2021 budget bill approved: incentives increased immediately and until 2022
On 16 November last year, the Italian cabinet definitively approved the bill for the state budget for FY year 2021 and the multi-year budget for the 2021-2023 period. The bill, once stamped by the State Accounting Office and signed by the President of the Italian Republic, reached the halls of parliament on 18 November, where it would undergo the necessary parliamentary process. In order to become law on 1 January 2021, the bill has to be approved by both branches of parliament by the end of this year.
This article outlines the main changes introduced in relation to the Transition 4.0 Plan, which has been extended until 2022 (following extension of the current deadline, set at 31 December 2020) and which incorporates significant enhancements (including some retroactive provisions) in order to relaunch the investment cycle penalised by the COVID 19 emergency.
TAX CREDIT FOR INVESTMENTS IN NEW CAPITAL GOODS
As part of a broader reinforcement of the Transition 4.0 Plan, designed to accompany businesses through the technology transition and environmental sustainability process, Article 185 of the budget bill extends (in sections 1-13) applicability of provisions for tax credit for investments in new capital goods until 31 December 2022; the bill also enhances and diversifies the tax break rates, increases eligible expenses, and extends the scope of application beyond that in force at present under the 2020 budget law (Art. 1, sections 185-197)..
The starting date for the new provisions has also been rendered retroactive, as applicable from 16 November 2020 for business that invest in new capital goods for production facilities located in Italy. It is hoped that companies that had made 20% down-payments by the end of 2019 (thus securing the 2019 hyper-deprecation benefits) and complete the investments after 15 November 2020 will also be able to access the enhanced version of the incentive.
The 2021 budget bill concerns the same taxpayers as envisaged by provisions currently in force and tax credit is confirmed as a general measure and will be cumulative with other incentives up to a limit of 100% of the cost incurred. Significant new aspects have been introduced, however, with reference to the kind of spending to which it applies as well as in relation to the number of facilities available and the maximum limits applicable to subsidised spending, as shown below.
INVESTMENT TIMES | ELIGIBLE GOODS | FACILITIES |
From 16 November 2020 to 31 December 2021, or by 30 June 2022, provided that by 31 December 2021, the relative order has been accepted by the seller and the down-payment has been made. This payment must be at least 20% of the acquisition cost | Tangible assets eligible under the 4.0 programme, as specified in Annex A to the 2017 budget law | - with the rate for investments up to €2.5 million going up from 40% to 50%; - for investments of between €2.5 million and €10 million, the rates will rise from the current of 20% to 30%, -while for investments totalling from €10 million to €20 million (not currently subsided), the rate applied will be 10%. |
Ordinary tangible assets not eligible under the 4.0 programme | For investments of up to €2 million euros, the rate will increase from 6% to 10% and rise to 15% for investments in preparation for smart working | |
Intangible assets eligible under the 4.0 programme - Annex B to the 2017 budget law. | Increase in the rates for intangible assets eligible under the 4.0 programme will rise from 15% to 20% and the maximum spending limit is set to increase from €700,000 to €1 million for the programme’s two-year extension period. The wording of the current bill suggests that €1 million is the maximum eligible investment limit for the entire two-year period (2021-2022) but this is presumed to be an oversight, given that a yearly limit is specified for the other categories of eligible assets. | |
Ordinary intangible assets not eligible for the 4.0 programme | Breaks introduced for non 4.0 eligible intangible assets within a maximum limit of €1 million for eligible costs; for the first year, the rate is 10%, along with 15% for investments made in preparation for smart working. | |
From 1 January 2022 to 31 December 2022, or by 30 June 2023, provided that by 31 December 2021, the relative order has been accepted by the seller and the down-payment has been made. This payment must be at least 20% of the acquisition cost of | Tangible assets eligible under the 4.0 programme, as specified in Annex A to the 2017 budget law | Current rates will be applicable, without this affecting the 10% rate applicable to eligible investments totalling from €10 million to €20 million; - while for investments of up to €2.5 million, the rate will go up to 40%. - For investments amounting to between €2.5 million and €10 million, the rate will be 20% - and, finally, for investments of between €10 million and €20 million, the rate applied will be 10% |
Ordinary tangible assets not eligible under the 4.0 programme | For investments of up to €2 million, the rate will increase to 6%. | |
Intangible assets under the 4.0 programme - Annex B to the 2017 budget law | Increase in the rates for intangible assets eligible under the 4.0 programme will rise from 15% to 20% and the maximum spending limit will increase from €700,000 to €1 million for the two-year extension of the plan. The wording of the current bill suggests that €1 million is the maximum eligible investment limit for the entire two-year period (2021-2022) but this is presumed to be an oversight, given that a yearly limit is specified for the other categories of eligible assets. | |
Ordinary intangible assets not eligible for the 4.0 plan | 6% rate will apply to eligible costs totalling under €1 million |
In order to promote progress in the digitalisation of Italian companies also through the use of software, systems, platforms, and applications not related to the process of "Transformation 4.0", the kinds of spending deemed eligible for application of the tax facility includes investments in new intangible capital goods other than those listed in Annex B to the 2017 budget law (Italian Law n. 232 dated 11 December 2016,). The unprecedented breaks for non 4.0 programme intangible assets is extremely welcome, as is the new provision for an increased tax credit for ordinary assets not eligible under the 4.0 plan but intended for the organization of agile forms of work, including both tangible and intangible assets.
The spending set aside for extending the timeline and strengthening the tax benefits for 2021 is divided into: €3.3 billion for tax credit for the purchase of ordinary capital goods, €1.7 billion for capital goods 4.0, €106 million for basic ordinary software, and €185 million for 4.0-eligible software.
For the purposes of future checks, those who benefit from the tax credit are required to keep, under penalty of revocation of the benefit, the specific statements (with a clear reference on them to the provisions of the 2021 budget law) envisaged to demonstrate costs actually incurred and their correct calculation. In relation to investments eligible under the 4.0 plan, a sworn statement concerning the interconnection of the relative capital goods is required, and not merely an appraisal, as was required by the 2020 budget law, or a certificate of conformity issued by an accredited certifying body. For assets with a unit acquisition cost below €300,000, the statement requirement in question can be met with a statement made by the legal representative.
The tax credit may be used to offset payments in compliance with Article 17 of Italian Legislative Decree n. 241 dated 9 July 1997, starting from the year the assets are put into service for ordinary investments or, for the 4.0-eligible assets, from the year of their interconnection within the company production management system or the supply network. One aspect of note is the reduction of the minimum period of use (currently five years for tangible assets and three years for intangible assets eligible for the 4.0 programme) to three annual instalments, and likewise the provision of the possibility, for taxpayers with revenues below €5 million, of using the tax credit for investments in ordinary capital goods acquired from 16 November 2020 through to 31 December 2021 in a single annual instalment. In the event that the interconnection of the assets occurs later on, i.e. in a tax period after they are put into service, businesses can still start benefiting from the tax credit available for ordinary assets for the amount eligible once the asset is in use.
If, before 31 December of the second year after the start of use or interconnection, the subsidised assets are sold or are sent to production facilities located abroad (even if they belonging to the same business), the tax credit is correspondingly reduced and must be paid back (known as ‘recapture’) by deducting the cost thereof from the amount on which the original calculation was based. Any higher tax credit already used to offset tax payables must be paid directly by the business within the deadline for payment of the balance of the income tax due for the tax period in which the said event occurred, without application of penalties or interest. In this case, the provisions apply as stated in Article 1, Sections 35 and 36, of Italian law n. 205, dated 27 December 2017, on replacement investments.
TAX CREDIT FOR INVESTMENTS IN SOUTHERN ITALY
For 2021 and 2022, confirmation is expected for the tax credit for investments in Southern Italy, which has been operational since 2016 thanks to the 2016 Stability Law (Italian Law n. 208/2015 and subsequent amendments and supplements), which are cumulative with the Tax Credit for investments in capital goods applicable to all companies (keep reading...)
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