The Decreto Sostegni Bis, which was approved on May 20, provides some interesting tax benefits for those who invest in innovative start-ups and SMEs in Italy. The main novelty compared to the previous relief norm is that for the first time, alongside the criterion of turnover, the criterion of profit is also adopted. The criterion is obviously much fairer even if, as underlined by the Presidente del Cosiglio Mario Dragi, it takes more time to distribute the subsidies by ascertaining the profit.
The main novelty provided for by the new decree is the exemption from income tax of capital gains from the sale of shareholdings made by individuals outside the exercise of commercial enterprise.
Capital gains, capital losses and the regulatory framework
The gain on any financial sale transaction is called capital gain and is calculated by subtracting the purchase price from the sale price, net of commissions. On the other hand, when a stock is bought in more than one transaction, the average price of each purchase transaction is calculated.
The opposite of a capital gain is a capital loss, i.e., the loss from buying and selling financial instruments when they are sold at a lower price than the purchase price. Generally, capital losses can be used to reduce the taxation of future capital gains. The capital loss generates in fact a tax credit that can be recovered for capital gains that are achieved in the same year or in the following 4 years.
In Italy, Decree Law No. 66 of 24/04/2014 sanctioned the raising of the rate on capital gains from 20% to 26%. Therefore, a taxation of 26% is applied on gains of a financial nature.
More aid for innovative start-ups and SMEs with the Decreto Sostegni Bis
Article 14 of the Decree establishes that those who invest in innovative start-ups and SMEs will not pay the 26% tax on capital gains resulting from the sale of shareholdings until 2025. This is a temporary relief, which provides that the capital gains are reinvested in the companies and are held for at least three years.
The capital gains realised are exempt both if relative to qualified shareholdings pursuant to art. 67, paragraph 1, letter c), of the Tuir and if relative to non-qualified shareholdings. In practice, the cash contributions recorded under the share capital and share premium reserve of the shares or quotas of innovative start-ups and innovative SMEs, also following the conversion of convertible bonds into newly issued shares or quotas, are entitled to exemption.
Paragraph 3 of the article also introduces into the system a facility for risk capital contributions made by individuals, deriving from the sale of shareholdings in companies acquired through the subscription of share capital, which consists in the exemption from income tax of capital gains from the sale made by individuals outside of the exercise of commercial enterprise.
The Decreto Sostegni Bis also provides for a small non-repayable contribution of 1,000 euros for start-ups and innovative small and medium-sized enterprises. The requirements to obtain the support are mainly two:
- To have activated the VAT number from January 1, 2018 to December 31, 2018;
- having started the activity during 2019.
This is a contribution of a maximum of one thousand euros to which those entitled can access in the event that the turnover of 2020 is less than 30% of that of 2019.
The impact of the Decreto Sostegni Bis on the innovation sector
The investments made in favour of SMEs and innovative start-ups channel financial resources that can come from both individuals and institutional investors who bring venture capital.
In particular, the return sought by the category of Venture Capital investors is not so much in terms of profits or dividends that derive from the shareholdings that they hold in their portfolio of start-ups, as it is in terms of the capital gain that derives from the sale of their shareholdings at the end of the investment period (normally medium-term).
Since there are no profits (or almost no profits) in the start-up phases, it makes little sense to guarantee tax advantages on the income component, while it is essential to guarantee them on the capital component.
The main purpose of the decree is to stimulate the innovation sector once again. The measure, in fact, finds its logic if we consider that the regulatory framework on innovative start-ups and SMEs does not allow the distribution of profits throughout the start-up period.
This means that the person who invests in these innovative companies will not find relief and satisfaction in profits or dividends but from the gain that will derive from the sale of shares at the end of the investment period. A 26% taxation of this gain (i.e. the positive difference between the purchase price and the sale price = capital gain) represents a strong disincentive to investment.
Interventions such as those provided for by the Decreto Sostegni Bis are therefore welcomed by investors and of fundamental importance for the recovery of the real economy.
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