Doing Business in Italy

Doing Business in Italy Contents 1 Fact Sheet 2 2 Business Entities and Accounting 2.1 Companies 2.2 Partnership...
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Doing Business in Italy

Contents 1 Fact Sheet


2 Business Entities and Accounting 2.1 Companies 2.2 Partnerships 2.3 Sole Proprietorship 2.4 Branches 2.5 Audit and Accounting Requirements 2.6 Filing Requirements

4 4 5 6 6 6 7

3 Finance and Investment 3.1 Exchange Control 3.2 Banking and Sources of Finance 3.3 Investment Incentives 3.4 Tariffs

8 8 8 9 9

4 Employment Regulations 4.1 General Employment Matters 4.2 Visas and Permits

10 10 11

5 Taxation 5.1 Corporate Income Taxes 5.2 Personal Taxes 5.3 Employment Related Costs and Taxes 5.4 Withholding Taxes 5.5 Value Added Tax (VAT) 5.6 Other Taxes 5.7 Tax Incentives for Businesses

12 12 13 14 15 16 16 17


1 Fact Sheet Geography Location:

Western Europe

Area: 301,340km² Land boundaries:

Austria, France, San Marino, Slovenia and Switzerland


Adriatic Sea, Ionian Sea, Ligurian Sea and Tyrrhenian Sea, which are subdivisions of the Mediterranean Sea


Mediterranean; Alpine in far north; hot and dry in south


The country has two mountain ranges: the Alps to the north and the Apennines along the whole peninsula. Plains constitute 23.2%, hilly areas 41.6% and mountains 35.2% of the territory.

Time zone:

GMT +1

People Population:

60.92m (2012)

Ethnic groups:

Predominantly Italian, with small populations of German, French, Slovene, Albanian and Greek Italians


Catholic (majority)


Italian; some provinces also recognise German, French or Slovene as official languages

Government Country name:

Italian Republic

Government type:


Capital: Rome Administrative divisions:

Italy is divided into 20 regions, five of which are autonomous. These regions are further divided into provinces (110 in total) and communes.

Doing Business in Italy


Political situation Italy is a republic with a bicameral parliament that consists of the Senate (315 seats) and the Chamber of Deputies (630 seats). The president is Head of State, who is elected for a seven-year term by an electoral college consisting of both Senate and Chamber members. In turn, the president appoints the prime minister, who must also be confirmed by parliament. The electoral system is a form of weighted proportional representation. Members of the Senate are elected by proportional vote within each region, for a five-year term; members of the Chamber of Deputies are elected by popular vote, again for a five-year term.

Economy GDP – per capita:

US$33,049 (2012)

GDP – real growth rate:

–2.4% (2012)


12.5% (Sep 2013)


Euro (€)


2 Business Entities and Accounting 2.1 Companies 2.1.1 Limited liability companies The limited liability company (società a responsabilità limitata – Srl) is responsible for its obligations only to the extent of its assets. Participation rights are represented by quotas of stock and in order to incorporate this type of entity a minimum subscribed share capital of €10,000 is required, 25% of which must be paid up before registration. In an Srl, quota holders, if individuals, are typically also directors. An Srl can be established by a single shareholder, although exceptionally the minimum share capital would have to be fully paid up. Shareholders can be individuals or legal entities. The law does not specify a minimum or maximum number of directors, but if only two shareholders make up the Srl membership, they are deemed to form a board of directors.

2.1.2 Joint-stock companies The joint-stock company (società per azioni – SpA) is ideally used where an enterprise conducts business of significant dimension and where there is a need for contributions from investors (shareholders). In summary, stockholders’ participation rights and powers in an SpA are represented by their respective share of stock, with the SpA liable for its financial obligations (only to the extent of its assets). To incorporate an SpA, the minimum subscribed capital requirement is €120,000. Where in-kind contributions are made, an appraisal is generally necessary (eg of accounts receivable, real estate, etc). Shareholders can be individuals or legal entities. The law does not provide for a maximum number of directors; however, a single director can be appointed. Alternatively, an SpA can appoint a single tier management board of directors, or a dual tier management structure comprising a board of directors and a supervisory board.

Doing Business in Italy


2.1.3 Simplified limited liability companies Individuals under 35 years of age can establish a simplified limited liability company (società semplificata a responsabilità limitata – Ssrl) with a share capital of between €1 and €9,999. The Ssrl can be established by a standard written agreement and there are no fees for registration in the Companies Register. When an individual reaches the age of 35, the Ssrl must be transformed into another form of corporate entity.

2.2 Partnerships 2.2.1 General partnerships A general partnership (società in nome collectivo) is formed by two or more partners who have joint and several liability for the partnership’s obligations. It is not a separate legal entity.

2.2.2 Limited partnership A limited partnership (società in accomandita semplice – SAS) comprises general partners who have joint and several liability for the partnership’s obligations; and limited partners who are liable only to the extent of their investment. The limited partners are prohibited from managing the partnership. However, unlike the partnership limited by shares (see 2.2.3), no minimum share capital is required, although the share capital must be sufficient for the purpose of its business.

2.2.3 Partnership limited by shares A partnership limited by shares (società in accomandita per azioni – SAPA) comprises general partners who have joint and several liability for the partnership’s obligations; and limited partners who are liable only to the extent of their investment. The limited partners are prohibited from managing the partnership. The rules applicable to SpAs also generally apply to SAPAs, including minimum share capital requirements (see 2.1.2).


2.3 Sole Proprietorship A sole proprietor is a single entrepreneur who carries on a business. The sole proprietor is liable for the obligations of the business, exposing their personal assets to the claims of the business.

2.4 Branches An alternate approach to standard incorporation may include the establishment of a branch. A branch may be formed where an overseas company establishes a place of business in Italy without the formation of an Italian limited company. A branch is considered a separate legal entity and must register with the Companies Register, and maintain books and records, information on all correspondence and general information about the company. The establishment of a branch structure requires the nomination of an “institor” to be the legal representative of the Italian branch, and who has all the necessary powers to operate the branch.

2.5 Audit and Accounting Requirements Annual accounts must be presented to and approved by the shareholders’ annual general meeting (AGM) within 120 days of the company’s financial year end. This can be extended to 180 days in certain situations. SpAs must have their accounts audited. An Srl must appoint a board of statutory auditors and/or accounting auditors if share capital exceeds €120,000, or when two of the following conditions occur for two consecutive years: • Assets exceed €4.4m • Turnover exceeds €8.8m • An average of 50 or more personnel are employed during a financial year. Companies generally must also have prepared each year a directors’ report giving a true and fair view of the company’s financial position. Consolidated financial statements of companies that trade securities in regulated markets must be prepared using IFRS, under the provisions of the EU International Accounting Standards (IAS) Regulation. Other companies are permitted to use IFRS or Italian generally accepted accounting principles (GAAP).

Doing Business in Italy


2.6 Filing Requirements Companies must file annual accounts, along with the director’s report and the auditor’s report (if required), with the Companies Register within 30 days after the shareholders’ AGM.


3 Finance and Investment 3.1 Exchange Control There are no restrictions on foreign currency exchange or the import or export of capital. Both residents and non-residents can hold bank accounts in any currency.

3.2 Banking and Sources of Finance 3.2.1 Banking The Bank of Italy (Banca d’Italia) is Italy’s central bank and is a member of the European System of Central Banks. Its primary functions are in relation to monetary policy, banking regulation and supervision. The banking sector is a mature and comprehensive system of both private and state institutions. Overdrafts with fluctuating interest rates are the most commonly used facility for financing working capital or to fund seasonally affected businesses. Banks offer short-, medium- and long-term loans with negotiable repayment terms and fixed or variable interest rates. In addition to these traditional services, banks offer various other financing arrangements, either themselves or through subsidiaries or affiliates. These include instalment credit, leasing, factoring and invoice discounting.

3.2.2 Stock exchange and trading facilities The only stock market in Italy is the Borsa Italiana in Milan. It is part of the London Stock Exchange plc and operates Italy’s derivatives and fixed income markets.

Doing Business in Italy


3.3 Investment Incentives Incentives are based on the size and location of the enterprise and are tax credits, grants or loans with very favourable terms. All incentives are in line with EU rules and it is the business’s responsibility to ensure that any incentive applied for must receive prior EU approval or be subject to subsequent investigation. See 5.7 for more details on tax incentives.

3.4 Tariffs Italy is an EU member state. Consequently, through the EU’s membership with the World Trade Organization (WTO), it has undertaken not to raise tariffs above levels agreed to in trade discussions. Additionally, the EU has developed an extensive network of bilateral free trade agreements.


4 Employment Regulations For employment tax considerations, see 5.3.

4.1 General Employment Matters 4.1.1 Employment law Employment in Italy is governed by several laws, including the Civil Code, the Constitution, the Workers’ Statute and various decrees. Employment law was subject to reform in 2012 under Law No. 92 of 18 July 2012.

4.1.2 Employment contract Permanent and fixed term temporary contracts must be in writing, and contain certain information, including: • Place of work • Job title or nature of work • Rate or calculation method of pay • Hours of work • Details of paid leave • Notice period to quit by employer or employee. It can also provide a probation period. There is no requirement for other employment contracts to be in writing. The maximum working schedule is 8 hours per day or 48 hours per week, averaged over a four-week period. Unless provided for by a collective labour agreement (CLA), overtime is restricted to a maximum 250 hours per year. Employees are entitled to four weeks’ annual paid leave, plus public holidays. There are additional entitlements to paid leave for personal events, such as marriage and bereavement. There is no national minimum wage, but minimum pay may be provided for in CLAs.

Doing Business in Italy


4.2 Visas and Permits Italy is a signatory to the Schengen Treaty, under which several entry visas are available to those outside the Schengen Treaty countries: • A and B visas – these are airport and transit visas for those travelling through the Schengen area • C visa – this allows a foreigner to spend up to 90 days within a Schengen country for various purposes, including business, medical treatment, sports competitions, study and tourism • D visa – this is a national visa, which allows the holder to reside in Italy for up to one year. Those requiring a visa must obtain one before entering Italy. All European Economic Area (EEA) nationals are allowed to work in Italy without a work permit. For non-EEA nationals, a strict quota system applies. The government issues a Flow Decree (Decreto Flussi) in the early months of each year, announcing the maximum non-EEA worker quota for the year. Employers are required to file an application with the Central Immigration Desk, supplying detailed information about the nature of the business and work the foreign employee is to be engaged in, and the employee’s personal details. Once approved, the foreign worker may then apply for an entry visa in their country of residence.


5 Taxation 5.1 Corporate Income Taxes Resident companies, defined as companies which have their • Legal base • Effective place of management (administrative headquarters), or • Main business purpose (principle business activity) in Italy for most of their tax year, are liable to corporate income tax on their worldwide profits. Non-resident companies are taxed on their income from sources in Italy, subject to the terms of any relevant double tax treaty. The standard corporate income tax rate is 27.5%. Some companies involved in power generation are subject to additional surcharges that increase the standard rate. Dormant and shell companies are subject to a 38% rate. Companies are liable to an additional regional tax (IRAP) on their added value produced in Italy; the standard IRAP rate is 3.9%, which regional authorities may adjust within certain limitations. A €7,500 deduction in the calculation base for IRAP is available for each new employee hired. This allowance increases to €13,500 if the newly hired employee is female or under the age of 35. Companies operating in more than one region must apportion their profits for IRAP purposes by reference to their personnel costs in each region. Personnel costs and interest costs are in general not deductible in computing the added value. An amount equivalent to 10% of IRAP is deductible in computing the profit assessable to corporate income tax. Capital gains from the disposal of shares held for at least 12 months in companies carrying on a business activity are exempt as to 95% of their amount, subject to several conditions. Other gains are taxed as income. Gains from the disposal of assets held for at least three years may, at the option of the company, be apportioned for tax purposes between the year in which the gain is incurred and up to the following four years. Losses incurred in the first three years of a new business activity may be carried forward indefinitely for relief against future profits. Otherwise, losses may be carried forward indefinitely, but are limited to 80% of taxable income in any one year. Losses cannot be carried back to earlier years. Losses cannot generally be carried forward where there is a change of ownership of the company and in the company’s business activity.

Doing Business in Italy


Group companies may elect to consolidate their trading results for tax purposes and be taxed at the parent company level. The election must apply for a minimum three-year period. The group consolidation option extends to a resident parent company and nonresident companies in which it owns a majority interest. All such companies must be included. The non-resident companies’ trading results, computed in accordance with Italian tax rules, are imputed to the resident parent company in proportion to its shareholding interest. The election must apply initially for a minimum five-year period, then minimum three-year periods if renewed. Companies must file tax returns by reference to their financial year. Returns are due within nine months after the financial year end. Companies must make two payments on account of their tax liability during their financial year, based on their liability for the previous year, with the balance of the liability payable by the 16th day of the sixth month following the financial year end.

5.2 Personal Taxes Resident individuals are taxed on their worldwide income. Non-resident individuals are taxed on their income from sources in Italy, subject to the terms of any relevant double tax treaty. The income tax rates for 2013 are as follows: Taxable Income

Tax Rate

€0 – €15,000


€15,001 – €28,000


€28,001 – €55,000


€55,001 – €75,000


over €75,000


A 3% surcharge applies from 2011 through 2013 to individuals with annual taxable income in excess of €300,000. Capital gains from the disposal of non-qualified shareholdings are generally taxed at 20%. For qualified shareholdings, 49.72% of the gain is generally subject to progressive personal income tax rates. Capital gains from the disposal of specified immovable property, eg certain real estate (other than development property) are exempt from tax if the asset has been held for more than five years. Otherwise the gains are generally taxed as income.


Inheritance and gift taxes are charged on the beneficiary at 4%, 6% or 8% of the value, depending on the relationship between the donor and the beneficiary. Inheritances and gifts received from a spouse or a parent are exempt to the extent of the first €1m. There is no wealth tax. There is, however, a 0.15% levy on the market value of foreign financial assets, and a 0.76% levy on the value of property held abroad.

5.3 Employment Related Costs and Taxes 5.3.1 Payroll and social security taxes Employers are generally required to withhold tax at source on all remuneration in cash and in kind paid to employees. The withheld tax is remitted monthly to the tax authorities. The rate is determined on the basis of the annual gross salary, subject to deductions for dependants. Adjustments can be made by the employer before the year-end. Social security contributions are payable by employers and employees at rates that vary by reference to the size and category of the business and the seniority of the employee. Employers’ contributions are generally in the region of 30% of salaries. Employees’ contributions are generally at rates of up to 10% of their salary.

5.3.2 Fringe benefits In principle, all cash allowances paid to employees and all benefits in kind provided by employers are treated as part of an employee’s salary and are therefore subject to payroll tax at source. Special rules and exemptions apply to certain allowances, such as those for business trip expenses and personal use of a company vehicle.

5.3.3 Relocation benefits Reimbursed relocation costs are 50% tax exempt for amounts up to €1,549.37 for relocations to Italy (€4,648.11 for relocations outside Italy). In principle, reimbursement of expenses related to family holidays is considered taxable income in the hands of the employee. Any allowance paid to compensate an expatriate who lives away from his or her family or home country is taxable. Employer payment of school fees is not subject to income tax.

Doing Business in Italy


5.4 Withholding Taxes 5.4.1 Domestic payments The rates of withholding tax on payments made by companies to resident individuals are set out below: Tax Rate Dividends






Generally, there are no such withholding taxes for payments made to resident companies. Dividends from qualified shareholdings are subject to the progressive personal income tax rates on 49.72% of the payment. Interest received from some bond issues is taxed at 12.5%.

5.4.2 Payments abroad The general rates of withholding tax on payments made abroad by companies are set out below: Tax Rate Dividends






Dividends based on profits accruing from 1 January 2008 and paid to recipients in the EEA are subject to a reduced withholding tax of 1.375%, provided the recipient is resident in a country which charges corporate income taxes on dividends received and which allows for free exchange of information with Italy. Under legislation implementing the EU Parent-Subsidiary Directive, dividends paid to a company in the EU are exempt from withholding tax if that company has owned 10% or more of the paying company’s share capital for at least 12 months. A lower rate of 12.5% applies to interest from bonds issued by the government. The withholding tax rate for royalties of 30% is generally applied to 75% of the gross amount of the payment, giving an effective rate of 22.5%. Under the EU Interest and Royalties Directive, interest and royalties paid to associated companies in the EU are exempt from withholding tax, subject to conditions. For payments made to recipients in countries with which Italy has a double tax treaty, the rates of withholding tax may be reduced under the terms of the treaty.


5.5 Value Added Tax (VAT) VAT is levied on the selling price of goods and services and on the value of imported goods. There are generally no VAT registration thresholds, although individuals reporting annual sales revenue lower than €30,000 are entitled to elect for exemption from output VAT on sales. The standard rate is 22% (21% before 1 October 2013), with reduced rates of 10% and 4% applying to some commodities. Exports are zero-rated. Some supplies are designated as exempt, eg medical and certain financial services. Businesses, other than those making exempt supplies, can generally recover the VAT with which they themselves are charged.

5.6 Other Taxes 5.6.1 Property taxes A unified municipal property tax is levied on property at a general rate of 0.76% of cadastral value (0.4% on private residences). Local authorities can adjust the rates within certain limits. There is an allowance for dependants living in the home, up to the age of 26 years. Generally, a 7% registration tax is payable by the purchaser on the transfer of property. Mortgage tax is generally payable at the rate of 2%, and cadastral tax is generally payable at the rate of 1%.

5.6.2 Transfer taxes on shares, securities, etc. The transfer of shares and similar securities is subject to a fixed €168 registration tax. Transfers are exempt if executed through a recognised stock exchange or between a bank or other authorised dealer and a non-resident person. The €168 transfer tax also applies to various transfers of other assets. A 0.22% tax applies to the transaction value of sales of shares and other equity instruments issued by resident companies. The rate is reduced to 0.12% when the transaction occurs on a regulated stock market. These rates will be reduced to 0.2% and 0.1%, respectively, in 2014. From 1 September 2013, there is a tax of up to €200 on derivatives, the rate of which depends on the type of instrument transacted and its value. The tax will be reduced by 20% for transactions over regulated markets. A levy of 0.02% is also charged on high-frequency trades on Italian financial markets.

Doing Business in Italy


5.7 Tax Incentives for Businesses 5.7.1 Research and development (R&D) expenditure A 90% tax credit is available for R&D expenditure incurred on projects carried out in conjunction with a university or a public research institute. There is no annual limit to the amount of the credit. From 2013, this credit is available only where funds have been arranged through government departments. The base amount is the average of additional funds that a company has spent during the year, compared with an average annual amount spent on R&D during the period from 2008 to 2010. R&D credits can be carried forward indefinitely and without limit in the amount.

5.7.2 Tax credit for new employees Various tax benefits may be available to companies that increase the number of employees. Tax benefits are also provided for IRAP purposes provided certain conditions are met (see “Corporate Income Taxes” above). From 26 June 2012, a 35% tax credit applies to costs incurred by businesses employing “highly qualified” workers with a scientific or technical degree. To benefit, the employee must be a full-time worker employed for a minimum of three years.

5.7.3 Film industry incentives Tax incentives for the Italian film industry are run by the Fondo Unico per lo Spettacolo. The incentives include a tax credit of up to 25% of eligible production costs, with a maximum of €5m per film and 60% of the film’s overall production budget. Those costs may include expenses incurred in other EU countries, as long as they are not more than 30% of the film’s overall production budget.

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