NEWS
MGI Studio Pragma

The new wave of corporate tax credits

14 Jan 2020

The Italian 2020 Budget law (Law No. 160 of 27 December 2020) sets out a new wave of tax incentive measures in the form of corporate tax credits applicable starting from fiscal year 2020. Some incentives are newly introduced, others modify and replace measures already in place. Overall the new framework appears quite complex and clarifications from the Ministry of Economic Development and the Italian Revenue Agency are expected in order for enterprises to reliably benefit from the incentive measures.

Tax credits for new investments in capital equipment

These are already-existing incentive measures that previously worked in the form of enhanced tax deduction of annual amortization charges (so-called “hyper-amortization” and “super-amortization”) which the 2020 Budget Law replaced.
Requirements and operation
Starting from 1st January 2020, enterprises will be entitled to benefit from a tax credit for the new investments in capital equipment (instrumental goods) performed from 1st January to 31st December 2020. An extension is set to 30 June 2021 provided that, no later than 31st December 2020:
a) the purchase order of the new equipment is accepted by the supplier and
b) an advance of at least 20% of the purchase price has been paid.
Italian-resident enterprises (including Italian permanent establishments of non-Italian entities) are entitled to the tax credit. The new equipment shall be used only in business sites located in the Italian territory.
The tax credit can only be set off against tax or social security payments and shall be split in 5 equal annual instalments (3 for qualified software meeting the Industry 4.0 requirements).
In order to benefit from the tax credit, enterprises shall be fully compliant with workplace safety rules and shall duly pay social security and social assistance contributions for their employees.
Rates and limitations
The range of the tax credit would vary depending on the features of new capital equipment acquired.
A first-level tax credit applies to new investments on physical instrumental goods (the law provides for an exclusion list that includes, for instance, real estate instrumental property, vehicles and energy power plants).
The tax credit would be higher for new instrumental goods that show a set of special technological features enabling them to be integrated and interconnected with the business operating system, pursuant to the standards of automation and data-exchange of the so-called Industry 4.0. The following assets may be included: assets activated, controlled and/or managed by computer systems; assets aiming at assessing product quality and sustainability; specific devices aiming at increasing the human-machine interaction and the health and safety level of the workplace.
The tax credit applies also on new investments related to certain qualified intangible assets (software) that are linked to instrumental goods and comply with the Industry 4.0 requirements.
For new investments in goods of a value exceeding EUR 300,000, a technical appraisal rendered by an engineer or technical expert is needed to certify the Industry 4.0 requirements (technical features and interconnection). For goods under the threshold, an official self-declaration rendered by the legal representative of the enterprise could replace the expert appraisal.
The enterprise would be entitled to use the tax credits starting from the fiscal year in which the new goods are put into use or, for Industry-4.0 equipment, in which the interconnection is realised.
The tax credits for new investment in capital equipment would operate at the following rates, subject to limitations related to the total value of the new investments that could be eligible to the incentive measures.
Category of newly acquired capital goods
Total value limitation (EUR)
Tax credit amount
Annual instalments
New physical instrumental good
Up to 2 million
6%
5
New physical instrumental goods (and embedded software) compliant with the Industry 4.0 requirements
Up to 2.5 million
40%
5
From 2.5 to 10 million
20%
Qualified software linked to instrumental goods meeting the Industry 4.0 requirements
Up to 700,000
15%
3
Recapture and replacement
The tax credits are subject to a so-called recapture mechanism that applies if the new good eligible for the tax credit is (a) sold or (b) transferred to a site located outside Italy, and this occurs within 31st December of the second fiscal year following the year in which the investment was carried out.
In this case, the tax credit for the sold/transferred good is lost and the enterprise shall refund the Tax Authorities with the amount of the credit that has been already used (without any penalty or interest to be paid). That unless the sold/transferred good is replaced with another one having equal or superior technical features.

Tax credits for R&D, technology and design activities

Starting from 2020, three new tax credits are introduced for:
– R&D activities,
– technological innovation activities
– design and aesthetic conception activities.
The credits are set to apply only for 2020 (unless future legislative provisions will postpone their effectiveness).
The concrete functioning of the new incentive measures needs to be clarified by implementing provisions to be issued by the Ministry of Economic Development. Further clarifications from the Italian Revenue Agency are also expected.
As for the tax credits for new investments in capital equipment, in order to be entitled to the incentive measures, enterprises shall be fully compliant with workplace safety rules and shall duly pay social security and social assistance contributions for their employees
R&D tax credit
The credit would apply at 12% rate on investments in fundamental research, industrial research, scientific and technological experimental development, as defined by the EU Commission.
R&D investments are eligible for the credit up to the amount of EUR 3 million.
Technological innovation tax credit
The credit would apply at 6% rate on investments in technological innovation activities, quite broadly defined as activities aimed at the realization of products or new production process that should be either new or, if already existing, should be substantially improved under a set of perspectives that could be either technology, performance, energy-efficiency, ergonomics or other substantial aspects of the product. The qualified technological activities are identified by reference to the OECD Oslo Manual.
Routine quality enhancements would not qualify for the purpose of the tax credit, as well as design elements aimed at differentiating the products from competitors, or adjustments performed to comply with clients ’specific requests.
If the innovation activities serve the purpose of ecological transition or comply with the digital Industry 4.0 innovation standards, the tax credit is enhanced to 10% of the eligible expenses.
In any case, technological investments are eligible for the credit up to the amount of EUR 1.5 million.
Design and aesthetic conception activity tax credit
The credit would apply at 6% rate on investments in design and aesthetic conception activities performed by enterprises operating in the fashion, textile, footwear, optical, jewellery, furniture, and ceramics industries.
The investments should relate to the conception and realization of new products and sample items. Further implementing provisions will better define the industry perimeter of this new incentive.
Eligible expenses
For both the R&D, the technological innovation and the design tax credits, the incentive amount is determined by applying the credit rate to a set of eligible expenses represented by:
a) personnel expenses, provided that a set of requirements are met (for instance, employees shall be no older than 35, it shall be their first job, they shall be professionally qualified, they shall be hired under permanent employment contracts and they shall be employed only on the qualified activities); for the purpose of the calculation of the credits, these expenses are assumed at 150% of their book value;
b) amortization charges (or lease payments) for capital goods (including IP); these expenses are considered up the limit of 30% of the amount of eligible personnel expenses under letter (a) above;
c) research contracts with external contractors;
d) consultancy services; these expenses are considered up the limit of 20% of the amount of eligible personnel expenses under letter (a) above;
e) raw materials and supplies; these expenses are considered up the limit of 30% of the amount of eligible personnel expenses under letter (a) or (c) above.
The tax credits shall be split into three annual installments.
Enterprises would be to certify by technical report that the requirements to benefit from the tax credits are met. Further implementing rules will be set by a decree from the Ministry of Economic Development.