November 2, 2016

Italian Startup Act

Europe
Tested policy
Description of the core change(s) brought by this policy instrument

The “Italian Startup Act” is a comprehensive legislative package that has drastically changed the normative environment in which Italian innovative enterprises operate. 

Please list the implementing agencies

The main responsibility for the policy stands with the Italian Ministry of Economic Development, in particular with its Directorate General for Industrial Policy, Competitiveness and SMEs, which carries out most direct tasks and all coordination activities. Being a very broad policy with systemic relevance, many different institutional actors are involved in some of its areas:

  • The Italian Chambers of Commerce, a decentralized system with over 100 local chapters, manage the Registry of Companies and carry out direct administrative control on innovative startups registered in its special section;   
  • InfoCamere, the parent IT company of the Chambers of Commerce, is in charge of all the technicalities connected to the special section of the Registry, and set up the web-service by which startups can be incorporated online;       
  • Consob, the Italian Securities and Exchange Commission, has the responsibility for enacting regulations on equity crowdfunding;  
  • The Italian Revenue Agency (Agenzia delle Entrate) oversees tax-based incentives such as the 30% break for equity investments;       
  • Invitalia, the national agency of the Ministry of Finance for development and attraction of foreign investment, manages the direct financing initiative Smart&Start Italia and other communication activities; its parent company Invitalia Ventures manages the first public venture capital matching-fund, Italia Venture I. 

It must, in addition, be recalled that Italy has a partly devolved government and that Regions and other local authorities also offer targeted support to innovative startups, broadly following the same definition found in the national legislation. The type and the extent of this support vary from region to region: special call for tenders and local corporate tax breaks are commonplace.

 

Please name the policy advisor(s) or leader(s) who have been key in introducing and/or designing this policy instrument
  • Corrado Passera, Minister of Economic Development at time of enactment of the decree-law 179/2012;    
  • Stefano Firpo, head of the Technical Secretariat of the Minister 2012-2015, now DG for Industrial Policy, Competitiveness and SMEs;         
  • Mattia Corbetta, former member of the Technical Secretariat (2012-2015), then with DG for Industrial Policy, main contact-person and operative responsible for innovative startup policy since 2012. 

 

Lifecycle of target firms for this policy instrument
Start-up firms
If you marked "start-up" and/or "scale-up" firms, please provide the specific definitions used

As defined in decree-law 18 October 2012, n. 179 ("Decreto Crescita 2.0"), art. 25.2.
Innovative startups are companies with shared capital (e.g. s.r.l. and s.p.a., equivalent to British llc's and plc's), unlisted, which fulfil the following requirements:

  • to be less than 5 years old;
  • to have their HQ in Italy, or in another EU country as long as one production site is in Italy;
  • to have a yearly turnover lower than 5M euros;
  • not to distribute profits;
  • to produce, develop and sell high-tech innovative goods or services;
  • not to result from a merger, split of sell-off of a company or a branch;
  • their innovative character is further specified by one out of the three following criteria:
    • R&D expenses are more than 15% of the annual costs of the company;
    • 1/3 of its workforce are researchers, PhD holders or students, or 2/3 of it hold a Master's degree;
    • the enterprise is the holder, depositary or licensee of a registered patent relatable to the core business of the company, or is the owner of a registered software.  

Existing SMEs

There is a distinct policy for existing SMEs with significant innovative content, whose instruments are very similar to those targeted to innovative startups: innovative SMEs. For more information, see the summary of the policy for innovative SMEs here, available on the website of the Ministry: http://www.mise.gov.it/images/stories/documenti/executive_summary_innovative_SMEs_23febbraio2017.pdf

Support offered
Non-financial Support
Level of intervention
Entrepreneur-level
Barrier(s) addressed with this policy tool
Regulatory/policy: startup-tailored measures
Abstract summary of this Policy resource

The “Italian Startup Act” is a comprehensive legislative package that has drastically changed the normative environment in which Italian innovative enterprises operate. Drawing from the “Restart, Italia!” report redacted by a task force composed of private stakeholders and experts, Decree-law 179/2012 (so-called Decreto Crescita 2.0, “Growth Decree 2.0”) introduced a legal definition for newly-established, technologically innovative companies with significant potential for rapid growth, “innovative startups” (startup innovative). The definition is presented in detail in point 4.

Upon request, if in possession of the characters set by law, innovative startups are registered in a special section of the Italian Business Register, freely accessible to the public in digital form: this “publicity regime” intends to work as a transparency and a promotional device (#ItalyFrontiers). Registration in the special section of the Registry automatically expires when 60 months (originally 48) have passed since the incorporation of the company.

With the accession to the special section of the Register, innovative startups can benefit from a fairly large set of targeted legal facilitations, which cover each phase of the life-cycle of the company.

  • In the early stage, innovative startups can be incorporated by using a digital, standardized model, available online, with a massive reduction of transaction and intermediation costs. Innovative startups are also exempted from many duties and fees, enjoy a flexible corporate structure and labour law – e.g. they can use stock options and work-for-equity schemes – and are given more time to recover from early losses.    
  • For the growth stage, innovative startups can raise capital in unique ways among Italian companies, such as making use of equity crowdfunding portals – Italy was the first country in the world to enact specific legislation for this instrument. Both equity and credit market financing are incentivized. Individual s investing in innovative startups can deduct 30% of the sum from their income tax, up to a €1 million ceiling; companies can also deduct from their taxable income 30% of the sum invested, up to a €1.8M ceiling.
  • Debt financing is supported through a fast-track public guarantee on bank loans up to €2.5M, covering a maximum of 80% of the sum borrowed. In addition, the Italian Trade Agency supports the internationalization of innovative startups offering free-of-charge participation to selected fairs and a discounted price for its consulting services.   
  • Lastly, innovative startups can “fail fast”: they are exempted from the standard procedure for bankruptcy, in order to reduce to bare minimum financial and reputational costs and to enable a quick restart for the entrepreneurs.
Policy timeline
  1. The core elements of the Italian Startup Act reside in decree-law 17 October 2012, no. 179, then validated by Law 17 December 2012, no. 223;         
  2. The first modification on the core normative came with decree-law 76/2013, which broadened the pool of eligible startups; 
  3. A significant development was decree-law 24 January 2015, no. 3 (“Investment Compact”), then validated by Law 24 March 2015, no. 33. The law extends the duration of the special regime to 5 years and introduces a new, online procedure for incorporation. In addition, it applies most of the advantages previously attributable to innovative startups to a broader category of companies of innovative character, regardless of their maturity stage and size: innovative SMEs.
  4. Law 232/2016 (the 2017 Budget Law) introduced several new policies to support innovative entrepreneurship and to bolster the attraction of foreign investment. Many of these measures adopt the policy guidelines of Italy’s new national plan for digitized manufacturing, Industria 4.0. In particular, the rate of the tax incentive for investors in innovative startups, originally set to 19% of the sum invested, was raised to 30% for both individuals and companies, effectively becoming the most generous incentive of its kind in the EU. The plan also introduces a “hyper-depreciation” scheme on capital goods of a high technological value: companies may increase the acquisition costs for accounting purpose by 150%, which practically results in a large tax deduction over several years.
  5. Another initiative developed in 2017 is a new two-year “investor visa” to reward non-EU citizens who invest substantial amounts in the strategic assets of our country, with especially favourable provisions for investors in innovative startups. It will be possible to apply for the new visa from late 2017. 
Stated goal/metrics of the policy instrument

As stated into d.l. 179/2012, art. 25.1, the goals of the policy are to promote sustainable growth, technological development and new entrepreneurship and employment, with a particular attention for young people.    

At the same time, the policy aims for contributing to shape a new entrepreneurial culture, a business ecosystem more conducive of innovation, enhancing social mobility and attracting foreign financial and human capital.   

The task of practically assessing such effects is conferred to a permanent system (Committee) of Monitoring of Evaluation, composed of members of the Ministry, the National Institute of Statistics and other actors involved in the policy.       

The Committee periodically meets to discuss evaluation methods and findings: the details are published once a year in the Annual Report to the Parliament of the Ministry of Economic Development on the policy (disposed by d.l. 179/2012, art. 32.7). The main metrics to be assessed are the impact of the policy on economic growth, employment and innovation.

Evidence of results

Every year, the Ministry issues a detailed report on the progress and the effects of the legislation dedicated to innovative startups. The 2017 edition (fourth overall) of the Annual Report on the Italian Startup Act will be published in December 2017 on the website of the Ministry. (link). The previous issues are available on the same page, both in an Italian and an English version.

Besides the Annual Report, the results of the policy are constantly monitored through a structured system of reports and other public resources.

The list of all innovative startups can be publicly accessed on a dedicated website set up by the Italian Chambers of Commerce, startup.registroimprese.it . The list is weekly updated, and also includes key information about the economic activity and performances of the company. Slightly more than 8,000 innovative startups were listed in the special section of the Registry of Companies in late October 2017, around 1,500 startups more than on the same date one year before

Overall, innovative startups employ approximately 36,000 people: 25,000 registered working shareholders and 11,000 non-shareholder employee. 21.6% of them are composed of a majority of people below 35 years of age, a ratio more than three times higher than other shared capital companies. Gross value of production amounts to € 726 million, about €160,000 on average per company. 

Innovative startups invest more and have a far higher share of intangible assets than regular shared capital companies; only 43% of them were profitable in 2016, but those that registered a profit vastly over-performed profitable shared capital companies in ROI (0.11 vs 0.03) and value added (33 cents vs 22 per euro).

Among the measures part of the Italian Startup Act, the simplified access to the Public Guarantee Fund for SMEs has had a noteworthy impact: 1,586 innovative startups have successfully activated the procedure to get a guarantee on their bank loans, for 2,533 operations overall and a total sum guaranteed of € 539 M.

The most defining policy development in the last year and a half is that Italian innovative startups can draw up their first statutory acts entirely online and free-of-charge. This is a disruptive change in the Italian context: the costs to set up a limited company are cut from about 2,000 € on average to virtually none. The introduction of this policy posed many challenges, also because it was met by a fierce corporatist resistance: the Italian notaries, which previously had a monopoly on the incorporation of new companies, appealed against the procedure no less than 12 times. In October 2017, a judgment by the administrative court of Rome rejected all the 12 appeals, stating the full legitimacy of the new procedure. In the meanwhile, the measure has resulted in more than 878 new companies being set up online in just over one year (between August 2016 and September 2017).

Another measure reported on is intercultural vocation and its forward-looking approach, the Italia Startup Visa programme. This is the fast-track process through which innovative entrepreneurs who intend to set up an innovative startup in Italy can get a self-employment visa. During 2017, ISV received a record-breaking 120 applications, already more than the grand total of the previous year (report in English). Also, in early November 2017 the 300 applications mark has been crossed.

All data updated on 30 September 2017: see http://startup.registroimprese.it/isin/report?7&fileId=3_trimestre_2017.pdf and http://www.sviluppoeconomico.gov.it/images/stories/documenti/rapporto_fondo_garanzia_startup_innovative_19_10_2017.pdf
http://www.mise.gov.it/images/stories/documenti/5-rapporto-trimestrale-nuova-modalita-costituzione-startup-05_10_2017-def.pdf

 

Challenges, criticisms and lessons

The main challenges subtending to the Italian Startup Act regard:

- the measurability of certain measures of the legislative package,

- the involvement of traditional businesses and business associations in the enactment and communication of the policy, which still neglect the importance of startups,

- the coordination of policies carried out at a local level,

- the overcome of deep-seated prejudices concerning the Italian business climate. 

Notes and additional context

Executive summary of the Italian Startup Act (in English): http://www.mise.gov.it/images/stories/documenti/Executive_Summary_Italy_Startup_Act_02_05_2016.pdf

Summary of the key elements of the policy, in ppt form (in English): http://www.mise.gov.it/images/stories/documenti/Slides_innovative_startups%20ENG_website_02_05_2016.pdf

2015 Report to the Parliament on the implementation of policies in support of innovative startups and SMEs (in English): http://www.mise.gov.it/images/stories/documenti/Relazione_Parlamento_startup_e_PMI_innovative_2015-ENG_01_03_2016.pdf

Official website of the Italian Chambers of Commerce for innovative startups: http://startup.registroimprese.it/index_en.html

 

 

Geographic scope
National-level