27 February, 2018

Italy has recently taken important new steps to position itself as a welcoming home for foreign investments. Compared to the past, it is becoming increasingly attractive to open companies in Italy for non-EU and EU residents, also from a tax point of view.

Please find below general information on some of the main tax incentives.

Highly-skilled employees favorable Tax Regime

 The Italian government has introduced a favorable tax regime for highly-skilled employees coming to Italy to perform their working activities.

The benefit is the reduction to 50% of taxable income (i.e. only 50% of the income earned by the individual from the employment activity will be subject to taxation in Italy).

It can apply for 5 years starting with the year in which the individual becomes an Italian tax resident.

To benefit of the 50% tax reduction, the employee:

• undertakes to remain tax resident in Italy for at least 2 years;
• has not applied for article 24-bis of the Italian Income Tax Code (the new tax regime for “High Net Worth Individuals” transferring their residence to Italy that provides for a yearly € 100.000 lump-sum tax on personal foreign-sourced income).

Alternative conditions:

1. Scenario A
2. The employee is an European citizen, or the citizen of a country with which Italy has in force a double tax treaty, or a country with which Italy has in force an agreement on the exchange of information;
3. has lived outside Italy for at least the last 24 months, working and/or studying (gaining a qualification/degree, e.g. Master);
4. holds a university degree.

 

2. Scenario B
3. The employee is an European citizen, or the citizen of a country with which Italy has in force a double tax treaty, or a country with which Italy has in force an agreement on the exchange of information;
4. has lived outside Italy and been tax resident abroad in the last five years;
5. holds a managerial position or is highly qualified and/or skilled;

 

3. Scenario C
4. The employee is not an European citizen, or the citizen of a country with which Italy has in force a double tax treaty, or a country with which Italy has in force an agreement on the exchange of information;
5. has lived outside Italy and been resident abroad for tax purposes over the last five years;
6. holds a managerial position or is highly qualified and/or skilled.

Optional Patent Box regime for IP

According to the Patent Box regime, a company can exempt 50 % of certain qualifying income derived from licensing or direct exploitation of intangibles from its tax base for Corporate Income Tax (“IRES” at a rate of 24%) and Regional Tax (“IRAP” a rate of 3,9%) purposes.

The Patent Box regime is available to Italian companies as well as to Italian permanent establishments (PEs) of entities resident in countries having an effective exchange of information with Italy.

Tax credit for Research and Development

Entities investing in R&D activities (e.g. human resources, equipment used, research contracts and technical skills) within year 2020 are entitled to benefit from a tax credit equal to 50% of the annual R&D incremental expenses exceeding the average expenses of fiscal years 2012, 2013 and 2014.

For new incorporated entities (after 2014), the average to be considered is zero (i.e. all R&D expenses are considered eligible for the tax credit).

The benefit applies also to resident companies, Italian permanent establishments of nonresident companies included, that carry out R&D activities through contracts with group entities that are resident for tax purposes in Eu/European Economic Area countries or in other countries and territories that allow an exchange of information with Italy.

Allowance for Corporate Equity (“ACE”)

The Allowance for Corporate Equity (also known as Notional Interest Deduction on capital increase) is a tax incentive introduced to promote the recapitalization of undertakings and to mitigate the different tax treatment applied to companies funded with debt and others funded with equity.

ACE benefit entails a notional deduction from Italian Corporate Income Taxable base (Italian Corporate Income tax rate is equal to 24%).

“Super depreciation” and “hyper depreciation” allowances

Italian Budget law for 2018 confirmed a 30% extra depreciation deduction (i.e. total tax depreciation of up to 130% of the cost, so called “super depreciation”) for purchases of new tangible fixed assets, excluding cars.

In practice, the tax basis is increased by 30% so that the tax depreciation exceeds the book depreciation of 30%.

Italian Budget law for 2018 also confirmed the 150% extra depreciation deduction (i.e. total tax depreciation of up to 250% of the cost, so called “hyper depreciation”) for new assets acquired for the technological transformation of enterprises. The law contains a list of qualifying assets, which are related to plant, equipment and machinery whose operations are digitally controlled or operated by smart sensors and drivers interconnected with a factory’s computer systems.

 

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