Executive Summaryof the new Italian legislation on innovative startups

2 March 2016

Italian Ministry of Economic Development
DG for Industrial Policy, Competitiveness and SMEs

Executive Summary of the Italian Startup Act

Italian Ministry of Economic Development

2 March 2016

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Executive Summary of the Italian Startup Act

2 March 2016

A new industrial policy for economic development and competitiveness
Vision and legislative process
Italy’s Startup Act aims to create favourable conditions for the establishment and thedevelopment of innovative enterprises in order to contribute significantly to economic growthand employment, especially youth employment. It also fosters a knowledge spillover in thewhole economic fabric and, more specifically, supports a new Italian production oriented
towards

high-techandhigh-skill

sectors.

Not

only

that:

supporting

innovative

entrepreneurship contributes to greater social mobility; strengthens the links between
universities and businesses; makes people more incline to take business risks; andcontributes to making the country more attractive for foreign capital and talents.
To reach these goals, the Italian Government has worked since 2012 on the creation of
a complete and coherent legislation directed towards the development of an ecosystem ofinnovative startups with high technological content. Such work has culminated in the DecreeLaw 179/2012 on “Further urgent measures for Italy’s economic growth”, converted into Law
221/2012.
Law 221/2012 includes many of the policy proposals put forward in the Restart, Italia!
Report – a report elaborated by a task force of 12 experts, which was set up in April 2012 by
the Minister of Economic Development – as well as suggestions coming from a vast
consultation with the main players making up the Italian startup ecosystem. With the law inquestion, a definition of innovative startup, that is a new innovative enterprise of a hightechnological value, has been introduced into the Italian legal system. For the very first time,
this type of enterprise could draw upon an exhaustive corpus of regulations (articles 25-32)
that launched new instruments and support measures regarding subjects which have an
impact on the whole lifecycle of a company: since its incorporation to its growth, development
and maturity stages. All this was achieved without distinguishing between sectors or
introducing age limits for entrepreneurs.
By creating a regulatory framework congruent with the needs of all the players
involved in the startup ecosystem, Law 221/2012 transcends a simple law-making exercise. It
is an organic and coherent policy for which public support for innovative entrepreneurshiprepresents a new way of thinking about industrial policy-making.

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Executive Summary of the Italian Startup Act

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Far from being static, the policy for innovative startups is in constant evolution. On the
one hand, more recent legislative measures (Decree-Law 76/2013, known as “Decree on
Labour”, turned into Law 99/2013; Decree-Law 3/2015, known as “Investment Compact”,
turned into Law 33/2015), have improved and broadened the range of measures in favour ofinnovative startups: the present file is comprehensive of all updated developments. On theother hand, other measures not directly arising from the original package of regulations haveenriched the framework of governmental initiatives currently in place to support innovative
startups and their ecosystem. Indeed, the last paragraph of this report focuses on such
additions.

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Executive Summary of the Italian Startup Act

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Definition, data exposure and public monitoring
The legislation in question does not apply to all newly-established companies, but justto those that present a clear connection to technological innovation, regardless of their sector,
be it software, manufacturing or agriculture.
Definition of innovative startup: companies with shared capital (i.e. limited
companies), including cooperatives, the shares or significant registered capital shares ofwhich are not listed on a regulated market nor on a multilateral negotiation system. These
companies must also meet the following requirements:
 be new or have been operational for less than 5 years;
 have their headquarters in Italy or in another EU country, but with at least a
production site branch in Italy;
 have a yearly turnover lower than 5 million Euros;
 do not distribute profits;
 produce, develop and commercialize innovative goods or services of high technologicalvalue;
 are not the result of a merger, split-up or selling-off of a company or branch;
 be of innovative character, which can be identified by at least one of the following
criteria:
1. at least 15% of the company’s expenses can be attributed to R&D activities;
2. at least 1/3 of the total workforce are PhD students, the holders of a PhD or
researchers; alternatively, 2/3 of the total workforce must hold a Master’s
degree;3. the enterprise is the holder, depositary or licensee of a registered patent(industrial property) or the owner of a program for original registeredcomputers.
Support measures apply to newly established companies for the first 5 years of activity,
provided that they meet the aforementioned requirements.

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Executive Summary of the Italian Startup Act

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Already established companies: companies which were already established upon the
coming into force of Law 221/2012 (19 December 2012) and which meet the requirements
provided by the law in question, may register at the special section of the Companies Registry
and are entitled to the same benefits as innovative startups. These benefits apply for a 4-year
period if the company was established in the 2 previous years, for a 3-year period if thecompany was established in the 3 previous years, and for a 2-year period if the company wasestablished in the 4 previous years (for further information, please see Circular 16/E issued
on 11 June 2014 by the Italian Revenue Agency).
Definition of “innovative startup with a social goal”: it fulfils all the requirementsthat apply to ordinary startups. However, an innovative startup with a social goal operates in
specific domains that have a considerable social value according to the Italian legislation 1.
Circular 3677/C issued by the Ministry of Economic Development on 20 January 2015,
introduced a new procedure – extremely agile and flexible, based on the accountability of thesocial impact, on transparency and widespread control of information – for the recognition of
innovative startups with a social goal. At the same time, to better lead the user in his use of the
new procedure, the Ministry published the “Guide to drafting the Document for the
Description of Social Impact”, as outcome of a collaboration with the Ministry for Education,
University and Research, as well as other players within the social business community.
Definition of a “certified incubator”: the startup incubator or accelerator must verify
that specific requirements concerning the startup’s physical structures, management, facilities
and, above all, its track record, are fulfilled (the Ministerial Decree issued on 22 February
2013 sets such requirements). In this way, the law aims to identify the structures that are able
to offer efficient incubation services in Italy. Certified incubators can benefit from some
instruments provided for by the law (e.g. they are exempted from registration fees → see page
7; they can use stock options to remunerate workers, as if they were innovative startups
themselves → see page 8; they have priority access to tax credit for hiring highly qualified
personnel → see page 9; they have simplified access to guarantees on bank loans → see page10).
1Article 2, paragraph 1, of Decree-Law no. 155 of 24 March 2006, regulating social enterprises, lists such specificareas: social work, health care and social care, education and training, environmental protection, promotion ofcultural heritage, social tourism, undergraduate and post-graduate education, cultural services, non-academic
training, services for the social enterprises of entities of which 70 per cent is composed of social enterprises. As
we shall see later, in the case of investment in an innovative startup with a social goal, the tax incentive granted
to investors is increased.
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Registration and Publicity Regime: the innovative startups and certified incubators
must register in the respective special sections of the Register of Companies (startups;
incubators) created ad hoc at the Chambers of Commerce. Registration occurs by transmitting
online a declaration of self-certification of fulfilment of all required qualifications as indicatedabove, to the competent Chambers of Commerce per jurisdiction. This flexibility “in entry” isbalanced by two counterweights: supervision ex post by the competent authority on theeffective fulfilment of all required qualifications, the duty to update twice a year (deadlines on
30 June and 31 December) the data provided at the moment of registration in the special
section, and to confirm once a year, contextually to the biannual compliance, the fulfilment of
all requirements, otherwise forfeiting the special status and correlated benefits (for in depth
reading please see the Circular N. 3672/C issued by the Ministry of Economic Development on
29 August 2014. This data concerns mainly the type of activity undertaken, with particularreference to the elements characteristic of technological innovation. The special innovative
startup register is made public in electronic format and updated weekly by the Chambers’
system, in order to give publicity, foster widespread monitoring and spur a qualified andobjective debate on the impact the new legislation will have on economic growth,
employment and innovation.
#ItalyFrontiers: aiming to more effectively employ the large amount of data collected
as a result of the provisions of “Decree Growth 2.0”, on 13 November 2015 a new online
platform, #ItalyFrontiers, has been established. The new platform gives to innovative startups
the opportunity to manage a public profile, in bilingual Italian and English versions, located on
the website http://startup.registroimprese.it/isin/home. Each business can upload a detailed
profile, which does not only include the details already available, and weekly updated, on theRegistry of Companies (key facts such as corporate purpose, location, main sectoral area andoperational activities, number of employees, capitalization, production worth), but also
provides a wide range of more in-depth information about the stage of development of thebusiness, the characteristics of the team members, the type of products or services offered,funding needs, capital obtained and target markets. Once the legal representative of the firmhas validated the details provided, through a fully online procedure (link to the guidelines),
the data are available to everyone visiting the public profile of the business. As a whole, theprofiles are intended to act as a digital showcase for innovative startups: they may be read bymore traditional firms interested in setting up partnerships [on innovation], and by national
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and international investors looking for new opportunities.
Monitoring and evaluation: with the aim of putting in place an “evidence-based
policy”, the corpus of regulations on startups provides for a structured system to monitor andevaluate this new policy. Moreover the Minister of Economic Development must report to the
Italian Parliament annually on the impact of the measures in question. On 1 March 2014, theMinister of Economic Development discussed the first “Annual Report to the Parliament on theStartup Law”. The Report collected the results of the analysis carried out by the Monitoringand Evaluation Committee (set up by Ministerial Decree approved on 31 January 2014). The
second Annual Report has been published on 16 December 2015, and it is available in English
here.
Moreover, the Ministry of Economic Development carries out a comprehensive reporting
effort, in order to monitor the evidences of the effects of the policy on innovative startups andto share them with the public. All the reports are available to everyone on the Ministry’s
website, here. In addition, the National Institute for Statistics (Istat) has set up a dedicatedpage on its website aimed at sharing, in an open and fully editable format, the raw datacollected as a result of the policy. All tables can be found here.

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Executive Summary of the Italian Startup Act

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Benefits

The measures described below apply to innovative startups for 5 years after theirincorporation:
1. Incorporation and following statutory modifications by means of a standard
model with digital signature (art. 4, paragraph 10 bis of the Investment Compact):
innovative startups and certified incubators will be able to draw up the deed ofincorporation and its modifications even by means of a typified standard model using
digital signature, analogously to what is already in place for network contracts. The
deed of incorporation and its modifications are drawn up according to a uniform
model adopted by decree by the Ministry for Economic Development and aretransmitted to the competent office of the Registry of Companies.
2. Cuts to red tape and fees: unlike most companies, innovative startups are exempt
from the payment of stamp duty and fees incurred due to the obligation of registeringto the company register, as well as the payment of the annual fee due to the Chambersof Commerce. In addition, as clarified in the Circular 16/E issued by the Italian
Revenue Agency on 11 June 2014, the exemption from such fees could be interpreted
as a general waiver, covering all the actions carried out by the innovative startups after
the subscription to the company register, such as incentivised capital increases.
3. Flexible corporate management: the most significant waivers are provided for in thecase of innovative startups incorporated as S.r.l. (the equivalent of an Ltd.), for which
the following are permitted: creation of categories of shares with specific rights (forexample, categories of shares that to not attribute right to vote or that attribute suchrights in non proportional terms to the participation); the possibility of carrying out
operations on one’s shares; the possibility of issuing participative financial
instruments; offer to the public of capital shares. Many of these measures imply aradical change in the financial structure of the S.r.l, approaching that of an S.p.a. (theequivalent of an Inc.).

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4. Exemption from the regulations on companies reporting systematic losses :during their first few years of activity, innovative, high-risk companies may record
losses. If the available capital is insufficient, such losses may have a direct impact on
the company's share capital. Where losses result in the share capital being reduced byover 1/3, the shareholders' meeting must lower the capital proportionally to the losses
recorded by the following financial year. A 12-month extension is applied to innovative
startups, during which the capital can be reduced proportionally to the losses. While
ordinary companies must lower capital by the following financial year, startups can dothis for up to two financial years after they suffered losses.
5. Exemption from regulations on dummy companies: regulations concerning nonoperational dummy companies which constantly make a loss, do not apply to startups.
These regulations provide for the allocation of a set minimum income on a flat-ratebasis. Such exceptions to ordinary regulations allow startups to complete the launch
stage and recover from the losses incurred in early stages of their growth.
6. Exemption from the duty to affix the compliance visa for compensation of VAT
credit (art. 4, paragraph 11 novies of the Investment Compact): the ordinary norm
calling for the application of the compliance visa for compensation in F24 of VAT
credits above 15,000 Euros, may constitute a disincentive to the use of horizontal
compensation. With the exemption up to 50,000 Euros, innovative startups may
receive relevant benefits in terms of liquidity during the delicate phase of investment
in innovation.
7. Tailor-made labour law: innovative startups must comply, with some exceptions,with the regulations on fixed-term contracts as defined in Decree-Law 81/2015(known as “Jobs Act”). Therefore, innovative startups can hire a staffer on a fixed-term
contract for a maximum length of 36 months. However, in this time frame, inderogation to Jobs Act’s provisions, innovative startups can hire personnel throughfixed-term contracts of any duration, even very short, which can be renewed as manytimes as wished. After 36 months, the contract can be renewed only once, for a 12months maximum, leading to an overall employment duration of 48 months. By theend of this 4-year period, usually marked by high enterprise risk, the fixed-term
contract is automatically converted into an open-ended one. Moreover, as an exception
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to general regulation, innovative startups with more than 5 employees are notrequired to maintain a statutory ratio between fixed-term and active open-ended
contracts.
8. Flexible remuneration system: salaries due to workers employed in innovative
startups can have a variable component linked to efficiency or profitability of thecompany, the productivity of the employee or the team of employees, or to otherobjectives and parameters for output and performance as agreed upon by the parties,
including what is listed below.
9. Remuneration through stock options and work for equity scheme (Guide; Modelwith comments): in order to foster loyalty among management, employees andsuppliers such as lawyers and accountants, startups and incubators may offer themcapital shares by way of additional remuneration. The revenues resulting from thesefinancial instruments are tax deductible for both fiscal and contributory purposes. In
other words, innovative startups and certified incubators may make use of
instruments such as stock options and work for equity schemes on even better terms
than big companies listed on the Stock Exchange.
10. Tax credit for the employment of highly qualified staff (valid for hires as of 31
December 2014)(Implementing Decree; ad hoc Guide for innovative startups andcertified incubators; institutional page dedicated to the measure); priority access tobenefits has been granted for employment of highly qualified staff in innovative
startups and certified incubators. Such benefits consist in a tax credit of 35% of thecompany’s total cost for permanent employment, even with an apprenticeshipcontract, during the first year of the new working relationship. For hires of highly
qualified staff in force as of 1 January 2015, please see the new Tax Credit for R&D(page 15).
11. Tax incentives for corporate and private investments in startups made byindividuals (19% tax credit up to a maximum investment of 500,000 Euros) or legal
entities (20% fiscal deduction up to a maximum investment of 1.8 million Euros)forthe years 2013, 2014, 2015 and 2016 (Implementing Decree). These incentives apply
both in case of direct investments in startups and in case of indirect investments by

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Executive Summary of the Italian Startup Act

2 March 2016means of other companies investing predominantly in startups. Tax concessions are
greater if the investment concerns startups with a social goal or those operating in theenergy sector (25% tax credit for people or 27% fiscal deduction for legal entities).
12. Equity crowdfunding: in July 2013, CONSOB – the equivalent of the American SEC2 –has published a “Regulation on the raising of venture capital by innovative startups
through on-line portals”. In so doing, Italy has become the first country in the world tohave introduced a specific set of rules on equity crowdfunding, allowing innovative
startups to raise capital, also from abroad, through certified web portals. With regards
to equity crowdfunding, the already mentioned Law Decree “Investment Compact” hasintroduced three important developments: even innovative SMEs can take advantageof the instrument; just as CIUs and other corporations that invest predominantly ininnovative startups and SMEs, an evolution that allows for the diversification of theportfolio and decreased risk towards retail investors; once again waiving ordinary
norms, the transfer of shares of innovative startups and SMEs is dematerialised, and assuch related burdens are reduced, with a view to fluidification of the secondary
market.
13. Fast-track, simplified and free-of-charge access for innovative startups andcertified incubators to the Fondo Centrale di Garanzia, a Government Fund that
supports access to credit through guarantees on bank loans (Implementing Decree;
Guide). The guarantees covers 80% of the bank loans up to a maximum of 2.5 million
Euros and it is provided through a simplified fast-track procedure.
14. More targeted support to the process of internationalisation provided by the Italian
Trade Agency (“ICE”, dedicated website), including assistance in legal, corporate andfiscal activities, as well as real estate and credit matters. In addition, innovative
startups can benefit from free-of-charge participation to selected international fairs
and events, as well as to international initiatives aimed at favouring the matching withpotential investors. A “Startup service card” has been released by the Agency, granting
30% reductions on its assistance services.
15. “Fail fast” procedure: the aim of this measure is to avoid that the entrepreneur is
2 Commissione nazionale per le società e la borsa (CONSOB) is the Italian Securities and Exchange Commission(SEC).
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“stuck” for ages because of the liquidation procedure and allow him to start a new
business project as soon as possible without suffering reputational and financial cost.
Legal interpretations of the norms available here.
For further information: startup@mise.gov.it

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Additional support measures
In addition to the instruments forming part of the original package of regulations, the Italian
Ministry of Economic Development is engaged in the following:
1. Smart&Start (links to website; executive summary): The Ministerial Decree enacted
on 24 September 2014 introduced a subsidised financing scheme for innovative
startups based in Italy, regardless their region of operation. Total financing amounts to€ 200 million, available until their depletion to projects whose spending in investment
goods and/or management costs are between 100,000 and 1.5 million euros. The
financing scheme will cover such spending programmes through zero-interest
mortgages for 70 percent of their total amount; the coverage ratio rises to 80 percent
when a majority of business associates and employees are women or below 35 years ofage. Moreover, when the beneficiary is an innovative startup based in a Southern
Italian region (Basilicata, Calabria, Campania, Puglia, Sicilia), a 20 percent of thefunding is converted into an outright grant. Access to the measure is also open to
individuals who are committed to establish a new innovative startup in the next 60
days. Startups which are less than 12 months old can also benefit from tutoring
services on technical and management issues. In addition, a preferential track isprovided to innovative startups which commit themselves to finance at least 30
percent of their investment plan with capital coming from institutional investors.
2. Promoting, with the collaboration of the Ministry of Foreign Affairs, the Ministry ofLabour and Social Policies and the Ministry of Interior, a visa policy dedicated to extraEU innovative entrepreneurs, as a strategic way to attract in Italy investment andhighly qualified human capital. Launched on 24 June 2014 by the Italian Ministry of
Economic Development, Italia Startup Visa has introduced a rapid, exclusively online,
centralised and simplified mechanism for granting working visas to applicantsintending to set up a new innovative startup in our country or join an existing one as ashareholder (official website and guidelines for the Italia Startup Visa program).
3. On 23 December 2014, along the lines of Italia Startup Visa, the program Italia Startup
Hub was launched, with which the applicability of the abovementioned fast-track
procedures was extended to extra-EU citizens that are already in possession of a

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regular residency permit (obtained for example for study reasons) and intend onstaying beyond its expiry to launch an innovative startup: this way, it is possible toconvert a residency permit into a “permit for entrepreneurs in an innovative startup”
without leaving the Italian territory and benefitting from the same simplified measuresprovided for the startup visa.
4. Drawing up, with the collaboration of the Italian Ministry of Education, University andResearch, a pilot project for the creation of Contamination Labs, the aim of which is tooffer university students from Southern regions (including Campania, Puglia, Calabria
and Sicily) a stimulating environment in which to develop innovation projects with abusiness dimension. These spaces encourage students from different academic
backgrounds to interact, while promoting entrepreneurship, innovation, aninterdisciplinary perspective and new models of learning. 4 Contamination Labs havebeen selected and funded: they are located in Naples, Cosenza, Reggio Calabria andCatania.
5. Moving to foster the diffusion of technological innovation within the National
productive fabric with even greater effort and reach, the Decree-Law 3/2015, known
as “Investment Compact”, has assigned the greater part of measures already destined
towards innovative startups, to an even wider bed of companies: the innovative SMEs,
that is all SMEs operating within technological innovation, irrespective of their date ofincorporation, their objects stated in the Memorandum of Association, and the stage ofmaturity ( see Executive Summary). Ultimately, achieving innovative SME status canrepresent a natural evolution of the growth and consolidation of an innovative startup.
6. Finally, startups and innovative SMEs can benefit from two important measures infavour of technological innovation::a. Tax credit for R&D: the Budget Law 2015 (art. 1, paragraph 35) has redefined thediscipline on tax credit for investments in research and development as introducedby the Decree “Destinazione Italia”, deferring its operationality to 2015 whilst at
the same time diluting the period of fruition until 2019. The tax credit is recognizedin favour of companies who invest in R&D, up to an annual maximum of 5million
Euros for each beneficiary. The credit comes to measure 25% of incremental annual

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costs for activities in R&D with respect to the average of the costs incurred over the
3 fiscal periods previous to the one ongoing at 31 December 2015, as long as ineach of the fiscal periods costs for R&D have been equivalent to at least 30,000
Euros. The fiscal benefit reaches 50% for investments in R&D relative to:
employment of highly qualified staff; or costs for research “extra muros”, meaning
in collaboration with universities and entities or research organizations and/orwith other companies, such as innovative startups., will adopt The necessary
implementation regulations have been adopted by means a specific decree by the
Minister for Economy and Finance, in accordance with the Ministry of Economic
Development, enacted on 27 May 2015.
b. Patent Box: unprecedentedly, the Budget Law 2015 (art. 1, paragraphs 37-45)
introduced fiscal benefits on income deriving from the use of intellectual property.
The so called “Patent Box”, applicable as of 2015, allows companies the option to
exclude from taxation50% of income deriving from commercial use of intangible
assets (copyrights, industrial patents, commercial brands). The more recent
Investment Compact has enhanced such an instrument, fully including trademarks
and commercial brands among the intangible activities subject to tax benefits. The
Patent Box represents a powerful measure for the attraction of investment in thevalue of intangible capital, of brands and industrial models. Implementation
dispositions have been defined by a subsequent decree, enacted on 30 July 2015 by
the Ministry of Economic Development, in accordance with the Ministry for
Economy and Finance.

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