Innovative start-ups are a key component of the modern economy, as they foster innovation, stimulate economic growth and generate new job opportunities. To support and promote the development of these companies, many countries, including Italy, have introduced tax incentives for investors who decide to finance this type of company.

In particular, according to the provisions of Italian law under DL 179/2012, subsequently amended and made permanent by Art. 1 co.66-68 of L. 232/2016), in order for investors (both IRPEF and IRES Subjects) to benefit from tax advantages related to investments made in start-ups, the latter must be identified and recognised as innovative.

For a company to identify itself as an innovative start-up, it is necessary that:

• The company has been established for no more than five years;
• is resident in Italy, or in another country of the European Economic Area, but has its production site or branch in Italy;
• It is not listed on a regulated market or a multilateral trading platform;
• It does not and has not distributed profits;
• Has as its exclusive or predominant corporate purpose the development, production and marketing of an innovative product or service with high technological value;
• Is not the result of a merger, demerger or transfer of a branch of business;
• Has an annual turnover of less than EUR 5 million.

In addition, a start-up is innovative if it meets at least one of the following three subjective requirements:

1. incurs R&D expenditure of at least 15% of the greater of cost and total value of production;

2. employs highly qualified staff (at least 1/3 PhD, PhD students or researchers, or at least 2/3 with master's degrees);

3. is the owner, custodian or licensee of at least one patent or holder of registered software.

A company that qualifies for innovative start-up status must apply for registration in the special section of the Companies' Register and may maintain the status for five years from the date of incorporation, provided that the qualifying requirements described above are maintained.

That said, individuals who decide to invest in innovative start-ups will be able to take advantage of several tax benefits, including:

IRES deduction for legal entities: these entities can benefit from an IRES (corporate income tax) deduction of 30% of the investment made, with an annual investment ceiling of EUR 1.8 million.

This deduction allows companies to reduce their taxable income, saving on taxes and at the same time offering support to innovative start-ups.

Excluded from relief are

• Entities that are themselves innovative start-ups;
• Undertakings for Collective Investment in Transferable Securities (UCIs) and corporations investing primarily in innovative start-ups;
• Certified incubators.

Both direct investments in innovative start-ups and indirect investments through 'qualified intermediaries', i.e. undertakings for collective investment (OICR) or other corporations that invest mainly in innovative start-ups and innovative SMEs are eligible.

In particular, with reference to direct investments, cash contributions recorded under the share capital and share premium reserve of the innovative start-up are eligible. On the other hand, non-repayable cash contributions recorded under other equity items, other than share capital and the share premium reserve, cannot be subsidised.

IRPEF deduction for natural persons: Those who are subject to IRPEF (Personal Income Tax) may benefit from two alternative allowances:

• the ordinary IRPEF deduction of 30% of the amount invested (Article 29 of Decree-Law 179/2012), up to a maximum amount of EUR 1 million per year. Both direct investments in innovative start-ups and indirect investments through 'qualified intermediaries', i.e. undertakings for collective investment (OICR) or other corporations that invest mainly in innovative start-ups and SMEs, are eligible.

It is important to emphasise that any deduction that is not allowed in the Irpef in a given tax period may be used in subsequent tax periods, but not beyond the third.

• IRPEF deduction of 50% of the amount dressed within the limits of the 'de minimis' regime ( D.L. 179/2012, art.29 bis ), up to a maximum amount of €100,000 per year and within the limits provided for by the "de minimis" regime ("de minimis" aid is aid, granted to a "single" company over a certain period of time, which does not exceed a predetermined amount and which is exempt from the obligation to notify the European Commission under Article 108(3) of the Treaty on the Functioning of the European Union).

In order for investors to benefit from the facilitation, beneficiary companies must submit an online application through the special IT platform on the website of the Ministry of Economic Development (Ministerial Decree 28.12.2020, Circ. Min. of Economic Development 25.2.2021):

The Ministry of Economic Development:

• verifies the beneficiary company's compliance with the 'de minimis' ceiling;
• periodically communicates to the Inland Revenue Agency the list of beneficiary companies that have submitted applications and investors that intend to benefit from the tax deduction.

For this specific scheme, eligible investments may be made indirectly, only through undertakings for collective investment (OICR), and directly only if they are made when increasing share capital.

The above-mentioned tax reliefs are available up to a total amount of eligible contributions not exceeding EUR 15 million for each innovative start-up; for the purposes of calculating this maximum amount, all eligible contributions received by the innovative start-up during the tax periods in which the facilitating regime is in force are relevant (Article 4, paragraph 7 of Ministerial Decree 7.5.2019).

In addition, the investment must be maintained for at least three years, under penalty of forfeiture of the subsidy (Art. 6 of Ministerial Decree 7.5.2019).

The relief only applies for income tax purposes and does not operate for IRAP purposes.

Regardless of the size of the investment in the innovative start-up, the investor will in any case lose the right to the tax benefits described above if, within three years of making the investment, one of the following circumstances occurs:

1. the transfer, even partially, for consideration, of the participations received in exchange for the subsidised contributions. Transfers of the shareholdings free of charge or 'mortis causa', as well as those resulting from extraordinary transactions (Tuir, Articles 170 - 181) are not considered causes of forfeiture of the relief. In the latter case, however, the possibility remains for the Revenue Agency to review the possible elusiveness of the transaction (see Circ. AdE 16/2014, par. 6.7.1);
2. the reduction of capital as well as the distribution of reserves or other funds established with share premium accounts of the shares or units of innovative start-ups;
3. withdrawal or exclusion of investors;
4. the loss of one of the requirements provided for by the Innovative Start-up legislation. However, exceeding the turnover threshold of EUR 5 million, being listed on a multilateral trading system and, of course, leaving the facilitating regime due to the expiration of its five-year duration or the acquisition of the innovative SME requirements under Article 4, c. 1, of Decree-Law 3/2015 do not constitute grounds for forfeiture of the benefits.

These grounds for forfeiture apply to both 'ordinary' and 'de minimis' tax benefits.

If a cause for forfeiture of the tax relief occurs, the investors will be required to return the relief received, plus penalties and interest.

In conclusion, therefore, these tax incentives for investors represent not only an important incentive to support the development and growth of innovative start-ups, a growth engine for the Italian entrepreneurial and industrial landscape, but also allow such entities to make real and tangible savings in terms of taxes due.