With the Decree-Law 179/2012 (the “Startup Act”), the Italian Government introduced tax benefits to incentivised the use of stock options and work for equity schemes by innovative start-ups, with the aim of helping Italian start-ups’ to attract, motivate and retain employees and consultants.
For the definition of innovative start-up read: Innovative start-ups and SMEs: definition for the Italian law
Therefore, Italian innovative start-ups can offer capital quotas or shares to their employees and collaborators, as additional remuneration, which is tax free for both fiscal and contributory purposes. Similar measures are provided also for suppliers and consultants.
More specifically, with an equity incentive plan, an Italian innovative start-up can:
- grant its employees and collaborators the right to acquire the company’s quotas or shares in the future, at a specific price and within a specific period of time; and/or
- promise that it will assign equity instruments in the future, if certain specific targets are achieved within a specific period of time.
The tax benefits for employees are the following:
- the granting of options and equity instruments doesn’t generate income, and therefore doesn’t have any tax impacts;
- employees, who receive the equity instruments, don’t pay any taxes or social security contributions on the value of the received instruments;
- when options are exercised, employees still don’t pay any taxes or social security contributions on the gain resulting from the difference between the price of the equity instrument and the strike price;
- taxes are paid only when the equity instruments of the start-up are sold, on capital gains.
Start-ups have tax benefits too: mandatory insurance contributions, withholding taxes and income taxes are not paid until the options are exercised.
People who can receive start-ups’ equity instruments are those who work for the company on an on-going basis, and whose income is considered equivalent to employee salaries (mainly directors, full-time and part-time employees, and contract workers).
Benefits apply as long as the start-up, or any entities connected to the start-up itself (parent or controlled companies), does not repurchase the equity instruments or options.
For the more info on measures and other incentives for Italian innovative start-ups read: Legal framework for innovative start-ups
SUBSCRIBE TO THE SCALEUPITALY NEWSLETTER
You can find more info on the Italian legislation on innovative start-ups at the following link: https://www.mise.gov.it/images/stories/documenti/Executive-Summary-of-Italy-s-Startup-Act-new-format-23_02_2017.pdf