Italy: Tax incentive to mitigate the economic impact of COVID-19 outbreak – follow-up

1. Aid to medium-sized enterprises – Article 26

Capital increases may benefit from certain tax credits provided that the receiving company:

1. is incorporated under specific legal forms (such as limited company or corporation), has their headquarters in Italy, is regularly registered in the Business Register and does not qualify as a financial intermediary, non-financial or financial holding company or insurance company
2. declared, for fiscal year 2019, taxable revenues from EUR 5- 50 million — to be quantified on a consolidated basis (intragroup income is not relevant) — in the case of the receiving company belonging to a group
3. has suffered, because of the COVID-19 outbreak, an overall reduction in revenues no lower than 33% related to March and April 2020 compared to the same period of the previous year — to be verified on a consolidated basis (intragroup income is not relevant) — in the case of the receiving company belonging to a group
4. resolved and executed a capital increase, fully paid, not lower than EUR 250,000 between 19 May and 31 December 2020
5. has fulfilled additional conditions laid down in the provision (for example, is compliant with any fulfilment referred to taxes and contributions)

Please note that companies under so-called “Concordato preventivo” procedures, which are compliant with taxes and contribution fulfilments, can also benefit from the tax credits described below as of 19 May 2020.

Notably, Article 26 introduced two new tax credits:

• Contributing companies may benefit from a tax credit equal to 20% of any eligible contribution made. Under certain conditions, contributions in Italian permanent establishments or executed through alternative investment funds are eligible for the tax credit. The basis for the computation of the tax credit cannot exceed EUR 2 million.

The participation obtained as a result of the contribution must be held until 31 December 2023. Distribution of reserves of any kind before this date will result in the taxpayer being obliged to repay the tax credit offset, plus interest.

Contributions between related parties, as defined in Article 26, are not eligible for the tax credit.

• Receiving companies, as defined above, are allowed to benefit from a tax credit equal to 50% of losses exceeding 10% of the net equity resulting from the financial statement for 2020. Tax credit cannot exceed 30% of the eligible capital increase.

Distribution of reserves of any kind before January 2024 will result in the taxpayer being obliged to repay the tax credit offset, plus interest.

Said tax credits:

• can be offset against other tax and social security liabilities starting from the 10th day following the one in which the tax return, related to the fiscal year in which the contribution is made, is submitted (the yearly caps provided by Italian tax law do not apply)
• are subject to the limit of the aid measures set forth by the communication from the European Commission “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak.” For example, the total amount of COVID-19 aid the company benefitted by cannot exceed EUR 800,000, or other lower thresholds for minor sectors.
• are not taxable for direct tax purposes (i.e., IRES, IRPEF and IRAP) and do not affect the calculation of certain thresholds of deductibility.

Implementing measures will be provided within 30 days from the entry into force of the Rilancio Decree. The provisions of such article are subject to approval of the European Commission.

2. Tax credit for rental fees of non-residential building and going concern – Article 28

A new tax credit has been introduced:

1. equal to 60% of the fees, related to March, April and May (or April, May and June for tourist accommodation facilities with seasonal activities), paid for the rental, leasing or concession of building for non-residential use, intended for the exercise of the activity
2. equal to 30% of the fees, related to March, April and May (or April, May and June for tourist accommodation facilities with seasonal activities), paid according to service agreement or going concern rental agreement including at least one non-residential building intended for the purpose of carrying out the activity

Said tax credit is granted to taxpayers carrying out business and self-employment activities having registered:

• revenues or fees not exceeding EUR 5 million in the fiscal year preceding the one in progress as of 19 May 2020 — such threshold does not apply to hotels, farmhouses, travel agencies and tour operators;

• at least a 50% decrease in revenues or fees in reference to the month in which the tax credit is computed compared to the same month of the previous fiscal year. The latter condition does not apply to taxpayers who started to run their business after 1 January 2019, as well as to taxpayers who, when the epidemiological emergency intervened, had their fiscal domicile or place of business in municipalities already affected by other natural disaster (such as seismic events, floods or collapses of infrastructure that led to deliberations of the state of emergency);

• tax credit sub a), which is also granted to non-commercial entities provided that the immovable properties are intended for the purpose of carrying out the institutional activity.

Taxpayers carrying out retail activities, whose revenues or fees, in the fiscal year preceding that in progress as of 19 May 2020, exceeds EUR 5 million, can benefit from the tax credits described under previous letters a) and b), respectively, to the value of 20% and 10% of the fees.

The tax credit:

• is subject to the limitations and conditions provided for by the communication from the European Commission “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”
• can be offset (i) in the tax return related to the fiscal year in which the rentals are incurred or (ii) against other tax and social security liabilities starting from the payments date (the yearly caps provided by Italian tax law do not apply)
• can be directly assigned to the lessor upon their acceptance, instead of the payment of the corresponding part of the rental fee
• is not taxable for direct tax purposes (i.e., IRES, IRPEF and IRAP) and does not impact on the calculation of a certain threshold of deductibility

In regard to the rental fee related to March, taxpayers cannot benefit from both this tax credit and the tax credit for workshops and shops (Article 65 of Decree-Law No. 18 of 17 March 2020, (“Cura-Italia Decree“)).

3. Strengthening the innovative start-up system – Article 38

For the purpose of the R&D tax credit for fundamental research, industrial research and experimental development introduced by the 2020 budget law, expenses incurred according to the so-called extra-muros research agreement signed with innovative start-ups are computed for 150% of their amount.

Starting from 19 May 2020, individuals investing — directly or through an eligible alternative investment fund — in the share capital of an innovative start-up or innovative SMEs may benefit, under certain conditions, from a tax deduction from the gross income tax (IRPEF) equal to 50% of the investment. The investment that allows the deduction cannot exceed, in each fiscal year, EUR 300,000 (rather than 100,000) and must be maintained for at least three years; any transfer, even partial, before the expiring of such monitoring period, will cause the forfeiture of the benefit and, therefore, the taxpayer will have to repay the amount deducted plus interest.

The deduction referred to in this paragraph prevails over the deduction (of 19%) referred to in Article 29 of Law Decree No. 179 dated 18 October 2012, which shall apply on the residual amount of the investment.

4. Tax credit on final stock inventories in the textile, fashion and accessories sectors – Article 48-bis

For the fiscal year in progress as of 10 March 2020, taxpayers carrying out business activities in the textile, fashion and accessories sectors may benefit from a new tax credit equal to 30% of the value of the inventories at the year-end exceeding the average of the inventories booked in the three fiscal years preceding the one in progress as of 10 March 2020.

The inventories must be evaluated by using the same methodology and criteria both in the tax period falling within the tax credit and in the three previous tax periods.

The tax credit will only be offset against tax and social security liabilities pertaining to the fiscal year following that in progress on 19 July 2020.

5. Incentives for energy efficiency measures, anti-seismic measures, installation of photovoltaic panels and columns for charging electronic vehicles – Article 119

Subject to certain conditions, taxpayers may benefit from a tax deduction, in five yearly instalments, equal to 110% of the expenses incurred from 1 July 2020 to 31 December 2021 for qualified works aimed at:

• realizing building thermal insulation. Deduction is calculated on a total amount of expenses not exceeding:
  • EUR 50,000 per single-family buildings
  • EUR 40,000 multiplied by the number of building units if the building has less than eight building units
  • EUR 30,000 multiplied by the number of building units if the building has more than eight building units
• replacing the air conditioning systems of the common parts of the building. Deduction is calculated on a total amount of expenses not exceeding:
  • EUR 20,000 multiplied by the number of building units if the building has less than eight building units
  • EUR 15,000 multiplied by the number of building units if the building has more than eight building units
• replacing the air conditioning systems of single-family buildings. Deduction is calculated on a total amount of expenses not exceeding EUR 30,000.

The enhanced 110% deduction also applies to expenses for:

• energy efficiency measures, as identified by Article 14, par. 3-ter, Law-Decree No. 63 of 4 June 2013, provided that they are carried out with at least one of the aforementioned works
• anti-seismic measures incurred from 1 July 2020 to 31 December 2021. Under certain conditions, if the deduction is transferred to insurance companies, the deduction will drop to 90%.
• installation of photovoltaic panels incurred from 1 July 2020 to 31 December 2021, up to a total expenditure of EUR 48,000 (lower thresholds are provided depending on the plant). The deduction is granted provided that the taxpayer sells non-self-used solar energy to GSE.
• qualified installation of charging columns of electric vehicles if carried out with at least one of the aforementioned works

With some exceptions, taxpayers entitled to such tax deductions are condominiums, individuals (not acting in the course of their regular business or professional activity) for a maximum of two building units, eligible social housing institutions, third-sector entities and amateur sports clubs.

6. Tax credit for implementation of safety measures on workplaces – Article 120

Taxpayers carrying out business or self-employment activities in certain public working areas, foundations and associations can benefit from a tax credit equal to 60% of the expenses incurred in 2020, up to an amount of EUR 80,000, to implement health and safety measures provided by law to prevent the spread of COVID-19 (such as changing room, canteen and common area refurbishment).

The tax credit:

• can be combined with other relief provided for the same expenses, but the total relief cannot exceed the expenses incurred
• can be offset against other tax and social security liabilities in 2021 (the yearly caps provided by Italian tax law do not apply)
• is subject to the limitations and conditions provided for by the communication from the European Commission “Temporary Framework for State aid measures to support the economy in the current COVID-19 outbreak”

7. Tax deduction conversion into price discount and transfer of tax credit – Article 121

Taxpayers who, in 2020 and 2021, incur expenses that allow certain tax deductions (primarily those described under Article 119) can:

• use such deduction to offset the full price to be paid to suppliers carrying out certain buildings or energy projects. The supplier can recover the price amount in the form of a tax credit.

• sell the deduction to third parties, including banks and other financial intermediaries, by means of tax credit. The latter subjects can than resell the tax credits or, alternatively, use the credit (in the measure not already used by the seller and on the basis of the same breakdown in annual instalments) to offset taxes and social security liabilities without the application of the EUR 700,000 threshold provided by Law 388/2000 or the EUR 250,000 annual threshold provided by Law 244/2007. The offsetting threshold in the presence of public debt for taxes and accessories of an amount exceeding EUR 1,500 is not applied.

The conversion may be exercised in relation to each state of progress of the work. The state of progress of the work referred to in Article 119 of the Rilancio Decree may not be more than ‘two’ for each overall intervention and each state of progress will relate to at least 30% of the same intervention.

8. Assignment of tax credits deriving by COVID-19 tax measures – Article 122

From 19 May 2020 to 31 December 2021, the following tax credit introduced to face the COVID-19 outbreak can be assigned to other entities, including to the lessor instead of the payment of the corresponding part of the rental fee, even partially:

• tax credit for workshops and shops (Article 65 of Law-Decree of 17 March 2020, No. 18)

• tax credit for rental fee of non-residential buildings and going concern (Article 28 of Rilancio Decree)

• tax credit for implementation of safety measures in workplaces (Article 120 of Rilancio Decree)

• tax credit for workplace sanitation and for personal protective equipment purchase (Article 125 of Rilancio Decree)

Assignees may offset such tax credits against other tax and social security liabilities (the yearly caps provided by Italian tax law do not apply). Any amount not offset in the fiscal year cannot be used or asked for refund in following fiscal years.

9. Tax credit for workspace sanitation – Article 125

Taxpayers carrying out business and self-employment activities and non-commercial entities may benefit from a tax credit equal to 60% of the expenses incurred in 2020 for:

• workplace sanitation

• the purchase of personal protective equipment, detergents and disinfectants, safety devices and any other devices able to ensure interpersonal safety distance

The tax credit:

• is granted up to an amount of EUR 60,000 for each taxpayer and within the overall limit of EUR 200 million for 2020

• can be offset in the tax return or against other tax and social security liabilities (the yearly caps provided by Italian tax law do not apply)

• is not taxable for direct taxes purposes and does not affect the calculation of certain thresholds of deductibility

Tax credits for sanitation costs in workplaces (Article 64 of Decree-Law of 17 March 2020, No. 18) and for purchase of personal protective equipment (Article 30 of Decree-Law of 8 April 2020, No. 23) are repealed.

10. Tax credit for advertising campaigns- Article 186

The communication to apply for such measure will be filed to the tax authority in September 2020. Communications already filed in March 2020 are still valid.
For fiscal year 2020, tax credit for advertising campaigns is equal to 50% (instead of 30%) of the investment in qualifying advertising campaigns in newspapers, online, on TV and radio programs up to the overall cap of expenditure equal to EUR 60 million.

11. Tax credit for research and development activities in southern Italy – Article 244

Tax credit for investments in research and development activities directly related to production facilities located in the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Apulia, Sardinia and Sicily, as well as in Lazio, Marche and Umbria affected by the seismic events of 24 and 26 August and 30 October 2016 and 18 January 2017, is increased to:

• 25% for big-sized enterprises employing at least 250 persons and having total annual revenues of at least EUR 50 million or a total balance sheet of at least EUR 43 million
• 35% for medium-sized enterprises employing at least 50 persons and having total annual revenues of at least EUR 10 million
• 45% for small-sized enterprises employing less than 50 persons and having total annual revenues or a total balance sheet not exceeding EUR 10 million