Innovation Funding Incentives: Italy

Italy has demonstrated a strong commitment to fostering innovation and supporting its startup ecosystem through a diverse range of funding incentives. These initiatives, spanning tax benefits, direct grants, and public investment vehicles, aim to stimulate research and development (R&D), encourage the creation of high-tech companies, and enhance Italy’s competitiveness in strategic sectors. This report will detail the primary innovation funding mechanisms available in Italy and their collective impact on the nation’s drive for innovation.

Key Funding Incentives

1 | R&D Tax Credit

Italy offers a comprehensive R&D tax credit designed to incentivise companies to invest in research, development, and technological innovation.

Mechanism: Companies can claim a tax credit on eligible R&D expenses. The tax credit rate varies depending on the type of R&D and company size. For instance, for fundamental research, industrial research, and experimental development, specific percentages apply. Enhanced rates may be available for companies in certain regions, particularly Southern Italy. The tax credit can be used to offset various taxes and social security contributions.

Eligible Activities: Activities typically covered include fundamental research, industrial research, and experimental development. Eligible expenses encompass personnel costs (especially for highly qualified employees), depreciation of assets used for R&D, and costs associated with external R&D contracts (e.g., with universities or public research institutions).

Impact: The R&D tax credit aims to reduce the effective cost of innovation for businesses, encouraging sustained investment in

R&D and promoting technological advancement across various sectors.

2 | Patent Box Regime

The Patent Box is a tax incentive aimed at encouraging the economic valorisation of intellectual property (IP) generated through R&D.

Mechanism: Companies can deduct an extra 110% of their qualifying R&D expenses from their tax base related to patented technologies, copyrighted software, industrial designs, and models. This effectively results in a total 210% deduction for eligible R&D expenses connected to IP.

Eligibility: The incentive applies to companies that develop and utilise qualifying intangible assets.

Impact: The Patent Box promotes the creation and commercialisation of intellectual property, encouraging companies to protect their innovations and derive economic value from them.

3 | Smart&Start Italia

Managed by Invitalia (the National Agency for Inward Investment and Economic Development), Smart&Start Italia is a key incentive for innovative startups.

Mechanism: It provides interest-free loans covering up to 80% of eligible investment plans (ranging from €100,000 to €1.5 million) for innovative startups with high technological content. For startups based in Southern Italy, a portion of the loan (e.g., 30%) can be converted into a non-repayable grant. The percentage of financing can increase for startups founded by women, young people, or those involving Italian PhDs returning from abroad.

Eligible Projects: The incentive finances business plans with significant technological and innovative content, particularly those oriented towards the digital economy, artificial intelligence, blockchain, IoT, and the economic valorisation of public/private research results.

Impact: Smart&Start Italia is crucial for stimulating a new entrepreneurial culture, encouraging the creation and growth of high-tech startups across all Italian regions, and attracting talent.

4. Innovation Agreements (Accordi per l’Innovazione) and Development Contracts

The Ministry of Enterprises and Made in Italy (formerly Ministry of Economic Development) supports larger innovation projects through these instruments.

Innovation Agreements: These schemes support R&D projects (minimum €5 million) with a mix of grants and subsidised loans, covering industrial research and experimental development.

Development Contracts: Aimed at significant investments (minimum €20 million) in industrial manufacturing, environmental protection, or food processing, these contracts provide grants and subsidised loans for large-scale industrial and R&D projects.

Impact: These agreements promote substantial investments in innovation, particularly in strategic sectors like digital innovation, clean technologies, and biotechnology, contributing to industrial transformation.

5. National Innovation Fund (Fondo Nazionale Innovazione – FNI)

The FNI is a public venture capital fund established to support innovative companies and the national venture capital market.

Mechanism: Administered by Cassa Depositi e Prestiti (CDP), FNI invests directly in innovative firms (acquiring minority shares) or indirectly by investing in other VC funds and “funds of funds.”

Impact: The FNI aims to boost the development of Italian innovative startups and SMEs by increasing the availability of venture capital and fostering a more robust private investment landscape.

6 | Tax Incentives for Innovative Startups (for Investors)

Italy provides tax incentives for individuals and companies investing in innovative startups.

Mechanism: Investors can benefit from significant tax deductions (e.g., 65% for investments in eligible innovative startups, with caps on the investment amount) for capital injected into startups registered in a special section of the Italian Business Register.

Impact: This incentive encourages private investment into early-stage, high-tech companies, helping startups raise crucial seed and growth funding.

Conclusion

Italy’s innovation funding incentives represent a comprehensive and dynamic framework designed to foster a thriving ecosystem for research, development, and entrepreneurship. By combining attractive tax credits (R&D Tax Credit, Patent Box), direct grants and soft loans (Smart&Start Italia, Innovation Agreements), and strategic public investment vehicles (National Innovation Fund), the government effectively reduces the financial burden and risk associated with innovation.

This multi-pronged approach, alongside other initiatives like the “Mini Development Contracts” for strategic technologies, is instrumental in driving technological advancement and enhancing Italy’s economic competitiveness.