The Italian Government enacts on 30th April 2019 Law Decree No. 34 (Growth Decree) with the aim of expanding economic growth in Italy.
The Italian Government enacts on 30th April 2019 Law Decree No. 34 (Growth Decree) with the aim of expanding economic growth in Italy thanks to the following key measures:
- enhanced tax depreciation regime
- preferential corporate income tax rate
- deductibility of municipal property tax for income tax purposes
- self-assed patent box regime
- special regime for inpatriate workers, and
- bonuses for business aggregations
The Growth Decree must be converted into law within 60 days from 1st May 2019. Possible amendments on conversion may impact on the tax regimes described below.
Enhanced tax depreciation regime
Article 1 of the Growth Decree re-introduces the enhanced tax depreciation regime (super ammortamento) for corporate entities and professionals that invest in new instrumental assets other than vehicles and certain other assets (eg real estate properties).
The tax benefit consists in an additional 30% non-accounting depreciation that also applies to financial leases and is valid on qualified investments of up to €2.5m.
Qualifying investments are those made from 01 April 2019 to 31 December 2019. Investments made by 30 June 2020 are included, provided that the order is accepted by the seller and at least 20% of the purchase price is paid by 31 December 2019.
Preferential corporate income tax rate
Starting from fiscal year 2019, Article 2 of the Growth Decree introduces a preferential corporate income tax (IRES) rate for corporate entities, other than banks and certain financial intermediaries, applicable to income of up to the lower between: (i) profit recorded as distributable profit reserves; and (ii) the increase in the net equity (net of any accrued qualified profit) compared to that existing as at 31 December 2018 (net of any 2018 accrued profit). Any exceeding amounts are carried forward the subsequent fiscal years and increase the basket of qualified profit.
The preferential rate is 22.5% in fiscal year 2019, 21.5% in fiscal year 2020, 21% in fiscal year 2021 and 20.5% in 2022.
Deductibility of municipal property tax for income tax purposes
Article 3 of the Growth Decree increases the deductibility - from business and self-employmentincome - of the municipal property tax paid on immovable properties qualifying as capital assets.
As a result, the previous 40% deduction increases to 50% in fiscal year 2019, 60% in fiscal years 2020 and 2021, and 70% in fiscal year 2022.
To benefit from the Italian patent box regime, Article 4 of the Growth Decree introduces an alternative to the advance tax ruling procedure applicable to IP (patents, know-how, design and models, software) that is directly used in manufacturing goods or the provision of services and not licensed out. From fiscal year 2019, taxpayers applying for the patent box regime can opt to directly calculate their eligible income for the purposes of IRES, IRPEF, and IRAP, by flagging a specific box in their annual tax returns.
Opting taxpayers must:
- spread the benefit out in equal instalments over 3 fiscal years, and
- prepare supporting documentation complying with specific rules which will be published by the Italian tax authority within 90 days as of 1 May 2019.
A penalty protection regime similar to that in place for transfer pricing documentation is available if the Italian tax authority claims higher taxable income following a tax investigation.
Taxpayers who have already begun an advance tax ruling procedure can elect this option as long as the advance ruling procedure has not been finalised.
Special regime for inpatriate workers
Art. 5 of the Growth Decree amends Article 16(1) of Legislative Decree No. 147 of 14 September 2015 by providing that individuals who transfer their tax residence to Italy starting from 2020 can benefit, for a five-year period (which can be extended under certain conditions), from a reduction to 30% (previously to 50%) of the personal income deriving from employment, employment assimilated, self-employment and business activities.
If tax residence is transferred to Southern Italy (ie Abruzzi, Campania, Molise, Basilicata, Apulia, Calabria, Sardinia and Sicily) IRPEF applies only to 10% of the taxable income.
To benefit, inpatriate workers: (i) cannot have been residents in Italy for the last two years (previously five years) before their transfer to Italy; (ii) must work in the Italian territory for at least two tax year; and (iii) must work at least 183 days in each year. A tax recapture mechanism applies, as well as penalties and interest, if the above conditions are not met.
The tax benefit will also apply to Italian citizens who, prior to retransferring their tax residence to Italy, were not registered with the Register of Italian Citizens Living Abroad (AIRE), as long as they had their tax residence for at least two years in a country with a double taxation treaty in place with Italy.
Bonus for business combinations
Article 11 of the Growth Decree grants resident companies that are part of business combinations (ie, mergers, demergers and business contributions) that take place from 01 May 2019 to 31 December 2022 the opportunity to freely step up the tax basis of certain tangible and intangible assets, including goodwill, up to €5m. This bonus applies as long as the entities involved in the business combination:
- are not part of the same group or, in any case, are not bound by an interest exceeding 20%, or are not under the control, even indirect, of the same entity, and
- have been in business for at least 2 years.
The step-up is recognised for IRES and IRAP purposes starting from the fiscal year after the one in which the business combination takes place.
A claw-back rule applies if the entity resulting from the business combination undertakes other business combinations or transfers the stepped-up assets in the following four-year period. No penalties or interest are due in the event of claw-back. Tax claw-back can be lifted subject to the filing of a specific ruling
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