This article aims to illustrate the introduction of a tax regime for the Start-up and innovation companies, provided by the Italian Government.
The concept of Innovative Start-up consists in companies, also not resident in Italy, which has formal and substantial requirements.
In particular, to be named as Innovative Start-up, the company has to assume the form of a capital company as: Ltd. (i.e. S.r.l.), Inc. (i.e. S.p.A.), Limited partnership (i.e S.a.p.a.), or a cooperative company.
The Start-up could be considered as innovative it has to own particular features, as following: first, it has to own the exclusive or predominant social object of the development, production and marketing of innovative products or services of high technological value; moreover has to own its head office in Italy or in an EU or EU country (European Economic Area) provided that it has a production site or a branch in Italy; has been constituted for no more than 60 months; the total value of the annual production of the company, starting from the second year, should not exceed 5 million euros; do not distribute profits for the entire duration of the scheme; do not arise from merging, splitting or divesting company / branch business.
The company, also, has to own at least one of the following features: it has to support R & D costs exceeding 15 percent of the higher value between cost and total value of production; it has to employ as employees or collaborators, by any means, alternatively: a person with a PhD degree or a PhD in a degree or more than 1/3 of his or her workforce, having a master's degree of at least 2/3 of its own strength work; it has to be an owner or custodian or licensor of at least one industrial property. The deed of incorporation for innovative start-ups may include the following features: the creation of categories of participation shares provided for specific rights, with the possibility of freely determining, within the limits imposed by law, the content of the different categories; the creation of lacking voting shares or voting rights which are not proportional to the share held by the shareholders or which confer voting rights limited to particular matters or subject to the occurrence of particular conditions; participation shares held in innovative start-ups in the form of limited liability companies may be the subject of public offering of financial products, including through fundraising portals (crowd-financing); innovative start-ups in the form of limited liability companies may, by way of derogation from the prohibition on carrying out their shareholdings, carry out operations in the form of incentive plans involving the allocation of allowances to employees, employees, directors and professionals; the memorandum of incorporation of innovative start-ups may include the issue of financial instruments of capital rights or of administrative rights with the exclusion of voting rights in respect of contributions made by members or third parties, whether or not services.
The measures described below are available to innovative start-up immediately after registration, for a maximum of 5 years since their date of incorporation.
The new procedure of incorporation presents several advantages. First of all, its usage is free-of-charge: no specific costs related to the establishment of the new enterprise are envisaged, implying a huge savings for innovative entrepreneurs as opposed to the standard procedure by notarial deed.
Unlike most companies, innovative start-ups and certified incubators are exempt from the payment of stamp duty and fees incurred due to the obligation of entering the Business Register, as well as from the payment of the annual fee usually owed to the Chambers of Commerce. In addition, as clarified in the Circular 16/E issued by the Italian Revenue Agency on 11 June 2014, the exemption from such fees could be interpreted as a general waiver, covering all the actions carried out by the innovative start-ups after the subscription to the company register, such as incentivized capital increases.
Another important benefit concerning the provision that innovative start-ups are not subjected to regulations concerning non-operational companies and companies registering systematic losses. Accordingly, in case they cannot get “appropriate” revenues, they are exempted from fiscal penalties applied to so-called “dummy companies”, such as the computation of a minimum income and taxable base for corporate taxation purpose (IRAP).
In general, innovative start-ups comply with the regulations on fixed-term contracts as defined in Decree-Law 81/2015 (known as “Jobs Act”). Therefore, innovative start-ups can hire a staffer on a fixed-term contract for a maximum of 36 months. However, in derogation to Jobs Act’s provisions, innovative start-ups can hire personnel through fixed-term contracts of any duration, even very short, which can be renewed as many times as wished. After 36 months, the contract can be renewed only once, for 12 months maximum, leading to an overall employment duration of 48 months. By the end of this 4-year period, the fixed-term contract is automatically converted into an open-ended one. Moreover, in exception to general regulation, innovative start-ups with more than 5 employees are not required to maintain a statutory ratio between fixed-term and active open-ended contracts.
In particular, salaries due to workers employed in innovative start-ups can have a variable component linked to efficiency or profit-ability of the company, the productivity of the employee or the team of employees, or to other objectives and parameters for output and performance as agreed upon by the parties, including through stock options and work-for-equity schemes. The main benefit deriving by the investment in an innovative star-up is a tax deduction of personal income tax (i.e. IRPEF) for the individuals who want to invest in a start-up of 40 per cent until one million Euro, for legal entities the benefit consists in a fiscal deduction on the taxable income for company tax purposes (i.e. IRES) equal to 40% of the amount invested, up to a maximum of € 1.8 million. Furthermore, again limited to 2019, the deduction on the taxable income for company tax purposes (i.e. IRES) is raised up to 50% for subjects (other than innovative start-ups) who acquire the entire share capital of an innovative start-up, on condition that it is maintained for at least 3 years. In this sense, another benefit is: in case the losses exceeding 1/3 of the share capital, it is possible to return the loss within this limit within the second subsequent year (rather than within the following year); in the event of a reduction in share capital below the legal minimum, it is possible to wait until the end of the following year to resolve the reduction of the capital and the simultaneous increase of the same to a figure not less than the legal minimum.
A fundamental condition to be admitted to the mentioned benefits is to the inscription in a special section of the Business Register made by the Italian Chamber of Commerce.
At last, for entrepreneurs in case they open a new start-up during the 2019 they could pay a small percentage of personal income tax (i.e. IRPEF), indeed, the taxable income would be just the 5% for five years. The conditions to apply the provision are:
- the taxpayer has not exercised, in the three previous years, artistic activity, professional or business, also in an associated or family form;
- the activity to be carried out does not constitute, in any way, a mere continuation of another activity previously carried out in the form of employment or self-employment, excluding the where this activity constitutes a mandatory period of practice for the purpose of the exercise art / profession;
- if the activity is the continuation of an activity carried out by another person, the amount of revenue / compensation for the previous tax period is not greater to the revenue / compensation limits set for the flat rate scheme.
Written by Sergio SIRABELLA, Counsel & Luca TITTARELLI, associate