Reshoring foreign businesses to Italy: a new big opportunity

Article 6 of Legislative Decree No. 209/2023 introduced the ‘reshoring regime’, a tax incentive designed to promote the introduction of economic activities in the Italian territory. The measure provides for a substantial reduction of the effective tax burden on income generated from activities relocated to Italy. It applies from fiscal year 2024, although its effectiveness is subject to clearance by the European Commission to confirm its compatibility with the EU state aid legislation.

The reshoring regime provides for a 50% reduction of the taxable income arising from business activities relocated to Italy from a non-EU member state or a European Economic Area (EEA) country in the fiscal year in which the reshoring occurs and in the following five fiscal years. The Italian ordinary corporate income tax rate is 24% and the regional business tax rate ranges between 3 and 5%, while the incentive could imply a taxation of around 12–14.5%.

All entities transferring a business to Italy from a non-EU/EEA jurisdiction are eligible for the reshoring regime, with no subjective limitation.

The activity to be reshored must qualify as an economic activity (generating business income). This includes income derived from business activities or from the exercise of arts and professions in an associated form carried out abroad and then transferred to Italy. Thus, eligible businesses should be engaged in, for example, productive and commercial activities conducted through the management of a well-organised collection of assets, previously located in a non-EU member state or in an EEA country and relocated to Italy.

The focus of the regulation on a business activity implies that a relocation to Italy of assets generating income (which could become taxable in Italy), but with no connection with a specific business activity, is not eligible for the incentive. Such assets involve merely passive ownership. As an example, individual intellectual property (IP) rights, loans, or investments that are passively managed will not be eligible for the reshoring regime.

To prevent potential abuses, the Italian regulation excludes from the incentive any economic activity carried out in Italy in the 24 months preceding the transfer. This clause is aimed at ensuring that enterprises do not temporarily relocate their operations outside Italy for the sole purpose of taking advantage of any incentives upon their return.

Conversely, activities originally established abroad and not carried out in Italy do not face any limitation and, in particular, do not need to be carried out in a foreign country for a minimum period. Economic activities started within the 24 months before their transfer to Italy are therefore eligible for the reshoring benefits.

The reshoring regime is applicable in the fiscal year when the transfer occurs and in the following five fiscal years. Moreover, a safeguarding period of five fiscal years applies, which is extended to ten years for large enterprises, as identified according to Commission Recommendation No. 2003/361/EC. Should the business activity, even partially, be transferred back abroad during the period of application of the regime, or in the safeguarding period (i.e., five or ten fiscal years after the incentive period has ended), a recapture mechanism applies. The Italian tax authorities will therefore request payment of the full tax rate (net of the amount already paid) together with the relevant interest.

If the relevant entity carries out multiple activities, the reshoring regime provides that to determine the income qualifying for the regime, it is mandatory to keep separate accounting records. These records must document all transactions and management activities pertaining to the eligible activities.

However, this approach can lead to several critical issues, particularly when some costs are ‘promiscuous’ in nature, meaning that they cannot be easily assigned to a single activity. In this context, it will be necessary to determine the portion of these costs attributable to the relevant activity by using, for example, a flat parameter. Given the vagueness of the law on this point, certain observers (see the Association of Italian Joint Stock Companies’ (Assonime’s) Circular No. 4 of 2024) have proposed the application of the revenues parameter, which means allocating costs based on the proportion of revenues generated by the subsidised activity compared with the total revenues of the company. To avoid future disputes, clarification on this point from the tax authorities would be appropriate.

Another critical aspect is the treatment of losses related to the reshored activities. Article 83(1) of the Italian Income Tax Code requires losses to be accounted to the same extent as profits in case any tax relief is applied to the relevant income. Based on this, losses relevant for the reshoring regime are only those directly related to the business activity transferred to Italy. Moreover, as the Italian regulation here at stake does not provide anything specific with respect to losses, there has been separate clarification (for example, Assonime Circular No. 4 of 2024) that such losses shall be recognised to the extent of 50%, in line with the reduction provided for by the reshoring regime.

However, this approach seems excessively punitive for taxpayers with loss-making reshored activities while their non-reshored activities are profitable. They would face a greater fiscal impact compared with those that conduct the same activities without benefiting from the regime. A further clarification on this matter is needed by the Italian tax authorities.

Given the application of the reshoring regime to “business activities”, particular attention must be paid with respect to holding companies. Indeed, only holding companies engaged in a business activity are eligible for the regime (see Assonime Circular No. 4 of 2024). To determine whether a holding company engages in a business activity, it is crucial to assess if the ownership of the shareholdings is coupled with an economic activity. This economic role is characterised by the holding company's ability to influence, directly or indirectly, the business activities conducted by its subsidiaries.

In such cases, it is paramount to conduct a case-by-case analysis, verifying if the holding company simply holds shares passively or engages in additional activities that go beyond passive ownership, including taking an active role in the management of the subsidiaries, intervening directly in the operations, or providing services that are of common interest and utility to them.

Thus, generally speaking, the reshoring regime does not apply to static holding companies (merely holding shares without engaging in further economic activities) and IP companies (managing IP but not engaging in broader business operations).

The reshoring regime offers a strategic opportunity for businesses to relocate their foreign operations back into Italy. By providing significant tax incentives, this regime aims to stimulate domestic economic growth, enhance domestic production, and create job opportunities.

However, businesses must carefully evaluate their eligibility and ensure compliance with the requirements, since the regime requires a case-by-case analysis, along with official clarification to ensure consistent and accurate implementation. Until such clarification is provided by the relevant authorities, businesses may face uncertainties and challenges in applying the regime effectively (particularly regarding the treatment of losses and the segregation of accounting), which could be alleviated by filing specific ruling requests to the Italian tax authorities.