Special Economic Zones: what advantages for investors?

24.1.2023

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There are special tax advantages for those making investments in so-called SEZs in Italy

To encourage the creation of favorable conditions in economic, financial and administrative terms, which allow the development in certain areas of the country, of enterprises already operating, as well as the establishment of new enterprises, including foreign ones, the decree headed Urgent provisions for the economic growth of the Mezzogiorno (referred to in Article 4 Decree Law No. 91 2017, most recently amended by Article 37, Decree Law No. 36/2022 and converted by Law No. 79/2022) provided for the possibility of establishing Special Economic Zones.
Interested enterprises, foreign ones included, can benefit from exciting tax breaks and administrative simplifications within these zones.

What is meant by an SEZ?

The SEZ, to be considered as such, must refer to a geographically delimited and identified area located within the borders of the state, which is connected, even indirectly, with at least one port area.
SEZ are established at the initiative of the regions concerned, which identify such areas as part of a proposal accompanied by a Strategic Development Plan.
Italian regulations recognize the right to enjoy certain tax benefits when a company, through a production facility, is located in the SEZ area.

What are the tax benefits provided?

It is clarified that the SEZ is designed to encourage the development of some regions of the country through the strengthening of companies already operating or the establishment of new companies; there is a tax benefit for those business entities that make investments in production facilities falling within these areas. In this sense, if the investment is made partly in the SEZ zone and partly outside, the eligible investment will be limited to the part that falls within the special economic zone. As for the tax benefits, these consist of a tax credit available concerning the investments made. Specifically, a tax credit is granted for investments made in the SEZ by companies that start a program of entrepreneurial economic activities or investments of an incremental nature. Recipients of this benefit are all business income holders regardless of the assumed legal nature, provided they make new investments destined for production facilities in the SEZ areas. In addition, as clarified by the Internal Revenue Agency, both enterprises resident in the state and permanent establishments in the territory of the state of nonresidents are eligible for the benefit.

What are the eligible investments?

The investments for which it is possible to benefit from the facilitation are those that are part of an investment project and related to the purchase, including through leasing contracts of machinery, plant, and various equipment intended for production facilities that already exist or are being established in the territory. Circular No. 34/E of August 3, 2016, paragraph 3, clarified that initial investment refers to an intervention intended:

the creation of a new establishment
the expansion of the capacity of an existing establishment
to the diversification of an establishment's production to obtain products never previously manufactured or to a fundamental change in the overall production process of an existing establishment.

That is, for large enterprises, investment in a new economic activity. In addition, the assets being invested in must be characterized by the requirement:

''instrumentality'' concerning the activity carried out by the enterprise benefiting from the tax credit and that, consequently, the assets must be of durable use and suitable for use as production tools within the enterprise's production process
''newness,'' goods in any capacity already used being excluded from the relief.

Finally, the relief only applies to replace investments as the same can never be considered initial investments.

How to take advantage of the tax benefits?

The taxpayer, thus the referent of the company that has made these investments, has the burden of maintaining evidence of the share of expenses referable to the interventions mentioned above in terms of invoicing or using a special certificate issued by the construction or renovation company or by the director of works, to indicate the amounts referable to the interventions located in the SEZ.