The new measures on innovative start-ups. More stringent requirements, new incentives and increased funds for venture capital.

With Competition Law 2023 (L. 193/2024, published Dec. 17, 2024), the Legislator once again intervened in the discipline of innovative start-ups, with a series of measures aimed at strengthening the growth of Italian start-ups.

With this in mind, on the one hand, incentives are increased (also for the companies in the so called so-called "scale-up" phase (1)) and mechanisms are introduced to increase the flow of capital from institutional investors, and on the other hand, new requirements and limitations are imposed, aimed at ensuring that only start-ups that prove to be truly innovative and potentially capable of making a significant impact on the economy and innovation can benefit from these instruments.

Specifically, the main new measures include:

1)   The new definition of innovative start-up.

Innovative sup's (i) must be a micro, small or medium-sized enterprise, as defined by the well-known EU Commission Recommendation 2003/361/EC, and (ii) may not engage predominantly in agency or consulting activities (the requirement to have, as their exclusive or predominant corporate purpose, the development of innovative products or services with high technological value remains).

2)    Permanence in the Innovative Start Up register and the new requirements.

The permanence of the innovative start-up in the special register, after the first 3 years from the date of registration, is allowed for an additional two years (and so for 5 years in total, as originally provided) only if at least one of the following requirements is met:
-    Increase from 15 percent to 25 percent in research and development spending (25 percent of the higher value between total costs and value of production);
-    Entering into at least one experimental contract with a public administration;
-    Increase in revenue (item A1 of the income statement) or employment, by more than 50 percent between the second and third years;
-    Establish a capital reserve in excess of 50,000 euros (with capital contribution by a minority third-party investor) and, at the same time, increase the percentage of research and development costs from 15 to 20 percent;
-    Obtaining at least one patent.
The decree introduces the possibility of extending the permanence in the registry for additional two-year periods, for a maximum of four years (nine years in all), for the transition from start-up to scale-up, if at least one of the following requirements is met:
-    Capital increase at premium by a UCITS, in an amount exceeding 1 million euros, for each two-year extension period;
-    Increase in revenue (A1) greater than 100% annually.

It is also provided that start-ups currently on the registry have the right to remain on the registry beyond the third year, provided they meet the above requirements (i) within 12 months after the expiration of the third year, if they have currently been on the registry for more than 18 months; (ii) or, if they have been on the registry for less time, within 6 months after that expiration.
If they do not meet these requirements, they will be able to enter the register of innovative SMEs.

3)    Additional tax incentives (and new limitations)

The amount of incentive under Article 29-bis Decree Law No. 179/2012 (under de minimis regulation) is increased; in fact, the deduction percentage is increased from 50 to 65 percent of the amount invested by the taxpayer in the share capital of one or more innovative start-ups.

Both incentives, alternative, under Articles 29 (2) and 29-bis of Decree Law 179/2012, do not apply in the following cases:
-    If the investment generates a qualified holding of more than 25 percent of the share capital or governance rights;
-    if the taxpayer is also a service provider to the start-up, either directly or also through a subsidiary or associated company, for a turnover exceeding 25 percent of the eligible investment.

Furthermore, with reference only to the de minimis deduction (65% deduction) it is provided that the same (i) can be applied with reference only to start-ups in the first three years of registration; (ii) does not lapse in case of "compulsory" disinvestment (bankruptcy, activation of drag along clauses, etc.); (iii) accrues instantaneously (i.e., from the date of the disposition of the transfer in favor of the start-up) in case of investments in converting financial instruments.

It is, moreover, provided an additional incentive for incubators and accelerators that invest, directly or indirectly, in the capital of innovative start-ups (tax credit equal to 8 percent of the sums invested, for a maximum investment amount of 500,000 euros/year and with a constraint to maintain it for at least three years).

4)    Encouragement of investment in innovative start-ups, by institutional investors (supplementary pension funds and compulsory pension institutions).

Art. 33 of Law 193/2024 expressly provides that pension funds and private pension funds, in order to apply the regime of non-taxability of income from qualified investments under Art. 1, para. 89, of Law 232/2016, must invest in venture capital funds (which invest in innovative start-ups) equal to, at least, 5% (and 10% from 2026) the total qualified investments made.

In addition, in order to further incentivize capital investments, it is also provided that “Fondo di garanzia per le piccole e medie imprese” may also support, with guarantee granted for consideration, venture capital invested by closed-end collective investment funds, including venture capital funds.

_________________

(1) The advanced evolutionary stage of an innovative start-up that has reached such maturity that it is ready for significant growth and large-scale expansion.
(2) IRPEF deduction for individuals: 30% deduction of the amount invested in share capital. Maximum limit: €1,000,000 annual investment. IRES deduction for companies: 30% deduction of the amount invested in registered capital. Maximum limit: €1.8 million annual investment.

Image by pixabay