The Law for the development of southern Italy [1] opened the door for a series of measures aimed at enhancing economic growth in the South. The law is a roadmap for the south that just might have sufficient flexibility to be successful. It establishes that a Regulation will be issued defining the economic aspects of development, in particular the Special Economic Zones.
On 27 February 2018 the Regulation for the establishment of Special Economic Zones (ZES) came into force. The decree of the President of the Council of Ministers 25 January 2018 n. 12[2] defines the modalities for the establishment of SEZ, including interregional SEs; their duration; the criteria for identifying and delimiting the SEZ area; the criteria governing company access; general coordination of development objectives.
1. The Italian legislative Framework
With this “set” of measures, the creation of Special Economic Zones (SEZ) is ready. These zones will have “zero bureaucracy” and additional tax benefits compared to the ordinary corporate tax system applicable in southern Italy (eligible investments up to 50 million). Two SEZs are allowed for each of the 6 southern regions (Campania, Basilicata, Puglia, Calabria, Sicily and Sardinia).
This “new deal” for the South represents, therefore, a strong push for investment. It is an important political and economic commitment from the Government and tries to achieve the equality of growth between North and South by encouraging both the businesses already operating in this area, and new ones, to bet on the South.
The new SEZs must follow a common model of economic growth (methods, duration and the related criteria governing the use in economic, financial and administrative terms). They should relate to each other as well as ensuring the full connection of the territory to the Trans-European Transport Network (the TEN-T, core and comprehensive transport network designed at EU level in 2013).
The legislative text must be implemented through action plans which have not yet been completed. By the end of the year, it will be possible to verify whether the unanimous chorus of those who have welcomed the adoption of this law, will still be able to stay united and work for the economic and employment growth of the whole southern Italy, especially when it will no longer favour “territorial parochialism”.
There is no doubt that the establishment of even one SEZ by region, where simplified procedures and special schemes will be applied and where there will be tax benefits for enterprises, will require a high level of agreement between local, regional and national institutions as well as economic stakeholders. This is not always easy to achieve but it will be necessary so as to avoid distortions of competition in full compliance with the applicable European Community State aid law.
The regulatory architecture of the SEZ has now been completed. Detailed plans must now be drawn up to ensure the viability of each SEZ, as well as the interoperability and interconnection between them.
Special Economic Zones (SEZs) are geographical areas in which a governmental authority offers incentives for the benefit of the businesses operating in that area, through instruments and facilities that are less burdensome than immediately outside the zone. In the EU the fundamental objective of SEZs’ is to increase the competitiveness of the enterprises working within them, to attract direct investment especially from foreign entities, to increase exports, to create new jobs and, in general, to strengthen the production sector through stimulating industrial growth and innovation. They are the “growth poles”, foreseen in the political guidelines of maritime transport policy (Valletta Declaration of 29 March 2017).
SEZs can take a number of forms including:
The new law provides that a steering committee, subject to the competences that the national and Community authorities assign to them, will be responsible for managing the SEZs through:
2. The SEZs and the EU Law Policy framework
Once the internal architecture of each SEZ has been defined, they must be notified to the European Commission and examined for the compatibility with the relevant rules on State aids[3].
The EU legal framework on State Aids, which is well described in the “Guidelines in Regional State Aid for 2014-2020[4], has its main principles concerning the Compatibility Assessment of Regional Aid.
The Guidelines indicate that “..to assess whether a notified aid measure can be considered compatible with the internal market, the Commission generally analyses whether the design of the aid measure ensures that the positive impact of the aid towards an objective of common interest exceeds its potential negative effects on trade and competition”.
It is important to underline that the Communication on State aid modernization of 8 May 2012 called for the identification and definition of common principles applicable to the assessment of compatibility of all the aids carried out by the Commission. For this purpose, the Commission will consider an aid compatible with the Treaty only if it satisfies each of the following criteria:
From a general point of view, the types of aid that may be granted, are divided into two types:
Investment aid: in Italy, the areas eligible for regional investment aid under EU rules are 6: Basilicata, Calabria, Campania, Puglia, Sicily and Sardinia, which have a total population of 20. 6 million inhabitants. The maximum levels of aid that can be granted in relation to investment projects varies according to the size of the applicant: in the case of large enterprises, the range to be taken into consideration is between 10% and 25% of the total investment cost, depending on the area of reference, with the possibility of obtaining increases related to the aid intensity of 10% for medium-sized companies and 20% for small businesses;
Operating aid: in addition to investment aid, the European law has stipulated the possibility for SMEs to obtain subsidies aimed at reducing a firm's current expenses not related to an initial investment. These expenses include the costs of personnel, materials, contracted services, communications, energy, maintenance, rent, administration and so on, but not depreciation charges and costs of financing if they were included in the eligible expenses at the time the investment facilities were granted.
Regional aid, designed to reduce an enterprise’s current expenses constitute operating aid, and are presumed to be compatible with the internal market under certain conditions (in order to compensate specific or permanent disadvantages encountered from enterprises in disadvantaged regions, and to prevent or reducing depopulation in areas with very low population density).
In the European Union, there are already around 91 Free Zones (including the Special Economic Zones) already operating, some of which can be identified as best practice:
The Decree for the development of southern Italy aims is to expand the use of SEZs beyond the limited number existing today. Currently, there are 4 areas falling under the “free tax” model:
Italy’s new approach to economic development in the south is to marry the EU’s structural funds with incentives for business within limited economic development zones. It is not clear that this approach will work but it is a welcome change to what has gone before.
The EU will have to evaluate the legality of the new approach through the lens of EU state aid rules. It is clear that some of the incentives can be seen as subsidies. But at the same time the injection of enterprise is something new and must be encouraged.
This article is for information purposes only and is not intended as a professional opinion.
For further information, please contact Giovanni Moschetta.
[1] Legge 91 del 2017, Disposizioni urgenti per la crescita economica del Mezzogiorno, in Gazzetta Ufficiale della Repubblica Italiana del 20 giugno 2017.
[2] Gazzetta Ufficiale della Repubblica Italiana del 26 febbraio 2018.
[3] Article 107, TFEU.
[4] Guidelines on Regional State Aid for 2014-2020 – 2013/C 209/01
