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2018 Incentives for Developing Business in Italy

The new Italian Stability Law was introduced in January 2018 with important fiscal and spending measures, with the aim to facilitate companies to access business credit and increase the competitiveness of the country’s productive system through labour market incentives, discounts on the social security contributions and tax benefits.

Regarding the employment incentives, please find following a summary of the most relevant programs:

  • New ‘young’ employee discount:

Italian companies which hire employees under the age of 35 (at the time of hiring) in 2018 on a full time or part time contract of indefinite employment will be entitled to a discount of up to € 3.000 on social security contributions per employee per year for a maximum period of 3 years.

There are also special incentives planned for employers operating in the agricultural sector – which is one of Italy’s key economic sectors – providing that any entrepreneur or professional registered as working in the Italian farming / agricultural sector who is under 40 years of age will be exonerated from making any social security contributions for up to 36 months.

  • Tax credit on employee training:

The Italian government has introduced furthermore an employer-incentive of up to a 50% refund on the cost of training their workforce. The cap on the refund available to businesses is of € 1mln per company. This incentive will be only applicable to second level employment agreements.

There is also a further incentive of up to 40% refund (up to a maximum of €300.000) on the cost for workforce training on Industria 4.0 (which is the Italian version of the EU’s 4.0 Industry program) in order to encourage the training of workers in new technologies for production, logistic, distribution, and marketing.

Concerning the tax incentives in 2018, please find following an overview about the most relevant benefit-programs:

  • Extension of extra-amortization of certain tangible and intangible assets

The extra-amortization regime is applicable to entities investing in new assets:

  • in the period between 1 January 2018 and 31 December 2018 (or 30 June 2019, provided that the purchase orders are accepted by the seller by 31 December 2018 and at least 20% of the price is paid by the same date);
  • the additional applicable depreciation amounts of 30% and 50% only for cost of new high-tech tangible assets which are allowed to benefit from specific digital and technological transformation processes under the model promoted by the Italian Government for industrial growth named ‘Industry 4.0’ development plan.
  • Corporate tax rate provisions for security companies

With effect from fiscal year (FY) 2017, the budget law 2017 reduced the corporate tax rate by 3.5% (i.e., from 27.5% to 24%) and provided a 3.5% surcharge for banks and financial entities.

  • Changes to the Registration Tax regime

The Law defines the applicative boundaries of Article 20 of the Registration Tax Code (RTC). The said article should identify the correct applicable tax treatment based on the nature of each single deed to be registered, and regardless of any external interpretative elements (e.g., the behaviours assumed by the parties) or the contents included in other legal transactions, which might be “linked” to the one to be registered.

The new provision should legally define the above concepts and mitigate the risk that tax authorities could in the future challenge this kind of transaction.

  • Tax credit for advisory expenses related to the SME listing

The Law recognizes a tax credit equal to 50% of the advisory expenses and up to €500.000 maximum, incurred until 31 December 2020 in order to obtain the listing of SME companies in a regulated market of the European Union / European Economic Area Member State. The advisory expenses can be credited up to €20 million for FY 2019 and €30 million for FY 2020 and 2021, starting from the fiscal year following the one in which the listing was obtained. The credit shall be indicated in the tax return related to the fiscal year of tax credit’s maturity and the following years until complete absorption. The tax credit is irrelevant for CIT and Regional Tax on Productive Activities (IRAP).

  • Changes to the interest expense rule

The Law repeals the last provision of Article No. 96, paragraph 2, of the Italian Tax Code (Presidential Decree No. 917/1986) that provides the possibility of increasing the Gross Operating Profit (ROL) for an amount equal to the dividends relating to non-resident subsidiaries. This amendment is in line with the principle included in art. 4 of Directive 2016/1164/UE (i.e., Anti-Tax Avoidance Directive).

  • One-off asset step up provisions

The Law revamps another one-off opportunity for resident individuals and non-resident entities to elect for a tax step-up of participations in unlisted Italian companies held as of 1 January 2018 through the payment of an 8% substitute tax.

The provision may be of specific interest to foreign entities that could realize a capital gain subject to tax in Italy and not be eligible for exemption under an applicable treaty. The basis of the substitute tax is represented by the value of the participation as of 1 January 2018 and needs to be certified by a sworn appraisal prepared no later than 30 June 2018. The 8% substitute tax may be paid either in full by 30 June 2018 or through three annual instalments beginning 30 June 2018.

  • Tax regime of income from capital and miscellaneous income arising from disposal of qualifying participations realized by individuals, acting as non-entrepreneurs

This provision:

  • harmonizes the tax regime applicable to income from capital and miscellaneous income (e.g. capital gains) realized by individuals acting as non-entrepreneurs, with regard to the ownership and transfer of corporate participations, thus making irrelevant whether the shareholding is of a qualified or non-qualified nature;
  • applies to income from capital earned from 1 January 2018, to the capital gains realized starting from 1 January 2019;
  • partially modifies the “black list” dividends regime stating that dividends matured during the previous fiscal years when the subsidiary was resident in countries not included in the (black) list of the Decree issued on 21 November 2001, and distributed starting from FY 2015 are not considered as black list.

Unless a double tax treaty applies, 49.72% of the capital gain (58.14% starting from 2018) realized by a non-resident entity from the transfer of any Italian shares is therefore subject to CIT in Italy at a 24% tax rate (i.e., 11.93% effective tax rate (ETR) for 2017 and 13.95% ETR for 2018), while starting from 2019 it would be subject to the 26% substitute tax.

Beside the above 2018 incentives, please consider that the Italian Administrative Offices dispose about other programs for company incentives, for the development of business in specific fields.

Are you interested in the above-mentioned measures or would you like to know more about the other programs? Please contact us, we are at your disposal for any further information.

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Fabio Colombo is a professional with proven experience as a consultant on taxes and accounting that led him to supervise a team, as well as to be chosen as representative and to deal with research assignments.

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