Investment incentives for innovative start-ups and SMES

The tax incentive, introduced by the Relaunch decree, is equal to 50% of the investment made in innovative start-ups (an eligible investment up to a maximum of EUR 100,000 for each tax period) and innovative SMEs (up to a maximum of EUR 300,000, beyond which the investor may deduct 30% of the excess in each tax period), within the limits set by the “de minimis” regime.

The investment, which can be made directly or indirectly through mutual funds (OICR), must be maintained for at least 3 years.

The application, registration, and verification of the de minimis aid will be carried out exclusively via the IT platform currently being set up by the MISE.

All investments already made during the year 2020 and until the platform is operational are eligible: the beneficiary company can apply in the period between 1 March and 30 April 2021.

When fully operational, investments will have to be made only after the application has been submitted.

Incentivi agli investimenti per startup e PMI innovative (mise.gov.it)

INNOVATIVE STARTUPS AND SMES – DE MINIMIS TAX INCENTIVES

The incentive provides a 50% IRPEF deduction for individuals investing in the risk capital of innovative start-ups or innovative SMEs. The benefits are granted under the “de minimis” Regulation (Commission Regulation (EU) No 1407/2013 of 18 December 2013).

The procedures for accessing the benefit are governed by the Interministerial Decree of 28 December 2020. The measure is provided for by the Relaunch Decree (Decree-Law 34/2020, Article 38, paragraphs 7 and 8).

To take advantage of the incentive and before making the investment, the legal representative of the innovative start-up or innovative SME is required to apply on the IT platform “De minimis tax incentives for investments in innovative start-ups and SMEs”.

How it works

The investment must be maintained for at least three years and can be made directly or through undertakings for collective investment (OICR) that invest primarily in innovative start-ups or innovative SMEs.

For investments in innovative start-ups, the eligible investment amounts to a maximum of €100,000 for each tax period. For investments made in innovative SMEs, the eligible investment amounts to a maximum of EUR 300,000 for each tax period (beyond this limit, the investor may deduct 30% of the excess in each tax period).

Pursuant to the “de minimis” Regulation, the innovative start-up or innovative SME receiving the investment cannot obtain “de minimis” aid for more than EUR 200,000 over a period of three fiscal years.

De minimis per Startup e PMI innovative (mise.gov.it)

TAX ADVANTAGES FOR THOSE WHO INVEST IN INNOVATIVE STARTUPS IN 2021

Individuals who invest or have invested in innovative start-ups in 2020 are entitled to a deduction for IRPEF purposes (i.e., calculated on income) equal to 50% of the amount invested for a maximum investment value of €100,000 to be maintained for at least three years. Above this investment threshold, there is a 30% deduction up to a maximum amount of €1,000,000.

If the investment is sold, even partially, before the three years have elapsed, the benefit is canceled and the amount deducted must be returned, together with legal interest.

If, on the other hand, a company (legal entity) invests in an innovative start-up, it enjoys a 30 percent IRES tax deduction for a maximum investment amount of €1,800,000.

In both cases, investors are entitled to the deduction whether the investment is made without intermediation or through OICRs (i.e., mutual funds or SICAVs) for a maximum total investment amount of €15,000,000.

This is also valid for start-ups with a social vocation and operating in the energy sector.

HOW TO MAINTAIN THE TAX DEDUCTION FOR INVESTING IN INNOVATIVE STARTUPS

To enjoy the tax advantage of investing in an innovative start-up, it is necessary that in the following 3 years

• the share capital share resulting from the investment is not sold for a consideration
• the investing shareholder does not withdraw or is not excluded from the company
• the company does not lose the requirements of an innovative start-up

In addition, investors must receive and retain certain documents that must be provided by the start-up in which they have invested. In particular, the documents that need to be produced are:

• certification of compliance with the €15 million limit of investments received
• certification of the amount on which the deduction/deduction is due, to be issued by the start-up within 60 days of the contribution received
• a copy of the start-up’s investment plan containing the object of the activity, specific information on the products and the trend, also prospective, of the activity.

For all investments after the establishment of the innovative start-up, the corresponding capital increase must be registered with the Chamber of Commerce.

FORFEITURE OF THE TAX DEDUCTION FOR INVESTMENTS IN INNOVATIVE STARTUPS

In case of forfeiture of the tax relief, the beneficiary will have to repay, in the income tax return for the year in which the forfeiture takes effect, the amount of the tax relief to the extent of the tax savings, in addition to legal fees.

Vantaggi fiscali per chi investe in startup innovative nel 2021 (iubenda.com)

BENEFICIARY ENTERPRISE

To benefit from the tax breaks, the investor must make the subsidized investment in one or more beneficiary companies.

Beneficiary enterprises are start-ups and innovative SMEs that are duly registered in the special section of the Companies’ Register “at the time of the investment”.

The subsidized investment may also be made by the investor indirectly through collective investment undertakings investing mainly in innovative start-ups or innovative SMEs.  On the other hand, cash contributions recorded under share capital and share premium reserve, as well as the offsetting of credits when subscribing to capital increases, are considered forms of direct investment.

TAX ADVANTAGE

The tax benefit is available up to a maximum amount of aid granted under the de minimis rule to the same innovative start-up or innovative SME not exceeding EUR 200,000 over a period of three fiscal years.

In the case of an investment in an innovative start-up, the investor in each tax period may deduct from gross tax an amount equal to 50% of the investment made, up to a maximum of €100,000, for a deduction amount not exceeding €50,000.

If an investment is made in an innovative SME, on the other hand, the investor may deduct from gross tax in each tax period an amount equal to 50% of the investment made, up to a maximum of €300,000, for a deduction amount not exceeding €150,000. If the investment exceeds EUR 300,000, the investor may deduct 30% of the excess from his gross tax bill in each tax period.

What are the concrete advantages of investing capital in Start-ups?

In addition to the positive impact on the real economy 

• Potential high profits: since start-ups are innovative, often unique, or highly differentiated companies, they can enter unexplored but highly profitable market niches, with the possibility of developing exponential earnings, with very high returns on investment. To invest wisely, however, one must remember to diversify one’s investments, with appropriate amounts representing a small part of one’s portfolio: high profits, of course, correspond to high risks.
• Important tax benefits: investing in start-ups (and innovative SMEs) entitles you to an important tax break of 30% of the capital invested. In May 2020, the relaunch decree raised this incentive from 30% to 50% for companies that request it and within the limits set by the legislation. The tax benefits accrue from the first tax return following the investment, therefore with a return in the short term.

SMART MONEY THE INCENTIVE FOR NEW INNOVATIVE STARTUPS

The Smart Money incentive aims to facilitate the match between innovative start-ups and the network of incubators and other qualified entities to strengthen the presence of start-ups in Italy and support the potential of innovative companies struggling to cope with the VOC1D-19 epidemic.

Smart money provides for Investments in the venture capital of innovative start-ups, a second form of support for innovative start-ups that will complete the business plan admitted under the previous line of intervention.

Start-ups can apply for an additional grant if they have received venture capital from qualified entities, qualified investors, or business angels to finance their development plans.

To obtain the contribution linked to the investment, the transaction must be in equity, amount to more than €10,000, not reach a majority shareholding in the share capital and guarantee a stay of at least 18 months.

For this line of intervention, there is a non-repayable contribution equal to 100% of the venture capital investment, up to an overall limit of EUR 30,000.

Innovative start-ups can apply for funding to purchase services provided by certified incubators and accelerators, innovation hubs, and research organisations.

Business angels and qualified investors are also allowed to invest in the capital of start-ups.

Increased tax deductions for investing in innovative start-ups and SMEs

The tax deduction for individuals investing in innovative start-ups or innovative SMEs has risen from 30% to 50%. This is provided for in the Decreto Rilancio published on 19 May in the Official Gazette. The 50% deduction applies up to €100,000 of investment.

The new favourable tax regime introduced by the Government with the Decreto Rilancio:

• is aimed exclusively at individuals investing in innovative start-ups or innovative SMEs registered in the Special Section of the Companies Register
• provides for a tax deduction equal to 50 per cent of the amount invested by the taxpayer, directly or through collective investment undertakings
• the maximum deductible investment cannot exceed, in each tax period, the amount of EUR 100,000 and must be maintained for at least three years, under penalty of forfeiture of the benefit.

The measure is in addition to the tax benefits already provided for by Italian law to encourage investments in innovative start-ups and SMEs:

• 30% up to EUR 1 million investment allowance for individuals
• 30% up to EUR 1.8 million for legal persons
• with the Decreto Rilancio, the tax deduction for individuals is raised from 30% to 50% for investments up to EUR 100,000

“The measure, precisely because it is aimed exclusively at investors who are natural persons, completes and integrates the framework of measures designed to stimulate participation in the capital of innovative start-ups and SMEs:

1. tax incentives for investments made by natural and legal persons in innovative start-ups and SMEs (tax breaks of 30% up to EUR 1 million of investment for natural persons; 30% up to EUR 1.8 million of investment for legal persons)
2. the National Innovation Fund, which intervenes with direct and indirect investments in qualified minorities in the capital of innovative companies through generalist, vertical or fund-of-funds funds, in support of start-ups, scale-ups and innovative SMEs”