Italy: Budget Law 2021: Tax Incentives

Tax credit for investments in new assets

Budget Law 2021 grants a tax credit to Italian resident companies or Italian based permanent establishment of foreign entities that make investments in new business assets related to productive plants and structures located in Italy starting from 16 November 2020 until 31 December 2022. 

The granted tax credits are divided into two classes: “ordinary” tax credit for new investments and the “4.0 assets” tax credit. The rates (range from 6% to 50% of the eligible costs) vary upon the category of the relevant assets and the type of the investment made. 

Such tax credit is exempt from income tax (IRPEF, IRES) and regional tax on productive activities (IRAP) purposes, can be used to offset taxes and contributions through the F24 payment form and shall be used in three equal annual installments. 

Tax credit for research, development, and innovation 4.0 

The Budget Law 2021 extended for two years (from 2020 to 2022) the application of the tax credit for investments in research and development, ecological transition, technological innovation compliant with the“Plan Industry 4.0”, and other innovative activities. 

• For eligible research and development activities, the tax credit is recognized in the amount of 20%, up to a maximum annual limit of 4M€; 

• For investments in 4.0 digital innovation or for projects of ecological transition, the tax credit is recognized 15%, up to a maximum annual limit of 2M€; 

• For design and aesthetic activities, the tax credit is recognized 10%, up to a maximum annual limit of 2M€. 

Tax incentives for new economic initiatives in “special economic zones”

The Budget Law 2021 provides a decrease by 50% of the applicable tax rates for corporate and personal income to the companies that undertake new economic initiatives in the “Special Economic Zones”.

The incentive is applicable from the tax period in which the new economic activity was started and for the following six tax periods. 

The following requirement must be met: 

• maintenance of the activity in the “Special Economic Zones” for at least ten years; 

• the number of new jobs created by means of the new activity must be retained for at least ten years. 

Extension of the tax regime for impatriate workers 

An employee, a self-employed person or an individual entrepreneur may be subject to Italian personal income tax on 30% of their income – therefore 70% exemption – deriving from activity performed in Italy if the individual: 

• becomes an Italian tax resident pursuant to Italian tax law; 

• has not been tax resident in Italy for the previous two years; 

• endeavors to remain in Italy as a tax resident for the following two years; 

• mainly works or performs employment activity in Italy. 

The Budget Law 2021 allows the possibility to decrease by 50% for a further five years for individuals enrolled in the Registry of Italians residing abroad (“AIRE”), or EU citizens that: 

• have transferred their residence to Italy before January 1st, 2020; 

• are beneficiaries as of December 31st, 2019 of the ordinary favorable tax regime for the so-called “impatriate workers”. 

Provisions of step-up of goodwill and other intangible assets 

The 2021 Budget Law has introduced the possibility of step-up the tax value of goodwill and other intangible assets (not including assets that are legally protected and covered by the existing regime) as included in the financial statements for the fiscal year in progress as of December 31, 2019, by paying a 3% substitute tax. 

Measures against covid-19: vat exemption regime 

A reduced or zero VAT rate was introduced for the supply of COVID-19 diagnostic equipments and vaccines, as well as the provision of services closely related. 

Until 31st December 2022, the zero or reduced VAT rate may only be applied to medical devices that are in conformity with the conditions laid down in the relevant EU healthcare legislation and the vaccines authorized by the European Commission or by EU Member States can apply.

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