The June referendum that shook Europe is not only showing its effects in the markets but also in the policies European governments are putting in place. In the recently announced 2017 budget proposal, there are a number of tactics the Italian government is looking to enact that would help attract the talent and investments the country needs in order to relaunch its small and medium enterprises sector.
Welcoming The Crowd
As international companies headquartered in the UK are considering relocating, the Italian government is hoping its provisions will be enough to attract the human capital and investments leaving the UK after Brexit.
The first important step is the reduction of the main corporate tax from 27.5% to 24%. This makes Italy more competitive compared to its neighbours France, Germany and Spain that still have rates above 28%. Even though the country cannot compete with Irish tax regimes, it is well positioned to compete with the Netherlands, another of the preferred locations for foreign multinationals.
As part of the “Industry 4.0” initiatives launched by the Minister of Economic Development, companies that invest in technological assets will receive depreciation incentives on their expenses, as well as a tax credit for incremental expenditure on research and development. The Ministry is also focusing on new funding for SMEs and startups to drive more innovation in the development of new technologies like robotics, artificial intelligence and cloud computing.
The Prodigal Sons Returning
Furthermore, Italy has designed a number of initiatives to primarily attract all Italian talent that over the last few years has migrated abroad. In fact, Italy has been suffering from a net loss of talent with more people leaving the country that the ones coming in. The outflow of Italian people with tertiary level education is equal to 32% of the total number of emigrants, while incoming people with the same qualifications are just slightly over 24% of arrivals.
Furthermore, there has been an increasing trend Italian migration. At the beginning of 2016, there were over 4.8 million Italians living abroad, the figure seeing a 3.7% growth in 2015 (174,516 people). As there were three million people living abroad in 2006, the migration of Italians has increased by nearly 55% over the last ten years.
The government has devised an extension of the incentives to researchers that have published abroad, including a tax exemption on 90% of their income, which has already attracted back over 2000 people.
Furthermore, the five-year tax exemption for highly skilled workers that return to Italy after at least five years of working abroad, that has already benefited 4500 people, will be raised from 30% to 50% of their income, with an extension to self-employed entrepreneurs.
An Open Doors Policy?
The government budget law also includes incentives targeted to attract new residents in the country that move from abroad. The first one adds to the already implemented startup visa that facilitates the processes for entrepreneurs that want to start a company in Italy. This is an investor visa, based on those existing in countries like Germany, the US, Canada, Spain and France, that facilitates the residency of foreigners investing significant amounts into the Italian economic and cultural heritage.
Finally, the government has included in the budget system an initiative dedicated to the so-called “new residents” (an “optional tax regime for new residents’ foreign income”), that aligns with the resident non-domiciled tax initiative of the UK.
This would encourage multinational companies to move their workforce to Italy as the measure allows for all those people who have been living abroad for at least nine of the last ten years preceding their residence in Italy, to obtain a transfer of residence, with applicable Italian tax regimes on all income earned in the country.
On the other hand, any income or capital gains on investments earned abroad will be untaxed and replaced by a lump sum of €100,000, for the duration of 15 years. This incentive will be coupled with the creation of a dedicated office for large taxpayers to attract new investments as well as contrast any trans-national phenomena of tax evasion.
The new budget law for 2017 is, therefore, building on a series of pro-business reforms that the Renzi government had enacted over the last few years. The hope is that this set of rules, coupled with reforms on tax courts and tax agencies, may be the key to attracting Italian talents and businesses, with significant effect on GDP, employment and tax revenue.