Startups and Innovative SMEs

An innovative startup is an Italian capital company, which can also be established in a cooperative form, or a European company but resident tax in Italy, which has as its object the production, development, marketing of services or innovative products with high technology.

The innovative startup is therefore a new type of enterprise. In other words, It aims to foster youth growth and promote employment, fits perfectly in the terms of the development of a new youth entrepreneurship dedicated to innovation, with the further aim of attracting foreign capital to our country, but also talents and companies born in the sign of innovation.

Innovative startup, as stated in art. 25, paragraph 2 of D.L. n. 179/2012, is a company with share capital, also constituted in a cooperative form, whose shares or units representing the share capital are not listed on a regulated market or on an MTF. And they have specific characteristics that cover different aspects: from the period of activity to the distribution of profits.

The discipline of Start-Up Innovative (ex D.L. n. 179/2012 converted with modification from the L. n. 221/2012) has suffered from its birth several modifications, but above all integrations and improvements.

It was allowed for the years 2013, 2014 and 2015:

• Individuals, to deduct from gross income tax an amount equal to 19% of the amount invested in the share capital of one or more innovative start-ups, up to a maximum of € 500,000 for each tax period. In addition, the investment has to be maintained for at least two years;
• For legal entities other than innovative startups, to deduct from corporate income tax an amount equal to 20% of the amount invested in the share capital of one or more innovative start-ups, up to a maximum of € 1,800,000 for each tax period. In addition, the investment has to be maintained for at least two years.

The percentages of deductions and deductions indicated above are increased for “social” start-ups and for start-ups that exclusively develop and market innovative products or services with high technological value in the energy sector: from 19% to 25% for deduction and from 20% to 27% for deduction.

In the press release of the Ministry of Economic Development dated 2 October 2017, deductions (for natural persons) and deductions (for legal persons) tax and with higher percentages and limits than those currently in force.

News:

• Natural persons: there is a deduction from the gross IRPEF equal to 30% of the amount invested in Innovative Start-Up up to a maximum investment of one million euro per year.
• Legal entities: a deduction from the Ires tax base of 30% of the investment made in Innovative Start-Up up to a maximum annual investment of 1.80 million euros.

The following table shows the differences between the previous legislation and the one described in force since 2017, the benefits of which may be found, starting from the tax return submitted in 2018:

It should be noted that any excess deduction, in the case of incipience, can be reported forward in the declarations of subsequent tax years but not beyond the third. The Budget Law provides greater benefits for those who invest in 2019. An increase in tax rates also for acquisitions. The good news regarding those who decide to enter the capital of innovative start-ups, introduced by the Manoeuvre, are two: 

• It increases from 30% to 40% the measure of the relief for the deduction from the tax, that it is recognized to the subjects Irpef, and for the deduction from the income, that it is recognized to the subjects Ires, that they invest in the share capital of one or more start up innovative;
• For taxable persons of the income tax of companies, other than innovative startup companies, which acquire the entire share capital of innovative start-ups the tax relief passes from 30% to 50%.

To be eligible for a tax rebate, natural persons and undertakings are required to maintain the investment for a minimum period of three years. The increase in tax benefits, provided for by the Budget Law, applies only to 2019 and for the rates to be effective, the approval of the European Commission is expected. Tax benefits may apply to the following cases:

• Cash contributions recorded under share capital and the share premium reserve of innovative start-up shares or companies with share capital that invest predominantly in innovative start-ups.
• Contributions arising from the conversion of convertible debt securities into new shares or units.
• Investments in units of Cius that predominantly invest in innovative start-ups.

For those who invest in innovative start-ups in 2019, tax rebate rates increase, but the same obligations remain. The law that regulates the benefits, in fact, provides that the investment is maintained for at least three years. Entitlement to benefits shall lapse if, within three years from the date on which it recognises the investment, one of the following situations occurs:

• The sale, even partial, for consideration, of the shares received in exchange for the preferential contributions.
• The reduction of share capital as well as the allocation of reserves or other funds created with share premium issues of innovative start-up shares or companies investing.
• Withdrawal or exclusion of investors.
• The loss, by the innovative start-up, of one of the requirements required for the qualification of innovative start-up.

But there are specific cases in which the loss of the requirements provided by art. 25, paragraph 2, of DL n. 179/2012 by the innovative start-up does not represent a reason for forfeiture:

• The expiration of the 5 years from the date of constitution or the different term indicated from the second period of codicil 3 of the same art. 25.
• Exceeding the threshold of annual production value of 5.000.000 euros.
• Listing on an MTF.

The qualification of an innovative start-up is granted to a joint-stock company, including a cooperative, which has been in existence for less than five years.

Alternatively, there is another legal form that has many points of contact with innovative startups, but also substantial differences, the innovative SME.