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Incentives 2021 – 2026, Transition 4.0 and PNRR

1. New incentives for businesses: why investing now pays off

The incentives for businesses already in place and continuing over the next few years represent an opportunity for recovery both for companies and for the country as a whole, after difficult months inevitably marked by the shock of the coronavirus pandemic.

From funds for businesses in difficulty to the Ecobonus, the governments that have followed one another in recent months have tried to introduce support measures, but of all of them the Transition 4.0 Plan is probably the most important. It is in fact a package of incentives for the present, but with a firm eye on what the future of the country must be.

Incentives to help Italian SMEs begin (or complete) the digital transformation journey from a 4.0 perspective needed to face the present and future challenges of their market, whatever it may be. The fourth industrial revolution has already begun and the new 2021 incentives are the ideal tool to take a leading role in it.

In addition, the Council of Ministers is currently moving to the implementation phase of the National Recovery and Resilience Plan with which – through the Mission “Digitalisation, innovation and competitiveness of the production system” – it will extend the current measures in favour of companies, including the Transition 4.0 Plan and the strengthening of the Central Guarantee Fund for SMEs.

The PNRR has 6 main missions, ranging from the ecological transition to the digitalisation of the national health service. In between is a substantial package of funds for businesses and, specifically, for the digitalisation, innovation and competitiveness of the production system.

45.5 billion euros in total, of which almost 19 are earmarked for Transition 4.0 through tax credits for:

• New tangible and intangible assets
• Research, development and innovation activities
• Training 4.0

Later on we will go into detail about the allocation of European funds, but first let us look at how we moved from the super-depreciation scheme to these new tax incentives for companies.

1.1 How we moved from super-depreciation to the new tax incentives for businesses

In the beginning there was super-depreciation, but today tax incentives for businesses in 2021 take the form of tax credits.

In previous editions of the Plan, super-depreciation was undoubtedly the tax incentive most used by companies to finance the purchase, including through leasing, of capital goods. In 2019 this measure provided for 130% super-depreciation on all tangible and intangible assets. In addition, for the first time compared with previous editions of the Plan, a cap on investments of 2.5 million euros was introduced.

But last year super-depreciation was replaced by the Intangible Assets Tax Credit for investments in digital services and software.

The tax credit is undoubtedly the “engine” of tax incentives for businesses in 2021 and has replaced super-depreciation with an incentive in the form of a tax credit for tangible and intangible capital goods included in annexes A and B of Law no. 232 of 11 December 2016.

2. Transition 4.0 Plan: why it is a great opportunity for Italian companies

Today more than ever, the Transition 4.0 Plan is a great opportunity for Italian businesses, not only to stimulate investment but also to close the gap with their main international competitors and lay solid foundations for the future.

The new incentives for businesses in fact focus on innovation, research, development and training. And they do so through concrete, easily accessible measures that allow companies to access a range of hardware and software capable of simplifying production processes, improving efficiency and performance in the spirit of the IoT and of all those systems capable of enhancing mechanical and electromechanical work while providing data and information that can speed up and improve decision-making processes.

A journey that began in 2017 with the first Industry 4.0 Plan and continued with Enterprise 4.0 and today with the Transition 4.0 Plan.

2.1 What is meant by Transition 4.0

Today there is a lot of talk about transition, especially in the energy field. But equally important is Transition 4.0, that is, the process of modernising Italian businesses through the implementation of enabling technologies such as IoT, sensors, cloud, augmented reality, cyber security, Big Data Analytics and collaborative robots.

After Industry 4.0 and Enterprise 4.0, Transition 4.0 is a measure that, with different rates, aims to facilitate the purchase and implementation of these new technologies through tangible and intangible assets. Compared with its predecessors, which relied on incentives such as hyper-depreciation and super-depreciation, Transition 4.0 provides a tax credit for tangible capital goods, for intangible assets (including software), for research, development, innovation and design activities and, finally, for training.

2.2 Transition 4.0 Plan: what it is and what its goal is

The Transition 4.0 Plan, first approved with the 2020 budget law (Law no. 160 of 27 December 2019), is the framework that defines the new Italian industrial policy, seeking to promote greater attention to:

• Innovation
• Green investments
• Design and aesthetic creation activities

This framework sets out the classification of technological innovation activities eligible for the tax credit and the ways of accessing the incentives provided, as well as the rules for determining and documenting eligible expenses.

The Transition 4.0 Decree of the Ministry of Economic Development that approved the plan clearly states its purpose:

“… in order to more effectively support the digital transition process of businesses, private spending on research and development and on technological innovation, also in the context of the circular economy and environmental sustainability, and the growth of skills in subjects related to the technologies enabling the technological and digital transition process, as well as to rationalise and stabilise the reference incentive framework over a multi-year time horizon, consistently with public finance objectives, it provides for the redefinition of the rules on tax incentives linked to the “National Enterprise 4.0 Plan”.

2.3 Transition 4.0 Plan and PNRR: what is the relationship

As we saw earlier, there is a close link between the Transition 4.0 Plan and the PNRR, that is, the National Recovery and Resilience Plan launched by the Government last April to deal with the crisis that also hit our country following the Covid-19 pandemic.

Specifically, the PNRR is part of the Next Generation EU package (NGEU), which provides 750 billion euros of EU aid to the Member States of the European Union. The PNRR is therefore part of a broader strategy, but one that serves the project of modernising and developing businesses already launched by the Italian government in previous years with the Industry 4.0 and Enterprise 4.0 plans.

The PNRR provides for total investments of 222.1 billion and the EU resources to finance the Transition 4.0 Plan amount to 18.8 billion: 13.38 billion to be provided by the Recovery & Resilience Facility between now and 2026, plus over 5 billion allocated from the complementary fund with the 2021 Budget Law.

After the doubts of recent months about whether (and to what extent) Transition 4.0 would be included in the PNRR, it is now official that 18.8 billion will arrive through NGEU. Substantial funds that will be used to foster the digital transition and innovation of the production system by encouraging investment in advanced technologies, research and innovation. But also to make investments in ultra-fast connections and, more generally, to promote the development and competitiveness of Italian businesses, including on international markets.

The phase that opened in autumn 2021 and will continue until 2026 is therefore the implementation of the 6 main missions of the PNRR, as well as the decisive period for companies (and the whole country) to achieve that turning point in terms of digitalisation, innovation and competitiveness.

A turning point made possible through a series of incentives that share a common denominator: the tax credit.

3. Tax credit 4.0: how it works

Compared with hyper-depreciation and super-depreciation, the 4.0 tax credit has brought significant advantages, extending the incentive also to companies that do not make a profit and broadening the range of potential beneficiaries to include the “flat-rate scheme”. In addition, the credit can be combined with other 2021 tax incentives for businesses.

Specifically, the 2022 tax credit on tangible assets follows these rates:

• 40% of the cost for investments up to 2.5 million euros;
• 20% of the cost for investments above 2.5 million euros (maximum eligible limit of 10 million euros);
• 10% of the cost for investments between 10 million and 20 million euros.

Whereas for intangible assets the credit is 20% of the cost, up to a maximum of 1 million euros. Notably, expenses for the use of cloud computing solutions, for the portion attributable to the period, are also eligible for the 4.0 tax credit. This means that in addition to licensed software, SaaS solutions are also eligible.

3.1 What are the requirements to access the 4.0 tax credit

One of the main advantages of this Plan, compared with other support and recovery measures launched in the past, lies precisely in the requirements for the 4.0 tax credit.

Access is open to all businesses resident in Italy, regardless of their legal form, economic sector, size, accounting regime and system for determining income for tax purposes. In short, almost everyone. Including self-employed professionals and freelancers under the flat-rate scheme. Provided they comply with workplace safety regulations and are up to date with the payment of social security and welfare contributions for their workers.

The only businesses that do not meet the requirements for the 4.0 tax credit are those in voluntary liquidation, bankruptcy, compulsory administrative liquidation or composition with creditors, and businesses sanctioned for administrative offences with the disqualification measures provided for by Legislative Decree no. 231 of 8 June 2001.

The key point is that to benefit from the 4.0 tax credit, the new capital good must be purchased and “connected” to the company's systems by 31 December 2022, or by 30 June 2023. All this provided that the company pays a minimum deposit of 20% of the total cost of the asset by 31 December 2021 to “confirm” the investment, even if the asset is implemented in the company in the following months.

3.2 How to apply for the 4.0 tax credit

To understand how to apply for the 4.0 tax credit, you first need to define the type of asset.

For technologically advanced and intangible assets, companies must produce a simple technical appraisal (issued by an engineer or an industrial expert registered with the respective professional bodies) or a certificate of conformity issued by an accredited certification body, showing that the assets have technical characteristics that place them in the lists in Annexes A and B of the law respectively and are interconnected to the company's production management system or to the supply network.

For assets worth less than 300 thousand euros, on the other hand, a self-certification by the company's legal representative is sufficient.

4. Eligible 4.0 assets: which investments are allowed under the Transition 4.0 Plan

As we have seen, the range of eligible 4.0 assets is very broad and covers machinery as well as software and IT platforms.

The common denominator of all eligible capital goods is technology. To be considered eligible, every capital good purchased (or rented in the case of software and platforms) must be technologically advanced.

4.1 Which capital goods are covered by the tax credit

To obtain the tax credit for capital goods the requirement is to invest in machinery that serves technological transformation, whose operation is controlled by computerised systems or managed through appropriate sensors and drives from a 4.0 perspective.

Annex A sets out the technologically advanced tangible assets, such as machine tools for assembly, plastic deformation, welding, additive manufacturing…

The law also states that all machines must be equipped with:

• control by means of CNC (Computer Numerical Control) and/or PLC (Programmable Logic Controller);
• interconnection to the factory's IT systems with remote loading of instructions and/or part programs;
• automated integration with the factory logistics system or with the supply network and/or with other machines in the production cycle;
• simple and intuitive human-machine interfaces;
• compliance with the latest workplace safety, health and hygiene standards.

In addition, they must be comparable to or integrable with cyber-physical systems for remote diagnosis, remote maintenance, remote control or continuous monitoring.

4.2 Which intangible 4.0 assets are eligible

As regards eligible Industry 4.0 intangible assets, Annex B sets out the list of those covered by the tax credit.

Specifically, the law refers to software, systems, platforms and applications for:

• quality management at the level of the production system and processes;
• design of production systems;
• the design, definition/qualification of performance and production of manufactured goods;
• decision support capable of interpreting analysed data;
• monitoring and control of machine working conditions;
• Artificial Intelligence and Machine Learning systems.

4.3 Training 4.0 tax credit: eligible expenses

The Training 4.0 tax credit provides incentives for:

• personnel costs relating to trainers, exclusively for the hours spent on training;
• personnel costs relating to training participants;
• operating costs relating to trainers and training participants;
• materials;
• costs of consulting services related to the training project;
• indirect costs, including administrative and general expenses for the training hours.

But to what extent? The credit is designed to help SMEs, the true backbone of Italy's business fabric, with these rates:

• 50% of eligible expenses, up to an annual maximum of 300 thousand euros, for micro and small businesses;
• 40% of eligible expenses, up to an annual maximum of 250 thousand euros, for medium-sized businesses;
• 30% of eligible expenses, up to an annual maximum of 250 thousand euros, for large businesses.

In addition, the Training 4.0 tax credit rises to up to 60% for training aimed at people who fall into the categories of disadvantaged or severely disadvantaged employees.

There are 3 macro areas of training covered by this measure:

• Sales and Marketing
• Information Technology
• Production Techniques and Technologies

A rather varied landscape that includes topics such as big data and data analysis, cyber security, rapid prototyping, advanced and collaborative robotics, additive manufacturing, digital integration of business processes, etc.

Training 4.0 is an incentive that covers personnel costs (labour costs) for people involved in training courses, whether teachers (or tutors) or participants. Specifically, for trainers there is a maximum spending limit of 30% of the employee's total annual salary.

But that is not all, because the costs eligible for the tax credit also include consulting costs related to the training project. An incentive already introduced with the 2018 Budget Law and well received by companies. Accessing it is now even easier, because it is no longer necessary to sign and file company or territorial collective agreements with the competent territorial Labour Inspectorate in order to obtain the tax credit: a notification to the Ministry of Economic Development is sufficient.

However, to be sure that the expenses incurred are eligible, it is important to check in advance the analysis of the context and of the stakeholders, the preparation of all the necessary accounting and administrative documentation, and the full compliance of the training project with legal requirements.

In short, a proper management plan for the training project is required, as well as a final appraisal certifying the correctness of the organisational arrangements and of the training activities carried out.

5. Women's Enterprise Fund: what it is and how to access it

It is not just a matter of reducing the technology gap with other European and international companies: these new incentives for businesses are also intended to help reduce the professional gap between women and men in the world of work. A concrete objective for which 40 million euros have already been allocated through the Women's Enterprise Fund, to which a further 400 million will be added by the PNRR for female entrepreneurship as part of its inclusion and cohesion activities.

In this case we are not dealing with a tax credit but with non-repayable grants to start new businesses and consolidate existing ones.

Specifically, for the start-up of new companies with eligible expenses not exceeding 100 thousand euros, the incentives cover up to 80% of eligible expenses (with a maximum grant of 50 thousand euros). For eligible expenses from 100 thousand euros up to 250 thousand euros, the incentives cover up to 50% of eligible expenses.

As regards the consolidation of businesses that have existed for a minimum of one year to a maximum of three years (from the date of submission of the application to the fund), the incentives are granted for 50% of the amount as a non-repayable grant and for the remaining 50% as a subsidised loan over 8 years at zero interest, covering up to 80% of eligible expenses within a maximum limit of 400 thousand euros.

The Women's Enterprise Fund is open to:

• sole proprietorships owned by a woman;
• corporations whose Board of Directors is made up of at least two thirds women;
• cooperatives and partnerships with at least 60% women members;
• self-employed women.

Incentives and financing can cover plant and machinery, intangible assets, cloud services and even the hiring of employees in all the main business sectors, from industry to crafts, from the processing of agricultural products to services, trade and tourism.