New rules help Italian start-up sector thrive

ROME - In recent years, Italy has supported the growth of start-ups, recognising the crucial importance of the phenomenon in the modern economy. Below is a chart illustrating how the number of start-ups dramatically increased during a short period between the second and third quarter 2017:

Number and share capital


Second quarter 2017

Third quarter 2017

% variation

Number of start-ups




Number of LLCs




Share capital in start-ups

€ 373,536,162

€ 380,354,647


Share capital in LLCs

€ 3,056,912,221,746

€ 2,964,535,092,284

- 3.02

% of start-ups on LLCs




Source: Ministero dello Sviluppo Economico, cruscotto di indicatori statistici 3 trimestre 2017

 The role of Italian legislation in producing these numbers is crucial. In fact, Italy supports start-ups by granting them several advantages, however, not all the companies can benefit from the incentives; there are some requirements to meet in order to be eligible.

 Italian legislation refers only to those companies founded after Dec 18 2012 and those with at least one branch in Italy. There are also economic requirements to meet: yearly value of production has to be lower than 5 million euro and no dividends may be distributed.

 The incentives are aimed at innovative start-ups. Their primary objective is the development, production and commercialisation of innovative products and services with a high technological value. The innovative content of the firm is assessed by ensuring that they possess at least one of the following criteria: 15% of the major value between yearly sales volume and costs derives from research and development activities;  the workforce is composed of least one third researchers or two thirds partners and associates who have a Master’s Degree; or the firm owns a registered patent.

 Because of the great number of advantages Italy gives to innovative start-ups, this is the first of a number of articles in which we will examine the incentives provided by Italian legislation to feed the growth of new innovative companies. Administrative and fiscal advantages are the first to be analyzed.

 The first step to starting a business is the incorporation of the company. Innovative start-ups, as opposed to other companies, have the possibility to edit the incorporation act through a standard format and a digital signature tool. The same procedure can be used also for subsequent amendments of the deed. Furthermore, no fees are due to the Chamber of Commerce for the registration.

 Even for fiscal matters, the discipline is more flexible than the one foreseen for other companies. For instance, there is a specific treatment for income losses that are higher than one third of the share capital. In fact, start-ups can deliberate to cover those losses by the second following tax year instead of the first, as the discipline requires for other companies. Moreover, when the loss reduces the share capital under the legal minimum amount, the firm is not obliged to immediately reduce and then raise the share capital to an amount at least equal to the latter value, but can postpone that decision to the end of the following tax year.

 Furthermore, there is an additional advantage regarding those cases in which a start-up reports losses systematically. In fact, when a company discloses an income that is not congruent with the activity performed, the company can be subject to fiscal penalties, but this discipline does not apply to innovative start-ups.

 Last but not least, there are the advantages with respect to VAT. Normally, when a company records a VAT credit for an amount higher than 15,000 euro, the firm itself would need a statement which defines how that VAT credit has been obtained in order to use it, to pay an F24 payment form, for example. But start-ups can freely use their VAT credit even when it is higher than 15,000 euro.

 This incentive brings two benefits: on the one hand, the firm can have a relevant liquidity benefit and, on the other, its consultancy costs are reduced (note that the statement needed to use the 15,000 euro VAT credit has to be filled out by a professional consultant and, obviously, this means that the company will raise its costs in order to have that statement and use its VAT credit).

 This is only the first part of several measures in favor of innovative start-ups. In coming articles, we will go into more depth concerning financial and employment issues, and the factors that are driving the increasing number of start-ups in Italy.

 By Dr Manuela Stefoni and Dr Luca Berruti

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