Guidelines for Incorporating an Innovative Start-up in Italy

The innovative startup

We firmly believe in the social importance of innovation, which is why we support new entrepreneurs with the institution created specifically for this purpose namely the innovative start-up.

The innovative start-up is an Italian corporation or cooperative that must meet the following requirements to be registered in the special section of the Chamber of Commerce:

1. the company must have been incorporated and carrying out business activities for no more than 60 months;

2. the company must have its principal place of business and interests in Italy;

3. the total annual production value of the company, starting from the second year, must not exceed 5 million euros;

4. the company must not distribute or have distributed profits;

5. the company must have as its exclusive or main corporate purpose the development, production and marketing of innovative products or services with high technological value;

6. the company must not have been formed by a merger, corporate demerger or as a result of the sale of a company or business unit.

The innovative start-up company must have at least one of the following additional substantive requirements:

1. research and development expenses incurred by the company must be equal to or greater than 15% of the greater of cost and total value of production;

2. the company must employ as employees or collaborators, in any capacity, in a percentage equal to or greater than 1/3 of its workforce, personnel who hold a Ph.D. degree or who are pursuing a Ph.D. degree at an Italian or foreign university or who hold a bachelor's degree, and who have been engaged in certified research at research institutions for at least 3 years in Italy or abroad;

it is possible, alternatively, to employ as employees or collaborators, in any capacity, in a percentage equal to or greater than 2/3 of the total workforce, personnel holding a master's degree;

3. the company must be the owner or depositary or licensee of at least one industrial patent relating to an industrial, biotechnological, semiconductor product topography or new plant variety invention directly related to the corporate purpose and business activity;

In the scope of ownership of industrial property rights, an original computer program registered with the Special Public Register for Computer Programs is also meant provided that it is also pertaining to the corporate purpose and business activity.

The advantages (in order of importance)

A. Incentives to invest in innovative start-ups

- Tax benefits in the form of tax deductions and allowances.

* personal income tax deduction an amount equal to 30% (as of 2017, previously it was 19%) of the amount invested by the taxpayer in the share capital of one or more innovative start-ups (the maximum deductible investment cannot exceed the sum of €1,000,000 (as of 2017, previously it was €500,000 for each tax period and must be maintained for at least 2 years).

* income deduction of corporate income tax payers - other than innovative start-up companies - 30% from 2017, previously it was 20% of the amount invested in the share capital of one or more innovative start-ups (the maximum deductible investment cannot exceed the sum of €1,800,000 in each tax period and must be maintained for at least 2 years).

Investments that qualify for tax benefits

cash contributions to innovative start-ups

credit offsets when subscribing to share capital increases

shares of innovative start-ups or corporations that invest primarily in innovative start-ups

shares of new issues of innovative start-ups

investments in units of UCIs that predominantly invest in innovative start-ups.

Investments that do not qualify for tax relief

Investments in innovative start-ups made through UCIs or companies - directly or indirectly - with public participation

investments made in innovative start-ups that qualify as firms in difficulty as defined in European Commission Communication 2004/C 244/02

investments made in innovative start-ups operating in the shipbuilding and coal and steel sectors

- measures for raising venture capital in innovative start-ups

(a) access to equity crowfunding;

(b) intervention of the Central Guarantee Fund for Small and Medium Enterprises free of charge as well as according to simplified criteria and modalities:

* the guarantee is granted free of charge for innovative start - ups and certified incubators;

* the guarantee is granted with priority and without assessment of the balance sheet accounting data of the innovative start-up or certified incubator provided that the financing entity, in relation to the amount of the financial transaction, does not acquire any guarantee, real, insurance or banking;

* the applicants for the guarantee must have previously acquired special declaration in lieu of affidavit by which the legal representative or special attorney of the innovative start-up or certified incubator certifies that it is registered in the special section of the Register of Enterprises;

* the declaration in lieu of affidavit must be kept by the applicant and produced in case of insolvency of the innovative start-up or certified incubator or produced upon simple request by the guarantee fund manager;

* applications must be sent to the manager by fax or by registered mail with return receipt, until otherwise notified.

Regarding the coverage of financial operations, the Guarantee Fund for Small and Medium Enterprises can ensure:

* up to 80% of the amount of exposure for principal, interest, contractual and default, of the applicant to the innovative start-up company or certified incubator (direct guarantee);

* up to 80% of the amount guaranteed by the Confidi or other guarantee fund, provided that the guarantees issued by them do not exceed the maximum coverage percentage of 80% (indirect guarantee or counter-guarantee).

The maximum amount that the Guarantee Fund for Small and Medium Enterprises is able to secure is 2.5 million euros per individual innovative start-up or certified incubator.

In the event that the declaration in lieu of affidavit attesting to the registration in the special section of the Companies' Register is missing or the financing party has acquired collateral, insurance or bank guarantees, the guarantee may be granted on the basis of the ordinary terms and procedures provided for by the current operating provisions of the Guarantee Fund for Small and Medium Enterprises.

c) services made available by ICE - Agency for the promotion abroad and the internationalization of Italian enterprises and by Desk Italia, thus benefiting from the regulatory, corporate, tax, real estate and credit assistance provided by these entities. In particular, ICE provides for the identification of the main international fairs and events where innovative start-ups can be hosted free of charge and develops initiatives aimed at facilitating the meeting of companies with potential investors.

- Measures to encourage the establishment of innovative start-ups by foreign applicants.

The government has also allowed foreign nationals to enter for self-employment purposes for the establishment of innovative start-up companies in favor of which a self-employment relationship with the company can be attributed.

By a decree of March 24, 2014, the Ministry of Economic Development provided for the establishment of a special Committee of a technical nature to carry out the activity of assessing and verifying the requirements provided by law for obtaining a nulla-osta for the granting of the innovative startup visa for this category of subjects.

Thus, a "Technical Committee Italy - Startup Visa" was established at the Ministry of Economic Development - Directorate General for Industrial Policy, Competitiveness and Small and Medium Enterprises - which will be responsible for:

- of carrying out a technical assessment on innovative startup projects from foreign applicants;

- Of the verification of minimum requirements in terms of financial availability;

- of the receipt of statements of commitment for entry on the projects evaluated and approved directly by certified incubators of innovative start-ups;

- Of acquiring the provisional clearance for the purpose of entry of the foreign national issued by the territorially competent Police Headquarters.

- Issue its own clearance, which is the necessary pre-requisite for obtaining a self-employment visa for non-EU foreign nationals who intend to enter the country for the purpose of establishing innovative start-up companies.

B. Fee Exemptions:

- Exemption from payment of stamp duty and secretarial fees upon registration of the innovative start-up company

- Exemptions from payment of the annual fee in favor of the Chambers of Commerce.

Exemptions are subject to maintaining the requirements and are only active for four years

C. Crisis of the innovative start-up enterprise

In view of the high rate of business risk associated with investment in activities with a high level of innovation, our legislature has exempted the innovative start-up from the discipline of bankruptcy and other insolvency procedures with the exception of the over-indebtedness crisis settlement and asset liquidation proceedings provided for non-bankruptcy parties.

D. Exceptions to corporate law:

- possibility of postponing the reduction of share capital to the second year of operation in the case of loss to less than 1/3 for innovative start-ups (Art. 2446 and Art. 2482 Civil Code);

- in the case of reduction of the share capital below the legal minimum, the shareholders' meeting is allowed to postpone to the end of the next financial year the resolution to reduce the capital and simultaneously increase it to an amount not less than the legal minimum, as provided for in Art. 2447 c.c. and Art. 2482 ter c.c;- the articles of incorporation of the innovative start-up company established as a limited liability company may:

(a) create categories of participation shares provided with different rights;

(b) determine the content of different participation shares;

(c) create categories of participation shares that do not provide voting rights or provide voting rights that are not proportional to the shareholding held by the shareholders;

(d) create categories of participation shares that grant voting rights limited to particular subjects or subject to the occurrence of particular conditions;

- equity shares held in the innovative start-up established in the form of a limited liability company may be the subject of public offerings of financial products;

- in innovative start-ups established in the form of a limited liability company, it is permitted to derogate from the prohibition to carry out transactions on its shareholdings provided for in Article 2474 of the Civil Code, in the event that such transactions are carried out in implementation of incentive plans that provide for the allocation of shares to employees, collaborators or members of the administrative body, providers of work and services, including those of a professional nature

- it is permissible for the articles of incorporation of the innovative start-up and the certified incubator to provide for the issuance of financial instruments provided with equity rights or even administrative rights with the exclusion of voting rights as a result of a contribution made by shareholders or third parties, including work or services.

E. Facilities for hiring staff in innovative start-ups

For the innovative start-up, there were simplifications in claiming the tax credit for new hires of highly qualified personnel hired on a permanent basis (including personnel hired under apprenticeship contracts).

With the new tax credit for research and development provided by the May 27, 2015 decree, the priority grant over other companies and the possibility of self-certification by the legal representative are eliminated.

F. The remuneration with financial instruments of the innovative start-up.

A favorable tax and contribution regime is provided in favor of incentive plans based on the assignment of shares, units or similar securities to directors, employees or continuous collaborators of innovative start-ups.

Employment income from the allocation to directors, employees or continuing collaborators of financial instruments or any other right or incentive that contemplates the allocation of financial instruments or similar rights, as well as from the exercise of the option right conferred for the purchase of the referred financial instruments, does not contribute to the formation of taxable income for both tax and contribution purposes.

However, the application of the relief is subject to the fact that the financial instruments or rights must not be repurchased by the innovative start-up or certified incubator, the issuing company or any other entity that directly controls or is controlled by the innovative start-up or certified incubator. When this condition is met, in fact, the employment income contributes to taxable income and is subject to taxation with respect to the period in which the transfer of the financial instruments or related rights took place.