FY 2025 – The End of the Road?
Italian tax incentives for investment in innovative start ups and SME’s mainly expired at the end of 2025. These incentives outlined below were temporary state-aid schemes approved by the EU and therefore expressed to have an expiry date.
The 30% incentive expired on 31 December 2025 and was was not renewed in the 2026 Italian Finance Law.
Sources disagree and it is not clear if the 65% enhanced deduction has remained.
Two interpretations currently circulate:
- All investment incentives expired on 31-12-2025 and no extension in the 2026 Budget Law means no tax relief currently applies to investments after 1 January 2026.
- The 65% “de minimis” incentive technically survives, but only:
- for individual investors
- within strict EU state-aid limits
- with compliance conditions that make it harder to use.
Because of this uncertainty, the venture capital sector has been lobbying the government to publish a new incentive regime.
We understand the Italian government is considering replacing the old system with:
- new Scale-up Act incentives
- venture capital support measures
- alternative tax credits or investment vehicles.
So this is unlikely to be the end of the road for these important incentives – the Italian Government simply needs to take stock of the previous program and obtain EU approval for any future measures. We will update this blog post as soon as we have any further information.
We leave the outline of the existing rules below as it is still relevant to pre FY 2026 tax years.
Specific advice on the availability of any tax relief is essential involving application of the terms and conditions for access tailored to your personal circumstances. You should seek the advice of a qualified and regulated financial intermediary before making any investment.
Background
Italy has become one of Europe’s most attractive environments for private investors looking to support innovation while benefiting from generous tax relief. Recent legislative updates and long‑standing national policies offer a wide range of financial incentives designed to stimulate investment in innovative start‑ups, innovative SMEs, and high‑growth sectors such as technology, green transition, advanced manufacturing, and research.
The following overview explains how these incentives work, who qualifies, and what conditions investors must meet to maximise their tax benefits.
Italy’s incentive landscape is part of a broader national strategy to accelerate business growth and strengthen innovation ecosystems. Through national laws and EU‑aligned frameworks, Italy maintains an integrated portfolio of financial incentives and tax benefits supporting industrial investment, R&D, and innovative enterprise development.
For individual investors, the tax measures directed at innovative start‑ups and SMEs—businesses officially recognised on the national register—are particularly advantageous.
For private investors, the tax incentives can:
- Reduce the effective cost of investment.
- Enhance net returns with tax‑free capital gains.
- Support Italy’s innovation sectors.
- Provide exposure to high‑growth industries (tech, sustainability, digitalisation).
For start‑ups, these measures strengthen access to capital needed for scaling, hiring, R&D, and market expansion.
Main Tax Benefits for Individual Investors
30% Income Tax (IRPEF) Tax Credit for Investments
Individuals investing directly (or through qualified funds) in innovative start‑ups or SMEs are entitled to a tax credit in computing the IRPEF tax due equal to 30% of the invested amount from their annual IRPEF taxable income. This benefit was regulated under Article 29‑bis of Law Decree 179/2012 and remains one of Europe’s most generous incentives.
Conditions include:
- The investment must be held for at least 3 years.
- Maximum investment eligible: €1,000,000 per year.
- If the deduction exceeds the total tax due, the excess may not be converted into a tax credit for later use (see below). It may be possible to carry-forward any unused excess (up to three years), for future deduction against income, but no general tax credit is available).
Enhanced “de minimis” incentive
This was introduced later to stimulate early-stage investment. This enhanced regime was boosted in 2025, increasing the tax credit to 65%.
65% IRPEF tax credit for individuals investing in very early-stage startups
Maximum eligible investment: €100,000
Subject to EU state-aid “de minimis” limits
Usually limited to startups less than 3 years old.
- Legislation contains possibility of converting the tax deduction into a tax credit (see below)
Note that both the 30% and 65% represent tax credits (detrazioni) to be offset, Euro for Euro, against income tax calculated at scale rates due. they are not deductions to be applied in calculating the calculating the taxable base liable to income tax.
Capital Gains Tax Exemption
Capital gains realised from selling shares in innovative start‑ups or SMEs may be fully tax‑exempt if:
- The investment is made by 31 December 2025,
- The gain is reinvested in the equity of an innovative startup.
- Reinvestment must occur occur within the same tax year.
- The startup shares must be held for at least 3 years.
- Investments benefiting from the 65% “de minimis” deduction may trigger exclusion from the capital gains exemption forcing a choice between forcing a choice between a high initial deduction (65%) or the back-end tax-free gain
This treatment applies to both direct investments and investments through collective investment undertakings focused on innovative companies.
For start‑ups, these measures strengthen access to capital needed for scaling, hiring, R&D, and market expansion.
For investors they provide exposure to high‑growth industries (tech, sustainability, digitalisation).
Conversion from Deduction to Tax Credit
For investments in innovative startups from 2024–2025 onwards, you can convert the 65% tax deduction into a tax credit, to be offset against tax due on other income sources. This solves the issue, especially for taxpayers who lack “capacity” – i.e. who do not have sufficient income liable to IRPEF income tax, to absorb the relative incentive based tax deduction. This is a particularly issue for tax payers who income is wholly or mainly liable to a flat rate substitute tax. In most cases income liable to substitute tax is taxed in full (generally at 12.5% or 26% rates without the possibility of any deduction in computing the applicable tax base. Examples of income liable to substitute tax are:
- certain types of interest income
- dividends from equity investments
- distributions from, and gains on, Italian and EU regulated investment funds and ETF’s
- capital gains on equity and other participating instruments
The rules permit taxpayers who might lack capacity to offset the investment tax deduction against taxable to generate a tax credit for the applicable percentage of the investment made. such tax credit can be offset, subject to terms and conditions, against tax due generally.
For more information on scale rates or IRPEF and substitute tax, see this blog post.
Example – How the Relief Works in Practice
Consider this simplified example:
- You invest €100,000 in an innovative Italian start‑up.
- You deduct €65,000 (65%) from your IRPEF taxable income for that year.
- If your total IRPEF due that year is less than the Incentive tax credit, the unused portion becomes a tax credit equal to a maximum of € 65,000 which can be offset against e.g. substitute tax on dividend income or on capital gains.
- Three years later, you sell your shares at a gain — the gain is may only partially be tax‑free, reflecting the tax credit .
This dual benefit (front‑loaded deduction + tax‑free capital gain) makes the Italian regime particularly appealing.
Terms and Conditions for Eligibility
To benefit from the incentives, individuals must ensure:
- The company is officially registered as an innovative start‑up or innovative SME.
- Investments are held for a minimum of three years.
- Purchases intended for capital gains exemption must occur before 31 December 2025.
- Proper documentation is retained for tax filings.
- The deductions or credits are correctly declared in the investor’s annual tax return.
Definition of Qualifying Innovative Start Up
An Innovative Startup is a specific legal status (governed by DL 179/2012 and updated by Law 193/2024) for companies that develop and market products or services with high technological value.
To qualify and be listed in the Special Section of the Business Register, a company must meet two sets of requirements: cumulative general criteria and at least one “innovative” subjective criterion.
1. General Cumulative Requirements
All of the following must be true for the company to qualify:
- Company Type: It must be a capital company (e.g., S.r.l., S.p.A.) or a cooperative, and it cannot be listed on a regulated market.
- Age: It must be a new company or established for no more than 60 months (5 years).
Note: Under 2025 reforms, standard status may be reduced to 3 years for new registrations, with extensions up to 9 years for growth phases. - Turnover: Annual turnover must not exceed €5 million.
- Profit Distribution: The company must not distribute profits (and must not have done so in the past) for the duration of the status.
- Core Business: Its exclusive or predominant purpose must be the development and production of high-tech innovative goods or services.
Exclusions: It cannot result from a merger, demerger, or business branch transfer. It also cannot primarily perform consultancy or agency activities.
2. Innovative Subjective Criteria (Must meet at least ONE)
The company must demonstrate its “innovative” nature by fulfilling at least one of these three:
- R&D Expenditure: It must spend at least 15% of the higher value between its production cost and total production value on Research & Development.
- Qualified Personnel:
- At least 1/3 of the team must consist of PhD students, PhD holders, or researchers; OR
- At least 2/3 of the team must hold a Master’s degree.
- Intellectual Property: It must be the owner, custodian, or licensee of at least one industrial patent or original registered software related to its core business.
Definition of a Qualfying Innovative SME
An Innovative SME (PMI Innovativa) is essentially the “mature” version of an innovative startup. It is designed for small and medium-sized Italian companies that have moved past the early startup phase but continue to focus heavily on research and technological development.
Unlike startups, which have strict age limits, an Innovative SME can have any “age” as long as it meets the size and innovation criteria.
1. Size Requirements
To qualify as an SME in Italy, a company must fall within the following parameters:
- Employees: Fewer than 250 people.
- Turnover: Annual turnover not exceeding €50 million.
- Balance Sheet: Total assets not exceeding €43 million.
- Certification: Unlike a startup, an Innovative SME must have already filed at least one audited set of financial statements.
2. Innovation Requirements
While startups only need to meet one innovation criterion, an SME must meet two out of these three:
- R&D Spending: At least 3% of the higher value between its production cost and total production value must be dedicated to research, development, and innovation.
- Highly Qualified Staff:
- At least 1/5 of the team must be PhDs, PhD students, or researchers; OR
- At least 1/3 of the team must hold a Master’s degree.
Intellectual Property: The company must be the owner, custodian, or licensee of a certified patent or registered original software.
Relevant Legislation and Official Sources
- Italian Law Decree No. 179/2012 (Article 29‑bis) – Innovative Start‑Ups Framework
- Art. 14 DL 73/2021 (“Decreto Sostegni-bis”) – relief from tax on capital gains
- Budget Law references for yearly tax updates
- Official “Registro Imprese” page for innovative start‑up status
- Ministry of Enterprise and Made in Italy (MIMIT) guidance
- EU State Aid Framework references
Why These Incentives Matter
For private investors, these incentives can:
- Reduce the effective cost of investment.
- Enhance net returns with tax‑free capital gains.
- Support Italy’s innovation sectors.
- Provide exposure to high‑growth industries (tech, sustainability, digitalisation).
For start‑ups, these measures strengthen access to capital needed for scaling, hiring, R&D, and market expansion.