Research and Development in Italy

The Italian National Institute of Statistics (Istat) has analyzed the effects on investment decisions and the distributive impact of the main tax incentives in favor of research and development (R&D) investments.

12 Sep 2023

In Italy, between 2014 and 2020, the share of business R&D spending as a percentage of total gross investments increased from 4.5% to 5.2%, reducing the gap compared to the EU average, which slightly decreased during the same period from 7.1% to 7%.

In the triennium 2017-2019, the average subsidized expenditure in Italy is primarily determined by the cost of highly qualified personnel (67%), extramural expenses (17%), other intramural expenses (12%), expenses for contracts commissioned from abroad (3%), and intragroup expenses (1%).

Tax Credit

In 2015, Italy enhanced the research and development tax credit. This measure allows a company to obtain a tax credit for costs incurred both internally for R&D activities and for contracts awarded to universities, research organizations, as well as other companies, including innovative startups.

Activities eligible for the tax credit include "basic research," "industrial research," and "experimental development." The expenses eligible for the incentive include:

  • Costs related to highly qualified personnel
  • Depreciation of laboratory equipment acquisition or usage expenses
  • Expenses related to research contracts concluded with universities, research institutions, and equivalent organizations
  • Expenses related to technical skills and industrial patents.

Starting from 2020, the credit is proportionate to certain maximums to the entire expenditure incurred during the tax period (volume-based). However, the benefit must be distributed in three equal annual installments, unlike the past when it could be fully utilized in a single year.

The new regulations have introduced two new tax credits:

  • A tax credit for ecological transition and technological innovation 4.0
  • A tax credit for technological innovation activities and other innovative activities in design and aesthetic ideation.

The 2023 budget law extends the application of the R&D tax credit until 2031, while the new tax credits for technological innovation activities and ecological transition are applicable until 2025. The budget law also reduces the tax credit rate to 10% but increases the spending cap to 5 million euros.


Based on corporate tax return data for capital companies, the percentage of companies benefiting from the research and development tax credit relative to the total number of capital companies increased between 2015 and 2020, rising from 0.9% in 2015 to 2.5% in 2020, peaking at 2.8% in 2018.

The average amount of accrued credit increased from 68,500 euros in 2015 to 134,000 euros in 2019 but decreased to 99,000 euros in 2020. At the same time, the amount of credit used increased from 0.03% of GDP in 2015 to 0.19% in 2019 and decreased to 0.13% in 2020.

With a 170% increase in spending, the manufacturing sector accounted for approximately 50% of the total credit during the incremental mechanism period (2015-2019). In 2020, with the shift to the volume-based mechanism, manufacturing strengthened its share, rising to 55%, while services decreased from 37% to 31%.

Within manufacturing, the percentage of beneficiary companies grew more rapidly in high-tech sectors (from 9% in 2015 to 22% in 2020) and medium-high-tech sectors (from 7% in 2015 to 17% in 2020). Among services, the use of the credit is higher in high-technology and knowledge-intensive sectors, but the growth in the beneficiary share is moderate (from 3% in 2015 to 7% in 2020).

Patent Box

With the Stability Law of 2015, the Patent Box was introduced, an optional five-year regime for resident companies in Italy that invest in research and development. Its aims include:

  • Protecting intangible assets (software, industrial patents, and design models)
  • Reducing taxation on income derived from the use of these intangible assets
  • Promoting the return to Italy of companies that have outsourced production and deposited patents abroad.

In 2021, the mechanism for determining the benefit was modified, replacing the partial tax reduction of income derived from specific types of legally protectable intangible assets with a super-deduction of specific research and development costs incurred for these assets.


The pool of beneficiaries of the Patent Box is smaller than that of the R&D tax credit but has been continuously growing until 2019.

The percentage of capital companies benefiting from the incentive increased from 0.05% in 2015 to 0.17% in 2019, partly due to the progressive simplification of usage methods but decreased to 0.13% in 2020.

The average subsidized income also increased, from 675,000 euros in 2015 to 3.8 million euros in 2019 (2.2 million euros in 2020). However, the percentage of this income compared to the pre-tax profit of beneficiary companies remained constant at 11% during the triennium 2017-2019.

The percentage of beneficiary companies in the Patent Box grew more rapidly in the manufacturing sector (from 0.07% in 2015 to 0.57% in 2019), particularly in high-tech and medium-high-tech manufacturing, with a higher incidence in companies with at least 500 employees (from 3% in 2015 to 15.6% in 2020). This reflects the fact that patent creation is concentrated in a small number of technologically advanced and large-sized companies.

Exporting companies, those with at least 500 employees, and groups participating in consolidated tax systems absorb well over 50% of the resources disbursed through the Patent Box.

Estimation of the Incentive Effect

The generosity of measures in favor of R&D investments can be examined based on the B-Index, which measures the tax burden on income generated by an additional unit of R&D spending net of tax savings obtained through incentives (implicit marginal subsidy).

The B-Index shows that the new R&D tax credit, based on total spending (effective from 2020), generates tax savings equal to or greater than the previous incremental mechanism for both intramural and extramural expenses.

  • For intramural R&D expenses, the implicit marginal subsidy increased from 10% in 2019 to 11.8% in 2020 and returned to 10% at the end of the 2021-2022 biennium (characterized by increased tax rates to combat the pandemic crisis).
  • Extramural contracts commissioned by public entities receive more favorable treatment than intramural expenses, with an additional benefit increasing from 1% in 2019 to 4% in 2020 (7% in the 2021-2022 biennium). The effective cost reduction for extramural investments is 11% in 2019, reaching 16% with the transition to the new regime in 2020 (27% in the 2021-22 biennium) and stabilizing at 13% in the subsequent period. However, since 2019, extramural expenses commissioned to private entities receive less incentive compared to intramural expenses (the differential is less than 2 percentage points).

Considering the cumulative effect of the R&D tax credit and the Patent Box, the tax benefit increased from 20% in 2020 (old Patent Box regime) to 35% in 2021 (new Patent Box regime) before stabilizing at 24% from 2023 onwards.

In conclusion, Istat analysts state, "In the 2021-2024 quadrennium, the coexistence of both Patent Box regimes shows that the tax treatment provided by the new Patent Box is more favorable by approximately 8 percentage points compared to the previous regime (for example, in 2021, the B-Index increases from 28% with the old regime to 35% with the new Patent Box).

However, unlike the previous regime, the new regulations include limitations on the benefits of combining both incentives. The estimated loss of benefit compared to adhering solely to the Patent Box is 6% of the investment cost."

Istat Focus

Istat's analysis was conducted on the universe of capital companies that complete tax returns, comprising 85% micro-enterprises (up to 9 employees) and 12% small-sized enterprises (10-49 employees).

The R&D expenditure, as deduced from tax data, includes not only the entire intramural R&D expenditure (basic research, industrial research, and experimental development) but also extramural expenditure, which is excluded from national accounts to prevent potential duplication of expenditure.

Source: Istat - Focus September 2023 (Incentives for Businesses for Research and Development Years 2015-2020)

Research and Development in Italy

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