The latest on Startup regulations in the COVID-19 era

At the same time, a new decree-law geared to paving the way for innovation by simplifying certain procedures that apply also to startups, informally known as the Decreto Semplificazioni (Simplification Decree),^[2] was also created.

In late August, the minister of economic development signed a decree requested by Article 38, Paragraph 3 of the Decreto Rilancio (the “Implementing Decree”), which regulates the methods underlying the venture capital support fund (the “Fund”) and provides 200 million Euro in support of startups and innovative SMEs nationwide. Resources will be provided to the Fondo Nazionale Innovazione (National Innovation Fund), which may participate in co-investments with regulated or qualified investors.

In this article we will delve into some of the main regulations geared to incentivizing and supporting the innovation landscape that are associated with startups and innovative SMEs or that can be applied to those as they are associated with SMEs across the board.

the conversion law of the Decreto Rilancio

In order to promote the Italian startup system and more generally the potential of the innovative business sector to combat the emergency stemming from COVID-19, a maximum of 5 percent of the resources allocated to the Smart Money^[3] program may be disbursed as financing for specific initiatives related to communications, promotion, and information regarding the startup ecosystem. These are rather general guidelines, and hopefully their impact and application methods will be clarified further with the issuance of the implementation decree for the Smart Money program.

The conversion law went on to establish a ceiling for incentive-related financing that the Fund (as described above) may disburse to each startup and innovative SME. Specifically, the Fund may allocate incentive-related financing in an amount no greater than four times the total amount of resources already collected by the individual startup or innovative SME, with a maximum of 1 million Euro per investment.

According to the official page of the Ministry of Economic Development (MISE), the Fund’s investments are expected to be directed to startups and innovative SMEs that are making or have made investments no more than six months prior to the date the Decreto Rilancio took effect. Publication of the implementation decree is still forthcoming, and that should contain further details.

As for financial incentives provided under the Decreto Rilancio, the conversion law raised the maximum deductible investment from 100,000 Euro to 300,000 Euro, but only for innovative SMEs. This means that individual investors may benefit from a 50 percent deduction for (direct or indirect) investments made in innovative SMEs up to 300,000 Euro. For investments in innovative SMEs above that amount, the deduction shall remain at 30 percent.

The measure introduced by the Decreto Rilancio regarding tax benefits for investments made (directly or indirectly) by individuals in innovative startups (50 percent deduction for investments up to 100,000 Euro) shall remain unchanged.

In order to encourage investment in the fashion and accessories field, with a focus on startups involved in design and creation, as well as to foster young talent in the textile, fashion, and accessories industry as a means to showcase artful and creative products that feature Italian craftsmanship, straight grants for a maximum of 50 percent of allowable expenses capped at 5 million Euro for 2020 have been arranged. It should be noted that in this instance the definition of “allowable expenses” is expected to be provided in the MISE decree, which will need to be passed within sixty days of the conversion law. Also, the measure is subject to authorization from the European Commission.

In order to foster innovative processes proposed by public and private entities that are part of the Lombardy region’s research and innovation system, such as healthcare facilities and other facilities of a scientific nature, universities, the National Research Council, research centers, small and medium-sized businesses, and innovative startups, the national government has authorized spending of 10 million Euro for year 2020 and 2 million Euro for year 2021 for promotion and financing of highly innovative projects implemented by the Fondazione Human Technopole in cooperation with the types of entities described above via a structure to be called a “center for technological innovation and distribution in the life sciences field” headquartered in Lombardy.

To support the return of manufacturing in the South of Italy, as well as to foster new startups in the Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, and Sicily regions, further incentives have been provided as part of the Resto al Sud (Remain in the South) program.^[4] These cover 100 percent of allowable expenses and consist of 50 percent straight grants and 50 percent bank financing. The financing has a maximum of 50,000 Euro per applicant. For sole proprietorships only, the maximum financing amount is expected to be raised to 60,000 Euro.

The following measures have been provided for benefit corporations:^[5]

• (i) funds via tax credits covering 50 percent of the cost of creating a benefit corporation or changing status to a benefit corporation from the date the conversion law goes into effect through December 31, 2020;
• (ii) creation of a specific fund with an endowment of 3 million Euro for 2020.

Methods for allocating the funds in (i) and the rules governing operation of the fund in (ii) shall be determined by a MISE decree crafted together with the Ministry of Economy and Finance (MEF) and passed within ninety days of the date when the law goes into effect.

Decreto Semplificazioni

Businesses, universities, research organizations, spin-off type companies, and university startups that intend to experiment with initiatives related to technological innovation and digitalization may submit their projects to the prime minister’s office for digital transformation using a simplified procedure (with certain specific regulations regarding experimentation waived) in a bid to simplify the process and foster innovative initiatives and conditions for the development, distribution, and use of emerging technologies, as well as the testing of ideas geared to improving competition, efficiency, and effectiveness of services across various sectors.

Simplifications were also introduced in relation to the Nuova Sabatini (New Sabatini) ^[6] measure, specifically the following: (i) raising the threshold for financing normally allocated in a lump sum from 100,000 Euro to 200,000 Euro; (ii) a tool dedicated to supporting innovative investment in SMEs in the South (known as Sabatini Sud, or Sabatini South) whose operating methods are to be provided in a decree created by the MISE in cooperation with the MEF; and (iii) the opportunity for co-financing through resources from structural and European investment funds.

The procedure for removal from the special section of the Italian Business Register was also simplified. Startups, innovative SMEs, and certified incubators may be removed from the special section of the Italian Business Register via a registrar’s provision: (i) within sixty days of no longer meeting the qualifications for a startup; as well as (ii) should they not submit proof of meeting the qualifications in (i), as such proof is to be submitted at the end of each fiscal year, with enrollment in the regular section of the Italian Business Register maintained.

Many of these measures will be more fully understood and appreciated only after implementing regulations have been issued. For the moment we are awaiting those regulations before we offer more critical and deeper analysis of individual measures.

[1] Law No. 77 of July 17, 2020.

[2] Decree-Law no. 76 of July 16,2020, titled “Urgent measures for simplification and digital innovation.”

[3] The Smart Money program provides the opportunity for innovative startups to use straight grants of up to 10 million Euro to purchase services from incubators, accelerators, business angels, and other private and public parties that provide support to innovative startups.

[4] The Resto al Sud program supports the creation and development of new businesses and freelance businesses in Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia, Sicilia and the areas around the seismic crater in Central Italy through disbursement of financing and grants that cover 100 percent of allowable expenses.

[5] According to Assonime ,“A benefit corporation is a company that seeks to turn a profit and also uses profit as a means to create benefits for itself and others, including employees, suppliers, the environment, and society at large, while also generating increased earnings for the company.” This type of company was introduced with Law no. 208 of December 28, 2015, paragraphs 376–384.

[6] The Nuova Sabatini measure is designed to facilitate companies’ access to credit and foster competition in the country’s manufacturing system. it supports investments to purchase or lease machinery, equipment, plants, capital goods for production, and hardware, software, and digital technology.