Italy has recently introduced a number of incentives designed to attract foreign investors. These wide-ranging reliefs cover intellectual property, individual residency and corporation tax and have already proven to be very popular among companies and foreign groups interested in investing in Europe.
Patent Box
Italy’s Patent Box regime is a great example of the innovation shown by the tax authorities, aimed at rewarding companies that undertake significant research and development. It allows those companies to exclude from the IRES (Corporate Income Tax) and the IRAP (Regional Income Tax) taxable base, a percentage of the income attributable to intellectual property. This Patent Box regime aims to preserve, increase and develop the value of intangible assets located in Italy – crucial for a healthy economy with a highly-skilled workforce.
Enhanced tax-deduction on acquisitions
Besides the Patent Box scheme, our legal system also provides incentives to promote company investments in new tangible and intangible capital goods, through the increase of the cost of acquisition. For the purposes of income tax, acquisitions of instrumental material carried out by certain companies, can be subject to an increase of 40 per cent of the acquisition cost, for tax purposes. The consequent increase in the annual depreciation charge is tax-deductible. There is a further incentive for investments in tangible material goods supporting the technological transformation of the company. This incentive allows an increase of 150 per cent of fiscal cost of acquisition, so that companies can obtain a substantial benefit by amortising expenditure for tax purposes at 250 per cent of the actual cost incurred.
Large investments
The Italian tax authorities have also devoted particular attention to foreign companies that intend to carry out large investments of no less than EUR30 million within the Italian State’s territory. As long as those investments have significant repercussions on employment in the field of operation, the Italian Revenue Agency will make a specific tax ruling in relation to the fiscal implications of the operation intended to be conducted.
This will include the fiscal treatment of the company’s investment plan and the fiscal treatment of any extraordinary transactions that are envisaged for the realisation of this plan. It will also assess whether or not the company can access any specific schemes provided by the tax system. Consequently, this mechanism will give certainty to the relationship with the financial authority, preventing possible issues.
New residents
Of particular interest to high net worth foreign individuals, is the new tax regime for ‘New Residents’, which provides a substitute tax regime reserved for people who transfer their place of residence to Italy. These subjects may opt to use the substitute tax regime for any income produced abroad, provided that they have not been qualified as Italian tax residents for at least 9 of the past 10 years.
Italian tax shall be determined by a lump sum, irrespective of the amount of the foreign income received, that being EUR100,000 for each tax period in which they remain resident in Italy. This amount is reduced to EUR25,000 for each tax period for family members exercising this option, in conjunction with the new resident.
The substitute tax regime provides a total exemption from inheritance and gift tax for transfers relating to goods held across borders. Upon succession by a benefactor, only the goods possessed in the Italian territory will be relevant for the purpose of determining the inheritance tax due in Italy. Moreover, the spouse and immediate relatives would benefit from an exemption of EUR1 million, and the application of a favourable tax rate of 4 per cent on the value exceeding the deductible.
Corporate income tax
In the 2019 Italian Budget, additional measures are envisaged, including the reduction of corporate income tax (IRES) for companies investing in capital goods and in the recruitment of new permanent staff. The tax deduction of the profits reinvested by the companies will be up to 15 per cent of the current IRES rate of 24 per cent.