Tax credit for investments in new capital assets
The new regulation introduced a tax credit for investments in new capital assets instrumental to the exercise of the business activity, purchased from the 1st January to 31st December 2020, or within 30th June 2021, provided that within 31st December 2020 the purchasing order is accepted by the seller and the buyer has paid an installment of at least 20% of the whole purchasing price. All companies 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, provided that such enterprises are compliant with the legislation on safety in the workplace and with the payment of the social security contributions. Enterprises subject to voluntary liquidation, insolvency procedures or subject to disqualification sanctions pursuant to art. 9 paragraph 2 of Legislative Decree 231/2001 are excluded by the benefit.
According to par. 194, the tax credit is also extended to taxpayers operating arts and professions but limited to the assets referred to in point 1 below.
The following investments are eligible for the tax credit:
- new «ordinary» material assets (under the former regulation such assets were eligible for the so called “super-depreciation”);
- new tangible assets as defined in Annex A of the Law n. 232/2016 (Budget Law 2017) i.e. assets that under the former regulation were eligible for the so-called Hyper-depreciation;
- new intangible assets as defined in Annex B of the Law n. 232/2016, and as modified by art. 1 paragraph 32 of the Law n. 205/2017 (i.e. software, systems and system integration, platforms and applications, connected to investments in tangible assets “Industria 4.0”).
The new legislation excludes the following categories of goods: assets indicated in art. 164 CIT (vehicles), assets for which the Ministerial Decree dated 12/31/1988 provides depreciation rates lower than 6.5%, the buildings, the constructions and the assets provided by Annex 3 of the Law n. 208/2015 (pipelines and infrastructural networks), the freely transferable assets of enterprises operating under public concession and with public tariffs in the fields of energy, water, transport, infrastructure, post, telecommunications, collection and purification of waste water and collection and disposal of waste.
The amount of the tax credit is based on the specific type of the investment made. In particular, for investments in new tangible assets, different from the “4.0” ones, the tax credit is equal to 6% of the eligible costs, as defined according to the criteria provided by art. 110 TUIR. For each taxpayer, the maximum amount of eligible investments is equal to 2M€. Also investments made through financial leasing contract are eligible for the tax credit, and in this case the benefit is calculated as 6% of the cost incurred by the lessor for the purchase of the assets.
For investments related to the assets listed in Annex A of the Law n. 232/2016, the tax credit is equal to 40% of the cost incurred, up to an amount of € 2,5M, and to 20% of the cost incurred, for investments between 2,5M€ and 10M€. Also in this case, investments made through financial leasing contracts are eligible.
Furthermore, for investments concerning intangible assets listed in Annex B of the Law n. 232/2016, the tax credit is equal to 15% of the cost incurred, up to an amount of 700K€ of the eligible expenses. To this purpose, expenses for services incurred in relation to the use of the assets referred to in the aforementioned Annex B, purchased through cloud computing solutions, are also admitted for the portion of cost accrued in each tax period.
The tax credit is exempt for IRPEF / IRES and IRAP purposes, it cannot be transferred, even among enterprises belonging to tax consolidation, and it can be used only to offset tax payments through the F24 model, pursuant to art. 17 of the Legislative Decree n. 241/97, as follows:
- five annual installments of equal amount for tangible assets, both «ordinary» and «4.0»;
- three annual installments for intangible assets.
The tax credit for investments in ordinary tangible assets can be used starting from the tax period following the one in which the asset entered into operations. While the tax credit for investments in assets «4.0» can be used from the tax period following the one in which the asset is interconnected in the production system. Moreover, the tax credit can be combined with other incentives obtained on the same costs, provided that from the cumulation does not result a benefit greater than the amount of the cost incurred.
In order to allow the Ministry of Economic Development (MISE) to acquire the necessary information to evaluate the progress, dissemination and effectiveness of such measures, all enterprises benefiting from the tax credit must file a communication, on an annual basis. Terms and conditions of such a communication will be defined with a forthcoming decree. All taxpayers benefiting from the tax credit must keep, under penalty of withdrawal of the benefit, all the documentation supporting eligible costs incurred. For this purpose, purchasing invoices relating to eligible assets must contain an explicit reference to the provisions of paragraphs 184 - 194 of the Budget law.
Tax credit on investments in R&D, Technological innovation and Design and aesthetic ideation: common rules
New tax credits for R&D, technological innovation and ecological transition and design and aesthetic ideation apply to activities carried out and costs sustained from the tax period following the one in course on 31st December 2019. Tax credits are available to all enterprises that invest in eligible activities, regardless of the legal form, the economic sector in which they operate, the size and the regime applied for income determination, provided that they are tax resident in Italy. Also Italian permanent establishment of companies based abroad can benefit from the tax credits, provided that eligible activities are carried out in Italy and the costs are attributed to the PE.
Despite the regime in force until 2019, the new regulation provided that the cost basis to calculate tax credits must be considered net of any other grants and contributions received for the same eligible expenses. As general principle, in case of eligible expenses commissioned to third-parties, even belonging to the same group of the commissioning enterprise, such subjects need to be fiscal residents in Italy, be established in others EU member States, be part of the European Economic Space agreement or be localized in states with which Italy has an agreement for the exchange of information.
Tax credits are exempt for Irpef/Ires and Irap purposes, they cannot be transferred, even among enterprises belonging to tax consolidation, and can be used only to offset tax payments, in three annual installments of equal amount, from the tax period following the one in which the eligible expenses incurred. Even if Budget law does not explicitly provide for so, it is reasonable that any unused installment can be carried forward in following tax periods, although an official clarification would be necessary on this matter.
Furthermore, the use of the tax credit is subject to the release of a certification by the auditors attesting the effectiveness of the expenses sustained and the correspondence of the same with the accounting documentation. For enterprises that are not required by the law to the auditing of the accounts, the costs incurred to obtain such certification are recognized as an increase of the tax credit up to the amount of 5K€, without prejudice of the annual ceilings set for each of the three tax credits under analysis.
Enterprises subject to voluntary liquidation, insolvency procedures or subject to disqualification sanctions pursuant to art. 9 paragraph 2 of Legislative Decree 231/2001, as well as enterprises which are not compliant with the legislation on safety in the workplaces and with the payment of the social security contributions are excluded by the tax credits.
Within 60 days from the entry into force of the Budget law, Mise is required to issue an implementing decree. The law also foresees that all the enterprises benefiting from tax credits must file to Mise a communication through a specific model. Here following the main aspects of the three benefits at hand are analyzed in more detail.
R&D tax credit
For R&D tax credit, as well as for the one in force until 2019, the eligible activities consist in fundamental research, industrial research and experimental development. To avoid doubts raised by many parties, the Budget law clarified that for the definitions of R&D in the scientific and technological field, reference must be made to the definitions respectively of the letters m), q) and j) of point 15, par. 1.3 of the Communication no. 198/2014 of the European Commission. Budget law also specifies that MISE’s implementing decree will provide the criteria for the correct application of such definitions, taking into account the general principles and criteria provided by the Frascati Manual prepared and published by the OECD.
For eligible R&D activities, the tax credit is equal to 12% of the relevant cost basis, with a maximum annual amount of 3M€. This aspect represents an important element of novelty and discontinuity respect to the R&D tax credit in force until 2019, as it allows to overcome the difficulties of many enterprises in the reconstruction of the historical average expenditure incurred over the period 2012-2014, and it also does not require that enterprises sustain incremental expenses over the time. Moreover, it is no longer required a minimum amount of annual expenditure, which previously was set at 30K€.
To determine the cost basis of the benefit, the following expenses are eligible:
- personnel costs related to researchers and technicians employed with subordinate or self-employment relationship or other relationship different from the subordinate contract, directly employed in R&D activities carried out within the enterprise, only for the part of costs related to their actual involvement in such activities. It is provided that the cost of personnel contribute to eligible cost basis for an amount of 150% of incurred cost whereas related to under 35 employees, on their first employment, in possession of a PhD or enrolled in a doctoral cycle in an Italian or foreign university or in possession of a master's degree in technical or scientific disciplines according to UNESCO international classification (Isced), hired by the enterprise with a permanent employment contract and involved exclusively in R&D activities;
- depreciation charges, costs of the financial or simple lease and other expenses related to movable tangible assets and software used in R&D projects also for the construction of prototypes or pilot plants, for the amount (or for a portion of it) ordinarily deductible for tax purpose in the tax period in which they are used, and within the threshold of 30% of the personnel costs as indicated in letter a) above;
- expenses for extra-muros research contracts concerning the direct execution of eligible R&D activities by the provider. In the case of extra-muros research contracts stipulated with universities and research institutes resident in the territory of the Italian State, the expenses contribute to eligible cost basis for an amount equal to 150% of the cost incurred. In the case of contracts stipulated with providers belonging to the same group of the commissioner enterprise, the cost basis shall be calculated as in the case of R&D activities carried out internally by the enterprise. However, in this case the 150% increase for expenses related to qualified personnel applies only if the personnel is employed at facilities located in Italy;
- depreciation charges related to the purchase from third parties, also under license of use, of industrial property rights of an industrial or biotechnological invention, a topography of semiconductor products or a new plant variety, up to a maximum limit of 1M€ and provided that they are used directly and exclusively for carrying out the activities related to the R&D eligible projects, with the exclusion, in line with the provisions of the Dignity decree of July 2018, of intangible assets deriving from transactions with enterprises belonging to the same group of the enterprise benefiting of the tax credit;
- expenses for consultancy services and equivalent services related to R&D eligible activities, with the threshold of 20% of the eligible personnel expenses as indicated in letter a) above, or the eligible expenses indicated in letter c) above, with exclusion of the increases therein provided for;
- expenses for materials, supplies and other similar products used in the R&D projects carried out internally by the enterprise, also for the construction of prototypes or pilot plants, with a threshold of 30% of the personnel costs indicated in letter a) above or, in the case of extra-muros research, 30% of the costs of the contracts indicated in letter c) above.
Provided that the annual R&D expenses exceed EUR 30,000, a tax credit was granted also for incremental expenses relating to R&D qualified activities carried out over each FY from 2015 to 2019, respect to the average cost incurred for the same activities during the observation period 2012-2014. 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 security contributions). In particular, the tax credit was available up to an amount of EUR 5 million for FYs 2015 and 2016, EUR 20 million for FYs 2017 and 2018 and EUR 10 million for FY 2019.
Tax credit for technological and digital innovation and ecological transition
Budget law introduced a new tax credit for enterprises that invest in technological and digital innovation activities “4.0” and in projects aimed at the ecological transition. More in detail, such activities, that shall be different than those eligible for the R&D tax credit, aimed at creating new or substantially improved products or production processes, identifiable as such on the basis of the general principles and criteria provided by the OECD Oslo Manual.
Tax credit is equal to 6% of the relevant cost basis incurred, with a maximum annual amount of 1,5M€. Applicable rate is increased to 10% in case the eligible activities consist of technological innovation aimed to reach an ecological transition or a digital innovation compliant with «4.0» model, without prejudge of the maximum annual amount of 1,5M€.
To determine the cost basis of the present 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 letter d) above.
Tax credit for design and aesthetic ideation activities
This measure is addressed 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 realization of new products and samples. It is worth noting that, based on the provision reported in paragraph 202 of the Budget law, the implementing decree to be issued by MISE might extend the application of this credit «also to the same activities carried out in different sectors from those indicated above».
Tax credit is equal to 6% of the relevant cost basis, with a maximum annual amount of 1,5M€.To determine the cost basis of the present 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 letter d) above. However, to obtain the increase of 150% for expenses related to under 35 personnel, it is sufficient that such employees obtained a degree in design or other equivalent qualifications, in place of the PhD required for the other two tax credits examined before.
In addition, enterprises must obtain a technical report issued by an engineer or an industrial expert, or a certificate of conformity issued by an accredited certification body, certifying that the assets comply with technical characteristics required by annexes A and B of the law n. 232/2016 and that they are interconnected with the business system of production management or the supply network. Should the purchasing cost be lower than 300K€, instead of the technical report enterprises can prepare a declaration undertaken by the legal representative according to decree n. 445/2000.
The legislation requires a careful assessment of the time in which investments are sustained, as the tax credit does not apply to investments in:
- «ordinary» assets sustained between 1st January and 30th June 2020, as the purchasing order was accepted by the seller within 31st December 2019 and the buyer paid an installment of at least 20% of the purchasing price. For such investments, indeed, based on art. 1 of Legislative Decree n. 34/2019, continues to apply the so-called Super-depreciation;
- «4.0» assets sustained between 1st January and 31st December 2020, as the purchasing order was accepted by the seller within 31st December 2019 and the buyer paid an installment of at least 20% of the purchasing price. For such investments, according to paragraphs 60 and 62 of the law n. 145/2018, continues to apply the so-called Hyper-depreciation.
Tax credit on training expenses for Industry 4.0 plan
The Budget Law amended also the regulation of the tax credit for training 4.0, introduced by the law n. 205/2017, paragraphs 46-56. More in detail, from the tax period following the one in course on 31 December 2019, the tax credit for training 4.0 is available to:
- small enterprises, for an amount equal to 50% of eligible expenses, up to a maximum of 300K€;
- medium-sized enterprises, for an amount equal to 40% of eligible expenses, up to a maximum of 250K€;
- large enterprises, for an amount equal to 30% of eligible expenses, up to a maximum of 250K€.
Provided the maximum annual amount available for each type of enterprise, the tax credit is equal to 60% of the costs incurred whereas the training activities are addressed to disadvantaged or very disadvantaged workers as defined by the decree of the Ministry of Labor and Social Policies issued on 17th October 2017. With the Budget Law 2020 it is no longer necessary for benefiting from the tax credit the stipulation and the deposit with the territorial inspectorate of labor of the collective employment agreements. At the same time, the law introduces, among the eligible training activities defined by the implementing decree issued on 4th May 2018, also those provided by high technical institutes.
Also in this case, enterprises undertaking in difficulty pursuant to article 2, point 18 of the Regulation n. 651/2014 of the European Commission, and those subject to disqualification sanctions pursuant to art. 9, paragraph 2 of the Legislative Decree n. 231/2001. To obtain the tax credit, also in this case enterprises have to be compliant with the legislation on safety in the workplace and with the payment of social security contributions. Tax credit training 4.0 can be used only to offset tax payments starting from the tax period following the one in which the eligible expenses incurred. It is exempt for IRPEF / IRES and Irap purposes and cannot be transferred even among enterprises belonging to the group consolidation. Enterprises benefiting from the tax credit must file a communication to MISE. Terms, content and methods of such a communication will be defined with a specific directorial decree of the MISE.
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.
It is calculated on the incremental investment in advertisements compared to the previous fiscal year, provided that such incremental investment exceeds 1%. Eligible investments include on-line press, daily press, and magazines.
To benefit from the tax credit, taxpayers are required to file within 1 and 31 March a communication of access to the bonus, indicating the estimated volume of investments to be sustained in the course of the tax period, and then they are required to file a declaration from 1 to 31 January of the following year, summarizing the amount to expenses actually incurred.
A non-refundable grant for expenses incurred in 2019 and 2020 is recognized for micro, small, and medium-sized enterprises and companies that are part of a network agreement.
The voucher is intended to subsidize 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 modernization of the management and organizational 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. All relevant instructions are included in Regulation No. 658445 dated 30 July 2019 of the Commissioner of 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
- investments in innovative start-ups.
Due to their specificity, such incentives are not treated in detail.