 dated 30 July 2019 of the Commissioner of Italian Revenue Agency and clarification is provided in Circular Letter No. 28 dated October 2020 of the Italian Revenue Agency.
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, and
- investments in innovative start-ups.
Due to their specificity, such incentives are not treated in detail.