Navigating through Covid-19

Innovative start-ups 

As Covid-19 becomes of increasing concern around the globe, schemes for innovative start-ups are being put into to place.

This page is a collection of all you need to know on start-ups and Covid-19 in Italy pursuant to Law Decree of 19 May 2020 No. 34 (the “Decree”).

What I need to know

Public support to growth and development of innovative start-ups

The state support in favour of innovative start-ups is enacted on one hand through a Euro 100m increase of the available funds (to be granted in the form of subsidised loans) for the year 2020 in the context of the programme called “Smart&Start Italia” and, on the other hand, through an extension of the perimeter of such aid, which was previously limited to the initial phases of development of the company. 

One of the most interesting news introduced by the Decree is the possibility for the start-ups to finance, through the Smart&Start Italia programme, the entry of private investors and individuals in the share capital of the start-up. Such entrance would be allowed through the conversion of the debt into an equity instrument whose repayment shall be connected to the business performance of the start-up. 

In light of the current challenging economic environment, the need of start-up companies to receive more tailored state aids to develop their business has arisen. Due to their nature, start-ups have indeed different needs in terms of liquidity if compared to the standard needs of other small companies. In fact, even when start-ups actually increased their turnover to a good level, they still need to receive funds in order to consolidate their position in the market. 

In pursuing these objective, the Decree also makes available gratuitous contributions up to Euro 10m for the year 2020, to be granted in connection with the acquisition of services provided by start-ups accelerators or incubators, universities, innovation hubs or similar entities, in order to enhance the meeting between these entities and the start-ups also creating more favourable conditions for investing in their equity.

Increase of the Venture Capital Support Fund

The Decree provides for a Euro 200m increase of the funds available for the Venture Capital Support Fund (Fondo di sostegno al venture capital) created pursuant to the Law No. 145 of 2018, by which the Italian Ministry of Economic Development invests in venture capital. In particular, such extraordinary intervention is made with the intention to face the Covid-19 emergency in favour of start-ups and innovative SMEs, to be implemented through investments in equity, also through the subscription of quasi-equity instruments, pursuant to the modalities which will be determined by a subsequent Decree of the Ministry of Economic Development.

Reserved quota of the Guarantee Fund for SMEs

A quota of Euro 200m of the Guarantee Fund for SMEs (Fondo di Garanzia PMI) is expressly reserved by the Decree in favour of innovative start-ups (as defined by article 25, paragraph 2, of the law decree of 18 October 2012 No. 179), in order to facilitate their access to financings.

Measures to strengthen the capitalization of SMEs

Subject to the conditions set forth under the Decree being met: (a) individuals and entities carrying out equity injections (aumento di capitale a pagamento) by 31 December 2020 in SMEs with revenues in 2019 (on a consolidated basis, net of intragroup revenues) between Euro 5m and Euro 50m which lost on a year-over-year basis at least 33% of their revenues in 2020 are granted with a tax credit equal to 20% of the invested amount and (b) companies that benefit from such equity injections are granted with a tax credit equal to 50% of losses exceeding 10% of their net assets (gross of such losses), up to 30% of the equity injection resolved and paid-in by 31 December 2020.

The maximum amount of the equity injection relevant for the calculation of the above tax credits is equal to Euro 2m.

In case of (a) transfer of the participation deriving from the equity injection prior to 31 December 2023 and/or (b) distributions made prior to 31 December 2023, the relevant tax credits shall be reimbursed. Furthermore, companies directly or indirectly controlling the Medium-sized Business that receives the capital injection, controlled by the Medium-sized Business, or controlled by the same entity that controls the Medium-sized Business receiving the equity injection are not entitled to benefit from the above tax credit.

The Decree provides for the creation of a fund called “SME Fund” (Fondo Patrimonio PMI) with Euro 4 billion commitments for 2020. The SME Fund will subscribe, subject to the conditions set forth under the Decree and by 31 December 2020, bonds or debt securities (the “Financial Instruments”) issued companies that receive an equity injection in accordance with the provisions described under the above paragraph.

The Financial Instruments may be issued for an amount up to the lower between (a) three times the amount of the equity injection received by the company in accordance with the provisions described under the above paragraph and (b) 12.5% of the company’s 2019 revenues (on a consolidated basis, net of intragroup revenues).

The Financial Instruments shall be repaid after 6 years from the date of subscription by the fund and the repayment value of the Financial Instruments may be reduced in case certain targets defined in a separate decree to be issued by the Ministry of Economy and Finance are met.

The company that issues the Financial Instruments undertakes (a) not to make distributions of reserves, share buy-backs and reimbursements of shareholders’ loans prior to the repayment of the Financial Instruments; (b) to use the proceeds deriving from the issuance of the Financial Instruments to cover personnel costs, make investments or finance the working capital of businesses located in Italy; and (c) provide reports to the manager of the fund.

The effectiveness of the provisions described above is subject to the approval of the European Commission.

Tax deductions for investments into innovative start-ups

The personal income tax (IRPEF) deduction available to individuals is increased from 30% to 50% for equity investments in innovative start-ups or innovative small-medium enterprises (SMEs) made by such individuals directly or through undertakings for collective investment that mainly invest in innovative start-ups and innovative SMEs. The maximum deductible investment cannot exceed the amount of € 100,000 for each tax year and it must be held for at least three years.

Fund for technologies transfer

The Decree creates a new fund with the purpose of promoting initiatives and investments useful to the enhance the research results and their application within the companies, in particular within the innovative start-ups and SMEs. 

The Fund will have an initial allocation of EUR 500 million for the year 2020 and will be managed by the first Italian foundation entirely dedicated to technology transfer (Fondazione Enea Tech), which will have to foster the collaboration of public and private entities in the implementation of projects of innovation and in carrying out design, coordination activities and incentives for research and development. This will make it possible to have an offer of technologically advanced solutions, processes and innovative products, technical-scientific consultancy, training activities, as well as activities of support the growth of start-ups with high innovative potential.

In order to support technology transfer initiatives, the Ministry of Economic Development is authorised, on the basis of the availability of the fund, to intervene through indirect participation in risk and/or debt capital, even of a subordinated nature, in compliance with the European regulations on State aid and with the provisions in force. The Ministry of Economic Development, in agreement with the Ministry of Economy and Finance, shall be responsible for identifying the possible interventions, criteria, modalities and conditions for the indirect participation in risk and/or debt capital above mentioned.

The Foundation's assets are made up of the resources allocated for the establishment and operation of the Foundation (€12 million) and may be increased by contributions from public and private entities. In addition, the Foundation may also be granted on loan real estate belonging to the state property and available and unavailable assets of the state. Furthermore, all acts connected with the establishment of the Foundation are exempted from taxation.

Finally, the obligations of analytical motivation (oneri di motivazione analitica) referred to in article 5 of Legislative Decree no. 175 of 19 August 2016, provided for in cases of incorporation of companies or acquisitions of shareholdings, are not applicable.

Long-term savings investment plans

In addition to the ordinary long-term saving investment plans (Piano individuale di risparmio, PIR), which are designed to encourage savers to invest in SMEs by granting a full exemption from the 26% substitute income tax under certain conditions, the Decree introduces a new kind of PIR that incentivises the investment in non-listed financial instruments (including loans and credits) issued by Italian enterprises, other than those included in the FTSE MIB, FTSE Mid Cap or those whose shares are listed in other regulated markets. Under the new PIR, it is not allowed to invest more than 20% of the overall assets in shares or bonds of the same issuer (or associated companies). The investment can be made also through an alternative investment fund. The total investment is capped at € 1,5 mln (and up to € 150,000 per year).