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Italy Formulates Measures To Promote Startups

by Ulrika Lomas, Tax-News.com, Brussels

18 September 2012


A task force, which was appointed by the Minister of Economic Development Corrado Passera in April this year, has issued a preliminary report in which it suggests policies which could make Italy a country in which startup businesses are encouraged by its tax system, rather than hindered.

It is emphasized that startup companies can be set up in various sectors, not only in the digital world but also in all productive sectors, including the most traditional. They are defined as those firms which are unlisted on a stock exchange, resident and subject to taxation in Italy, and, above all, have as their objective the development of innovative high-technology products or services.

To qualify they should also be owned directly, and at least 51%, by individuals; have been established not more than four years ago; have a business turnover not greater than EUR5m (USD6.5m); and not paying dividends.

The report sees Italy as, at the moment, inhospitable and discouraging for new businesses, both in terms of its fiscal system and labyrinthine bureaucracy. Instead it suggests that the government should look, not to short-term tax collection, but to revenues in the longer term from the earnings of the larger companies that startups could become, and from the additional jobs they could create.

It is noted that the government has already introduced the Ssrl – the simplified limited liability company – which can be established by individuals of less than 35 years of age, with capital from EUR1 to EUR10,000 and a simple written agreement.

However, the report points out that the utilization of a new Ssrl does not abolish the fees and charges payable in the years after its establishment, which still discourage entrepreneurs. Also, its benefits apply only to new businesses, not to those already in existence.

Instead, the report’s authors suggest that a new limited liability company should be allowed – the iSrl, where the ‘i’ would stand for ‘innovation’ – for all startup businesses that fulfil the definitions and qualifications mentioned above, and without any age limit for the individuals concerned.

An iSrl would be set up completely online and without any formal constitution, and by contact directly with its local chamber of commerce. After four years of operation, or if any of the other startup qualifications are exceeded in the intervening period, the iSrl would be transformed automatically into a normal Srl.

While all administrative fees and charges would be abolished during the life of the iSrl, Italian corporate income tax on a firm’s earnings, and value-added tax on its sales, would be calculated on a cash, rather than an accrual, basis.

For example, a firm’s accounting system would include income on a contract only when an invoice was actually paid, and it would not be accrued, on an accounting basis, until then. As an aid to a company’s liquidity, a startup company would thereby, at the end of each accounting period, pay its taxes on the basis, not of what it had accrued, but only what it had encashed.

Cash accounting, as an aid to a company’s liquidity is already available in Italy, but only for companies with a business turnover of up to EUR2m. In the report, it would be allowable within the four-year period and/or up to a turnover of EUR5m, at the end of which the firm would revert to the standard tax regime.

In addition, it is suggested that startup businesses should be allowed to subtract employee costs from the calculation of their liability to IRAP - the regional tax on productivity, which is payable in relation to a company’s turnover, rather than its profits. It is felt that, at the moment, the incidence of IRAP penalizes startups which invest more in know-how and human capital, rather in other productive factors.

Passera has indicated that, following the presentation of the report, an announcement of action by the government to support start-up companies can be expected shortly. It was emphasized that all the policies under consideration will not involve government subsidies, but only revenue-neutral incentives to stimulate business development.

TAGS: individuals | tax | small business | business | tax incentives | commerce | accounting | entrepreneurs | corporation tax | fees | Italy | tax breaks | chamber of commerce

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