The tax treatment of crowdfunding in Italy
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Through crowdfunding startups as much as SMEs can gain access to new and alternative forms of financing
Through crowdfunding start-ups as much as SMEs can access new and alternative forms of financing
Widespread capital raising through crowdfunding can be initiated for a variety of reasons: entrepreneurial, humanitarian, social, political
What is Crowdfunding?Among the alternative finance tools, without a doubt, crowdfunding is the one that, in the last period, has been most successful: in fact, the widespread capital raising allows numerous subjects, without particular difficulties, to get financed a project, perhaps innovative, even though the presentation of the same on a dedicated web platform and a consequent capital raising by investors who participate with amounts of different and different consequent rights. The Bank of Italy defines crowdfunding as "an instrument through which a plurality of parties can request funds from a plurality of potential lenders, through online platforms, for personal use or finance a project." The parties involved in crowdfunding operations, in general, are:
- the owner of the project to be financed
- the investors
- the intermediary organization in the form of a crowdfunding service provider that brings project owners and investors together on an online platform.
Taxation of crowdfundingRegarding the taxation of crowdfunding, premised on the fact that the regulations are complex and it is always a good idea to submit one's position to an expert advisor, we identify tax treatments related to the scope of VAT that affects the various models of widespread capital raising (lending, royal, equity, etc.) and the concessional tax regimes provided by the regulations. In the case of capital raising through crowdfunding, investments made through online portals will follow the same tax treatment as investments made through traditional channels. Profits are subject to a withholding tax of 26 percent if received outside the business activity. In this sense:
- In social lending crowdfunding, a 26% rate will be applied to interest received by those who lend money through digital platforms (platforms that must be operated by companies authorized by the Bank of Italy)
- For royalty crowdfunding income, the royalty will have to qualify as capital income to be subject to the 26% withholding tax if paid to resident individuals.
The types of crowdfunding and the tax implicationsThere are at least four types of crowdfunding, each of which has different tax characteristics. In this regard, the following types should be briefly considered:
- "Reward crowdfunding" consists of a tool that allows a company, usually an innovative start-up, to present a product to the market before starting its official production.
- In "equity crowdfunding," investors purchase shares or units and the issuance of corporate equity.
- "Royalty crowdfunding," as the name implies, allows supporters to be recognized for some royalties, that is, shares of the profits that the financed project will pay in the future as a counterpart of the financial participation in the project.
- In so-called "social lending," crowdfunding takes the form of alternative financing to bank credit.
Advantages of crowdfundingThis alternative finance tool is becoming increasingly popular among start-ups and small and medium-sized enterprises because, in addition to being an alternative source of financing, including as venture capital, crowdfunding can offer a variety of other advantages:
- It allows business risks to be minimized
- It can represent a validation for a business idea
- it will enable entrepreneurs to connect with a large number of people
- can be a marketing tool that makes it easy to reach an unspecified number of individuals