The 2017 Italian Budget Law has confirmed the so called “super-ammortamento” and in addition to this it has also introduced the “iper- ammortamento”, which translated into English are super and hyper depreciation.
What’s the difference between the two?
The former, the super depreciation, gives the possibility to depreciate at 140% the new capital goods that Italian companies buy. The aim of this measure is to incentivise Italian firms to invest more.
The latter, the hyper depreciation, has the same purpose of the super depreciation, but provides a higher incentive for Italian companies as they are able to depreciate at 250%. However, this depreciation rate is applicable only to high-tech purchases i.e. those capital goods that are part of the industry 4.0 such as 3D printers, 3D scanners, nanotechnologies, big data, robotics and smart materials.
How do they work?
Depreciation is defined as an accounting method of allocating the cost of a tangible asset over its useful life. This is done because the asset is not only used in the year it is bought, but also for the following years, depending on its useful life.
Usually companies allocate over the years the historical cost of the machinery. However, thanks to the super and hyper amortizations Italian companies that have invested in new capital equipment do not allocate the historical cost of the equipment, but the historical cost plus 40% or 150% of it, depending if they benefit from the super or hyper amortization.
This means that for the entire life of the good, the company will have higher depreciation expenses on its income statement leading to a lower net income before taxes and thus less taxes to be paid.
To better understand how powerful this instrument can be and how much each company could save investing in capital goods, this example could be useful:
If a company invests 1 million and benefits from the “super-ammortamento” at 140%, then for the following 5 years it will save around €96 000. Furthermore, if the investment is made in high-tech goods, the savings on taxes will rise to €360 000 i.e. an increase in savings equal to 275%.
Every Italian company, investing in capital and/or high-tech goods is eligible to benefit from the super and the hyper amortization, respectively.
The only requirement is that the purchase of the good should occur no later than June 30, 2018 as long as the down payment of at least 20% is done by December 2017.