Italian Budget Law 2019

On 29 December 2018, the Italian Parliament approved the 2019 Budget Law, n. 145 of 2018 published on the Official Gazette of 31 December 2018. The Law presents some incentives for innovative Startup and introduces a new version of the tax on digital services, so-called web tax.

  • Favorable taxation for re-invested profit Law no. 145/2018 introduces, starting from the tax period following the one underway as at December 31, 2018, a favorable regime which reduces corporate income taxes, upon certain conditions.

The new regime states the reduction of the Corporate Income Tax (CIT) rate to 15% for the profits of previous tax period, set aside for available reserves, within the amount of these profits corresponding to the sum:

  • investments made in the fiscal year in new material capital goods;
  • the cost of employees hired in the fiscal year under fixed-term or permanent employment contracts.

To this end, it is specified that:

  • the profits covered by the new regime are the ones realized starting from the tax period as at December 31st 2018 set aside for reserve, net of the reductions in shareholders’ equity with attribution to shareholders or participants. Unavailable profit reserves are the ones created with profits other than those actually achieved (Article 2433 of the Italian Civil Code) as deriving from valuation processes;
  • investment means the construction of new plants in Italy, the completion of suspended works, the expansion, the reactivation, the modernization of existing plants and the purchase of new materials, intended for structures located in Italy.
  • the cost of employees is relevant in each tax period, provided that employees are dedicated for most of the period to production facilities located in Italy and that there is an increase in the overall average number of employees employed in the exercise of commercial activities with respect to the number of employees hired as at 30 September 2018.

In the event of an option for fiscal transparency, the amount on which the reduced tax rate is applied, is attributed to each shareholder in consideration of their profit share.

The above provisions are also applicable for personal income tax purposes, for business income declared by individuals and for unlimited and limited partnerships under the ordinary accounting regime.

 Web Tax: Law no. 145/2018 introduces a new version of the tax on digital services (web tax). The latter is levied on taxable entities carrying out business activities that, individually or at group level, during a calendar year, jointly achieve:

  • a total amount of revenue stream, anywhere achieved, not lower than 750,000,000 EUR;
  • an amount of revenues deriving from the digital services below listed, realized in Italy, not lower than 5,500,00 EUR.

Digital services on which the web tax is applied are:

  • targeted advertising transmission on a digital interface aimed at the interface users;
  • making available a multilateral digital interface that allows users to be in touch and interact with each other, also in order to facilitate the supply of goods or services;
  • transmission of data collected by users and generated by the use of a digital interface.

In order to levy the web tax, taxable revenues must be considered gross of costs and net of VAT and any other indirect tax.

On the other hand, revenues which, although deriving from the digital services above-mentioned, are considered “intercompany”, i.e. are rendered to subjects considered to be controlled, controlling or controlled by the same controlling entity (Article 2359 of the Italian Civil Code) are not taxable.

  • Innovative startup incentives: In 2019 the rate of the incentive for the investments in innovative startups is increased from 30% to 40% for all IRPEF end IRES tax payers.

In particular:

  • Individuals can benefit an IRPEF reduction equal to 40% of the invested capital till the maximum deductible investment provided for by law, which is 1,000,000.00;
  • Corporations can benefit an IRES deduction equal to 40% of the invested capital till the maximum deductible investment provided for by law, which is 1,800,000.00.

Finally a rate of 50% is provided for IRES tax payers in the case of the full acquisition of the capital of an innovative start up but only if the investment is held for at least three years.

 

Please be aware that this tax advantage is still subject to the authorization of the European Commission.

 

Andersen & Legal professionals are available for further assistance.