Budget Law 2026

Regulatory framework and subjective scope

Budget Law 2026 (Law no. 199/2025) reintroduced, with several amendments, the regulation on increased depreciation for IRES and IRPEF purposes for new capital goods functional to the businesses’ technological and digital transformation carried out between January 1, 2026 and September 30, 2028, pursuant to the “Industry 4.0” model.

The rationale underlying this measure is twofold:

• to strengthen the business competitiveness through investments in cutting-edge, interconnected assets;
• to modify the incentive system, moving from a tax credit (also benefiting loss-making entities) to an increase in the depreciable base (more advantageous for entities with a positive direct tax base) through an off-the-books reduction.

This incentive was introduced for the first time by art. 1, para. 9 and 10 of Law no. 232 of 2016 for investments in new capital tangible and intangible assets functional to the businesses’ technological and digital transformation, carried out by December 31, 2017 or by September 30, 2018 in case of orders accepted by the seller and advances for at least 20% of the purchase cost paid by December 31, 2017. This measure was then extended for another two years, until December 31, 2019.

Its functioning remains essentially unchanged, though with some amendments compared to previous editions. Specifically, for income tax purposes (IRES and IRPEF), business owners are granted an increase in the purchase cost of new capital goods to be considered when determining depreciation allowances and deductible finance lease payments, limited to investments that meet certain conditions, as listed below.

A further similarity with previous editions is the requirement that investments must be made in production facilities located on the Italian territory. This requirement also applies to Italian permanent establishments of foreign entities which, although eligible for the tax incentive, are required to direct their investments towards facilities located within the country.

A remarkable change regarding the subjective requirement has been introduced by the provision establishing that, in any case, in order for businesses to be eligible for the tax incentive, they must comply with the regulation on workplace safety applicable in each industry, as well as with the requirement to pay social security and welfare contributions to their employees.

On the contrary, businesses in the situations listed below, are excluded from the tax incentive:

1. voluntary liquidation;
2. bankruptcy;
3. administrative compulsory liquidation;
4. composition with creditors with discontinuation of the business activity;
5. other insolvency proceedings as under the Code or corporate crisis and insolvency or other special laws;
6. businesses with a proceeding underway to declare one of the situations above and, lastly
7. businesses subject to debarment measures under Legislative Decree no. 231/2001.

In short, the subjective scope of the increased depreciation for 2026 is highly inclusive, yet rigorous. It virtually includes all businesses operating nationwide, provided that they are fully compliant with administrative, social security contributions and safety regulations, and are not experiencing financial distress or subject to tax regimes incompatible with depreciation.

Duration and timeframe of the incentive

In order to benefit from the measure above, interested businesses need to make investments within a timeframe spanning from January 1, 2026 (date of entry into force of the Budget Law) to September 30, 2028.

Investments are considered as made if they comply with the requirements under art. 109 of TUIR. Unlike the previous version of the norm and other similar tax relief laws, the so-called “reservation” mechanism has not been reintroduced here, which allowed investments to be made even after the deadline imposed by law, provided that the taxpayer had paid a certain amount as an advance payment by that deadline.

In other words, the deadline of September 30, 2028 is mandatory and investments need to be completed and the relevant underlying assets installed and connected by that same date.

Increase rates and procedure

The law has introduced a reward mechanism that is inversely proportional to the amount of the investment. In fact, it identifies three investment brackets, assigning each one a percentage of hyper-depreciation that decreases as the investment increases, according to the table below.

Objective scope: eligible tangible and intangible assets

Para. 429, letters a) and b) of 2026 Budget Law specifies that the following investments are eligible for the tax incentive:

a)    investments in new tangible and intangible assets included, respectively, in the lists under Annexes IV and V attached to 2026 Budget Law, interconnected with the business’ production management system or supply network; 

b)    investments in new tangible capital assets instrumental to the business activity aimed at the self-production of energy from renewable sources for self-consumption, even remotely, as referred to in art. 30, para. 1, letter a), number 2) of Legislative Decree no. 199 of 2021, including facilities for the storage of the produced energy.

A concrete calculation shows that the tax saving, expressed as a percentage on the first bracket, leads to a benefit equal to 24% on the higher tax cost of the investment (180), resulting in a percentage advantage of 43.2%, spread over the period of tax depreciation. 

With regard to the investment brackets, it should be noted that the regulation does not specify whether they should be considered on the basis of the two-year investment period or per fiscal year. For reasons of consistency and analogy with the previous version, it would be reasonable to conclude that the brackets should be considered for each individual fiscal year.

The benefit is enjoyed on the basis of the tax depreciation period governed by Ministerial Decree 31/12/1988, in the case of tangible assets also considering the reduction to half the rate for the first year of operation. With regard to leases, the increase in cost is deducted over the term of the contract which, as known, cannot be shorter than half of the tax depreciation period for that type of asset. 

As regards the amortisation period for intangible assets, however, reference is made to art. 103 of TUIR: according to para. 1, the amortisation and therefore the benefit can be claimed for a maximum of two years. 

The mechanism for benefiting from the incentive, which is essentially based on a deduction from the taxable base, is structured in such a way that profit-making businesses will enjoy more immediate relief than businesses that, on the other hand, record tax losses. For the latter, the incentive will translate into concrete financial aid (lower taxes to pay) only when they make profits and possibly have already exhausted the deduction of tax losses accrued in the meantime.

The first category includes smart machinery, advanced sensor devices, monitoring systems, production management software and interconnection platforms. As mentioned, the law requires that these assets must not only be new, but above all interconnected with the business’ production management system or supply network - a requirement that certifies their actual inclusion in an advanced production ecosystem.

The second category concerns those assets related to the energy transition. The law also provides that assets intended for the production of energy from renewable sources for self-consumption, both on-site and remotely (see art. 30, para. 1, letter a), number 2) of Legislative Decree no. 199 of 2021), including energy storage systems, are also eligible for hyper-amortisation. 

It should also be noted that in order to access this tax incentive, businesses must submit specific communications and certifications regarding eligible investments electronically. Electronic transmission is carried out via a platform developed by and using standardised forms provided by Gestore dei Servizi Energetici S.p.A. (GSE). 

Asset requirements: Made in Europe and interconnection

Under the current legislation, one of the most significant new developments, but also one of the most critical issues, is the restriction on the origin of assets, i.e. the requirement that the assets being invested in must be produced in one of the Member States of the European Union or in countries that are signatories to the Agreement on the European Economic Area. 

According to most of the legal literature that has commented on this point so far, compliance with this requirement could make the rule difficult to apply, given that the concept of “place of production” is not currently well defined. Furthermore, limiting the place of production to the European Union and the states that are members of the EEA could render the rule inapplicable for those companies whose source of supply is located outside this perimeter.

Based on the current regulation, the implementing decree will define the technical criteria for qualifying ‘production in Europe’ (components, assembly, predominant origin); however, it should be noted that Deputy Minister Maurizio Leo, during a meeting with the trade press, announced the forthcoming elimination of this restriction. Given that the regulation is already in force, we will see whether the amendment will have an ex tunc or ex nunc effect. 

With regard to the interconnection requirement, in line with numerous other beneficial provisions, the regulation provides that tangible and intangible 4.0 assets can only be eligible for the tax incentive if they are interconnected with the business’ production management system or supply network. We refer here only to a few fundamental points under the concept of interconnection, namely that the asset must exchange data (establish a communication flow) with the business’ IT systems must be uniquely identifiable within the business’ IT network. For assets costing more than € 300,000, the interconnection must be certified by a sworn technical report or, for those costing less, by a self-certification from the legal representative.

Prohibition of cumulation and forfeiture

The regulation explicitly provides for rules on the cumulation of this tax incentive with other subsidies covering the same costs. 

In other words, the incentive in question can be combined with additional benefits financed by national and European resources covering the same costs, provided that the support does not cover the same cost shares of the individual investments of the innovation project and does not exceed the cost incurred. It is also specified that the basis for calculating the incentive is net of other subsidies or contributions, for any reason, received for the same eligible costs.

Furthermore, the new regime cannot be applied to investments benefiting from the tax credit for investments that have taken advantage of the 4.0 tax credits. This is the case for investments “reserved” by December 31, 2025 and made in the first half of 2026. Such investments (without prejudice to the other conditions laid down in the regulation) would simultaneously meet the requirements to benefit from the aforementioned 4.0 tax credit, but also from increased depreciation, as they are made pursuant to art. 109 of TUIR with effect from January 1, 2026. The regulation aims to avoid this overlap by stating that only in cases where the 4.0 credit is not applicable hyper-amortisation can be used.

With regard to forfeiture, it is envisaged that if, during the period of use of the cost increase (i.e. during the depreciation period of the asset), the asset covered by the incentive is sold for consideration or is transferred to production facilities located abroad (even if belonging to the same entity), the use of the remaining portions of the incentive originally determined shall not be forfeited. However, in such circumstances, the company must replace the original asset with a tangible capital asset with similar or superior technological characteristics during the same tax period as that of the sale. It should also be noted that where the acquisition cost of the substitute investment is lower than the acquisition cost of the replaced asset, the incentive continues to be enjoyed for the remaining portions up to the cost of the new investment.