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Italy

From FY 2020, Italy benefits from renewed tax credit schemes based on a new calculation method
(from the incremental method used until FY 2019 to the volumetric calculation method). Tax credit
is extended not only to R&D projects but also to technological innovation/ecological transition and
design ones. The tax credit rates are in effect for FYs 2021 and 2022.

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italy Are other R&D Incentives available? Is foreign-owned R&D eligible?R&D must occur in the country?Is pre-approval required? Are previous financial years claimable? Italy Gen e rosit y Ease of Application 22 %
Italy all Companies


From FY2020 there are four different types of Tax Credit with different rates for expenses in R&D, Technological Innovation, Green & Digital Innovation and Design.
Benefit Overview


The 2020 Italian Budget Law (Legge di Bilancio 2020) introduced several changes to the existing tax credit regime: by way of example, a new calculation method (from incremental to volumetric) as well as two new tax credits to
encourage investments in technological innovation/ecological transition and design. The 2020 Budget law also reconfirmed tax credits for R&D expenses.

The 2021 Italian Budget Law (Legge di Bilancio 2021) has renewed the tax credit on a two-year base – FYs 2021 and 2022 – and increased the rates applicable:

20% for R&D; 10% for Technological Innovation, 15% for ecological transition and 4.0 technological innovation projects, 10% for Design for Design.

Compared to the previous regime, investments do not require a minimum expense to be eligible for tax credits. However, with the newly introduced measures, the tax credits’ maximum amount is now capped at €4 million for R&D projects and at €2 million for both for Innovation and Design ones.

The new method does not foresee an incremental calculation on a baseline. Rather, it is now based on a direct calculation on the total eligible costs in the fiscal year.

The new tax credit, by changing the calculation method, also encourages investment in skilled labour. In particular, it prizes qualified personnel with subordinate employment contract (or in a self-employment relationship with the
company) and, in particular, under-35s holding a PhD or a scientific degree. Furthermore, expenses relating to extra muros contracts with universities, research centres and innovative startups are also promoted.

Although no pre-approval is required, it is important that the company is able to provide in-depth technical and
financial documentation in case of a tax authority inspection.

Eligible Claim Period


Companies can use the tax credit after the closure of the relevant fiscal year and upon the release of the statutory audit certification. It is mandatory to indicate the tax credit amount in the annual tax return.

The tax credit must be used, in equal annual instalments, throughout a three fiscal year period and will offset the payment of different types of taxes (e.g. corporate tax, social charges, local taxes, etc.).

If the available tax credit for a specific fiscal year is partially used (or is not used at all) by the claimant, the balance can be carried forward indefinitely.

Historical Background


The previous incremental regime has seen several changes between 2015 and 2019. These varied the tax credit’s rates from between 25% to 50% depending on the cost’s category.
Ease of Application


Pre-approval is not required however companies must obtain a Statutory Audit Certification and are obliged to produce a technical report – signed by the R&D Manager and countersigned by the legal representative – describing the implemented projects.
Regulating Body Policies


The Italian tax authority (Agenzia delle Entrate) regulates the process as well as being in charge of any enquiry.

For any issue related to the eligibility of expenses, Italian companies may submit a request to the tax authority. Similarly, for specific technical issues, companies may submit a request to the Ministry of Economic Development.

Eligible Costs
  • Personnel directly employed in eligible projects (the cost within baseline’s calculation is increased to 150% for PhD
    under-35 at first permanent employment contract);
  • Extra muros contracts for research or innovation (the cost within baseline’s calculation is increased to 150% for
    contracts with universities, research centers and innovative startups based in Italy);
  • Depreciation and/or rental of tangible and intangible assets – the value can equate up to a maximum of 30% of
    personnel costs;
  • Technical consulting from other companies (e.g. feasibility studies, testing, technical design, prototyping, etc.) – the
    value can equate up to a maximum amount equal to 20% of personnel costs (or for R&D activity, 20% of extra muros
    contracts’ cost);
  • Purchase of materials, supplies and other similar products directly used in R&D activities – the value can equate
    up to a maximum amount equal to 30% of personnel costs or 30% of cost for extra muros contracts for research or
    innovation;
  • For R&D activities, depreciation of Intellectual Property Rights – the value can equate up to a maximum amount of
    €1 million.
Issues to Consider
  • Significant workload both for cost reporting and technical reporting;
  • Activities must fall under the R&D definition of the Frascati Manual and the Technological Innovation definition of the Oslo Manual;
  • The new tax credit regime is in force from 1st January 2021 to 31 December 2022 (although it is likely to be further extended in the near future but with lower rates);
  • Companies are now required to certify the final technical report;
  • The Ministry of Economic Development must be notified of the company’s use of tax credits;
  • Both the Ministry of Economic Development and the tax authority can ask at any time for extensive technical or financial documentation connected to the tax credit.