A guide to the tax advantages of investing in innovative start-ups in Italy

An innovative startup is a type of enterprise characterised by a high technological component and a scalable business model. They are emerging enterprises that seek to solve problems or satisfy market needs in an innovative way, using advanced technologies or new approaches through the implementation of creative ideas.

Innovative start-ups often operate in high-tech fields such as computer science, artificial intelligence, biotechnology, blockchain and more. They are characterised by a strong appetite for risk and investment in research and development to increase products. Moreover, these new companies̀ aim to expand rapidly nationally or internationally by seeking funding.

They play a predominant role in stimulating innovation, job creation and economic development.

Pursuant to the reference legislation (DL 179/2012, Art. 25, paragraph 2) an innovative start-up is a joint-stock company, also established as a cooperative, that meets the following objective requirements

• it is new or has been established for no more than 5 years
• it is resident in Italy, or in another country of the European Economic Area, but has its production site or branch in Italy
• has an annual turnover of less than EUR 5 million
• is not listed on a regulated market or multilateral trading platform
• does not and has not distributed profits
• has as its exclusive or predominant corporate purpose the development, production and marketing of a high-technology product or service
• is not the result of a merger, demerger or sale of a business unit

Finally, a startup is innovative if it meets at least 1 of the following 3 subjective requirements

1. it incurs R&D expenditure of at least 15% of the higher of cost and total value of production;
2. it employs highly qualified personnel (at least 1/3 PhD, PhD students or researchers, or at least 2/3 with a master’s degree)
3. is the owner, custodian or licensee of at least one patent or holder of registered software. 

Investing in an innovative startup can offer not only the opportunity to participate in the revolution and growth of promising enterprises, but also to obtain significant tax benefits. In this regard, the Italian government has introduced a series of tax incentives to encourage investments in innovative start-ups, with the aim of fostering the development of the entrepreneurial ecosystem and the creation of jobs in the new technology sector. In this guide, we will explore the main tax advantages offered to investors who decide to support these new Italian companies.

1. De minimis tax incentive for investing in innovative start-ups and SMEs: The incentive provides a 50% IRPEF deduction intended for individuals investing in the venture capital of innovative startups or innovative SMEs. The incentives are granted under the “de minimis” Regulation (Commission Regulation (EU) No 1407/2013 of 18 December 2013).
2. Tax credit for investments in innovative startups: One of the key measures is the tax credit for investments made in innovative startups. Investors can benefit from a tax credit of 30 per cent of the amount invested, up to a maximum of EUR 1.8 million per year. This means that a significant reduction in income tax can be obtained, effectively reducing the financial risk of the investment.
3. Capital Gains Tax Exemption: In the event that a capital gain is realised from the sale of units or shares in an innovative start-up, the investor can benefit from a total exemption from capital gains tax. This exemption is a considerable advantage, as investors can keep the full amount of the gain without having to pay tax on their winnings.
4. Deduction of losses: Investments in innovative start-ups involve a certain degree of risk, but the Italian government has provided a measure to mitigate any losses. Investors can deduct losses incurred by investing in innovative start-ups from their overall income, thus reducing their income tax. This possibility to deduct losses represents an important financial security for investors and may further stimulate interest in innovative start-ups.
5. Capital Reinvestment Allowances: To further incentivise the reinvestment of capital in innovative start-ups, the Italian government has introduced a measure that allows investors to benefit from a 50 per cent tax break on reinvested profits. In other words, if one realises a capital gain from a previous investment in an innovative startup and decides to reinvest it in another startup, it will be possible to reduce capital gains tax by 50% of the reinvested amount.
6. Facilitated tax regime for innovative start-ups: Innovative start-ups can benefit from a favourable tax regime that provides for a reduction of the corporate income tax (IRES) rate to 15 per cent for the first three years of activity and to 20 per cent for the next two years. This advantage translates into greater competitiveness for start-ups and caǹ make investing in innovative start-ups even more attractive to investors.

Investing in innovative start-ups in Italy offers numerous tax advantages that can attract more backers. From the IRPEF deduction of 50 per cent to exemptions on capital gains, via capital reinvestment allowances and the favourable tax regime for start-ups, the Italian government has put in place a number of measures to support and incentivise the innovative start-up sector.