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In Italy the corporate tax rate is 24% and the regime offers an incremental R&D tax credit by allowing a saving of 50% for additional investments, over the frozen average of QE from 2012-2014. The R&D tax regime is constantly changing, making relying on the benefit difficult and the current regime will be in effect until 2020. When applying for this benefit, an in-depth review of documentation is to be expected.

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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 %
All Companies

50% Tax Credit (From fiscal year 2019, 25%-50% Tax Credit depending on the category of expenditure.)
Benefit Overview

The tax credit is calculated on the additional R&D investment exceeding the average expenditure in the baseline 2012-2014 (or “frozen average”). The net benefit, for each year, is equal to the 50% of the expenditure increase versus the baseline. Although no pre-approval is required, it’s important that an in-depth review of the supporting documentation is provided to the Tax Authority in case of enquiry. A company requires a minimum of €30,000 of QE per year to make a claim with the maximum benefit capped at €20 million. From 2019, the maximum benefit will be capped at €10 million. For companies established after 2014 the baseline is 0. For companies established after 2012 the baseline is calculated from the date of establishment to the end of 2014. From 2017, expenses incurred whilst performing commissioned research are eligible, however, this inclusion can only be considered when R&D activity is conducted by an Italian entity on behalf of a non-Italian one (this new provision also opens up the regime to Universities). From 2019, the tax benefit is dependent on the type of expenditure incurred – 50% for staff costs, research contracted to universities, research centres, startups, and innovative SMEs; and 25% for collaborators, laboratory equipment, and research advisory carried out by other companies.
Eligible Claim Period

Companies can calculate and use the R&D tax credit starting from the first month following the approval of the balance sheet for the relevant fiscal year. It is mandatory to indicate the tax credit amount in the annual tax return. The tax credit can be used only in compensation with different types of taxes (e.g. corporate tax, social charges, local taxes, etc.). If the tax credit amount related to a specific fiscal year is not entirely used or not used at all by the claimant, it can be carried forward indefinitely. The only requirement is that the amount carried over from previous fiscal years must be recalled in the successive tax returns.
Historical Background

A number of different regimes have been in place since 2000. The current regime was established on 1st January 2015 and is an incremental R&D tax regime. This will be in place until 2020. Since 2015, the regime has become progressively more generous – although the benefits originally varied from either 25% or 50%, depending on the cost category. From 2017 all expenses incur a 50% rate which can be applied to all QE. In December 2018 the Budget Law 2019 was approved, introducing significant changes to the current regime for the tax credit.
Ease of Application

Companies must obtain a report from the statutory auditor and are obliged to produce a technical report on research projects signed by the R&D Manager and countersigned by the legal representative. Pre-approval is not required, however an in-depth review of the documentation is to be expected. The calculation of the benefit is lengthy and quite complex for the first year’s claim, as the company needs to establish its frozen average for 2012-2014.
Regulating Body Policies

Agenzia delle Entrate (the Italian tax authority) is in charge of the review and any enquiry. For specific technical issues, Italian companies can submit a request to the Ministry for Economic Development. The deadline for review or enquiry is 5 years from the last used R&D tax benefit.
Eligible Costs
  • Staff (includes temporary workers, external collaborators & professionals)
  • Research conducted through universities or research institutions on taxpayer’s behalf.
  • Equipment (depreciation and/or rental)
  • IP expenses (patents, registration, legal consultancy, freedom-to-operate studies, etc.)
  • Technical consulting from other companies (e.g. feasibility studies, testing, technical design, prototyping, etc.) • Purchase of materials, supplies and other similar products directly used in R&D activities (From 2019)
Issues to Consider
  • Retrospective calculation of the frozen average
  • Evolving tax regulation
  • Significant workload for the first year of application

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