The Italian legislator has set up, with Decree Law No. 179 of 18 October 2012 and Decree Law No. 3 of 24 January 2015, a favorable regime for innovative start-ups, that is open to foreigners. Four incentives should be highlighted here:
- Access to simplified procedures
Pursuant to the Ministerial Order of 17 February 2016, it is possible to create a start-up in the form of an s.r.l. (similar form, although not identical, to the American limited liability company) online and with the Italian Chamber of Commerce’s free assistance (via the “AQI” service, Assistenza Qualificata Imprese). Once the start-up is incorporated, the founding documents of the start-up (Bylaws and Articles of Association) may also be modified online.
It is further provided that and in case of success, the innovative start-up may be easily converted into an innovative SME, without losing most of the special rights laid down by the start-up regime.
Finally, in case of failure, innovative start-ups benefit from faster, cheaper and lighter procedures to wind-up their activity (called “fail fast”).
- Tax benefits
As a general rule, Italian law requires companies wishing to claim a VAT credit refund above €5,000 to perform a tax compliance review. By way of exception, start-ups are exempted from such an obligation when the said VAT credit is below €50,000.
In addition, the tax penalties (e.g. limited use of VAT credit) set to discourage the setting up of shell companies do not apply to innovative start-ups.
- A framework fostering the financial health of innovative start-ups
Several provisions of Italian law favor the financing of innovative start-ups. Since 2016 the Budget Law (Law No. 232 of 11 December 2016), has introduced rules that promote investment in innovative start-ups. The most interesting provision is a tax relief for individuals or legal entities that have invested in venture capital funds in a start-up for at least three years.
Moreover, the financing of Italian innovative start-ups is facilitated thanks to a simplified access to the Italian Guarantee Fund for SMEs, which can cover up to 80% of the loan granted, within the limit of €2.5 million. Concretely, innovative start-ups may be granted a guarantee automatically (i.e. without prior analysis of budgetary data), quickly and free of charge.
The “Smart&Start Italia” funding instrument grants a zero-percent financing, repayable over a period of 10 years, to:
– start-ups set up less than 60 months ago and registered in the Italian Business Register (named Registro delle Imprese)
– groups of individuals (Italians or foreigners) wishing to set up a start-up in Italy
– foreign companies interested in establishing at least one office in Italy
To qualify for such a loan, the above-mentioned categories of individuals must have a Business Budget of between €100.000 and €1.5 million. The said financing can cover up to 90% of the eligible expenses.
Also, as the first country in Europe to implement a special regulation in this field, Italy opens the possibility of raising capital through crowdfunding, under the control of CONSOB (Italian Market Authority), to innovative start-ups and SMEs, and to joint-stock companies investing in such start-ups and SMEs.
Beyond investment considerations, innovative start-ups benefit from discounts on or even exemption from certain fees. This is the case for the payment of the registration fee, the tax called imposta di bollo and the annual Chamber of Commerce Membership Fee, which are all free during the first five years. Start-ups also benefit from a 30% discount on the services offered by the Italian Trade Agency (Agenzia ICE), an Italian consulting Governmental agency for companies wishing to expand internationally.
In the event of financial constraints, the Italian legal framework provides for an extension of deadlines for covering losses of the stated capital. Thus, while ordinary companies have only one accounting period to remedy a reduction of more than one third of the stated capital due to losses (Article 2246 of the Italian Civil Code), this period is extended to two accounting periods for innovative start-ups. While an even more favourable time extension has been granted to all companies to react to Covid-related losses of capital, the Startup legislation in order to take into consideration the high volatility of startup turnovers sets a general rule that is not related to Covid.
Similarly, in the event of losses resulting in a capital below the legal minimum, ordinary companies must immediately reduce such capital and then simultaneously increase it (Article 2247 of the same code), while start-ups may postpone this process until the end of the next accounting period.
- A flexible derogatory regime
By way of exception to Italian general corporate law, innovative start-ups set up in the form of an s.r.l. can:
– create classes of shares conferring different rights (e.g. shares without voting rights)
– carry out a variety of share transactions (e.g. purchase of shares by the start-up itself), otherwise prohibited by Article 2474 of the Civil Code
– issue participatory financial instruments
– offer shares to the public
In terms of labor relations, innovative start-ups also benefit from more flexible rules. For instance, during the first four years, Italian law does not place obligations upon innovative start-ups regarding neither the number of fixed-term employment contracts, nor the number of renewals of such contracts. It is therefore possible to recruit an individual through several short-term contracts, renewable as many times as desired, up to a maximum duration of 24 months.
Moreover, unlike the general legal framework for companies, the number of fixed-term employment contracts for start-ups with more than 5 employees is not necessarily calculated on the basis of the number of permanent employment contracts.
Finally, innovative start-ups may choose to pay their collaborators and other external service providers though stock options or work for equity. This kind of remuneration is all the more advantageous as the resulting profit is not taxable.
For more information, please visit the official website of the Italian Ministry of Enterprises and Made in Italy (), and do not hesitate to contact us at the following e-mail address: [email protected].
Marco Amorese
Jeanne Deniau