Damalion Italy desk
Doing business in Italy
Italy is considered the eighth economic power in the world and the 3rd biggest economy in Europe. It is also one of Europe’s primary centers for the creation of startup businesses. Located in the heart of the Mediterranean Sea, with an area of 301,340km2 and a population of over 60 million, Italy’s strategic position enables trade between Northern and Southern Europe, North Africa, and the Middle East, making it an ideal place where to start a global business.
Although it had a reputation for bureaucracy, red tape, and a rigid labor market, Italy still has an attractive degree for foreigners to start their own businesses and invest there.
Here is a list of considerations when doing business in Italy:
- Italy is the world’s 8th largest economy
- Being a member of the European Union, companies in Italy have duty-free access to over 50 million consumers in over 30 markets within the European Economic Area (EEA).
- Italy’s major industries include machinery, tourism, iron and steel, food processing, textiles, chemicals, motor vehicles, and ceramics.
- The estimate for Italy’s GDP was $2.557 trillion at the end of 2022 in purchasing power parity terms.
- With nearly 40 million visitors and more hotel rooms than any other nation in Europe, Italy is one of the most visited countries in the world.
Being a world-renowned tourist destination, Italy holds substantial opportunities for business travellers.
Doing Business in Italy: Key Advantages
In addition to a skilled and flexible workforce, and developed and stable corporate legislation, Italy gives the following benefits for entrepreneurs looking to do business in the country
- Italy has a lot of tax incentives for foreign investors and businesses, as well as laws that facilitate international trade and competition.
- Italy’s geographic location makes it a strategic logistics hub and a gateway to the European Market.
- It has a low tax rate, good infrastructure, and labor productivity.
- Italy is financially developed and regarded as an ideal country for business, with its modern infrastructure, and high levels of internationalization.
- There are many benefits to living in Italy. One of them is the quality of life in comparison with other countries.
Italy remains a desirable economy for investment as it recovers from the international financial crisis and continues to thrive steadily each year.
ITALIAN LEGAL SYSTEM
The Italian legal system is based on civil law. The pillars of the legal system in Italy are comprised of legislative power, executive power, and judicial power.
The Italian Civil Code contains elements from older and credible rules of law, such as the Napoleonic Civil Code, Roman law, German laws, and the Italian Constitution that came into force in 1948. The stipulations pertaining to the registration of companies in Italy are also presented by the Italian Civil Code.
- Entity choice in Italy
Italian law provides many forms of organizational structures in order to do business in Italy. They differ from one another due to the degree of the liability undertaken by their participants; specific business organizational forms allow the participants to limit their liability, contrary to others which do not limit the liability of the participants.
Most investors and entrepreneurs normally enter the Italian market through organizational structures that give a limited liability to the participants.
Outlined below is an overview of all general business legal forms that foreign legal entities can choose from when establishing a business in Italy:
Joint Stock Company (Società Per Azioni or S.P.A.)
An Italian joint-stock company is any company whose shares are registered with a public register, and are transferable. A joint-stock company is usually used for bigger corporations employing a significant amount of capital.
The features of a Joint Stock Company (S.P.A.)
- Minimum of 1 director
- Suitable for medium to large companies
- Not restricted to foreign investors
- Minimum share capital of €120,000
- Its accounts must be filed annually with the Registrar of Companies
There are three management options for a S.P.A.: a formal board with one single director, a board of directors, or a management board appointed by a shareholder-elected supervisory committee.
Limited liability company (società a responsabilità limitata – s.r.l.)
An Italian limited liability company (società a responsabilità limitata – s.r.l.) is a business entity that incorporates the features of a partnership and those of a corporation.
The features of a Limited liability company (s.r.l.)
- It is the most common format for small and medium-sized businesses
- It requires at least one shareholder
- It requires a minimum investment of 10,000 EUR.
- Its shareholders have limited liability to the level of their contribution.
There are two major types of limited liability companies in Italy: Traditional Società A Responsabilità Limitata & Simplified Società A Responsabilità Limitata Semplificata
There are two key forms of partnership:
General commercial partnership (Società in nome collettivo – S.n.c.)
- It requires a minimum of two partners
- All its partners are general members of the partnership
- All its partners hold full liability and management duty.
- No minimum set-up capital is designated.
Limited liability partnership Società in accomandita semplice (S.a.s.) – The major conditions are the same as for a general partnership. But, at least one partner must be limited.
Other business types in Italy
Sole proprietorship (impresa individuale)
The sole proprietorship is the easiest form of business organization in Italy. It involves just one person who runs the company on his/her own without having to register it with the government.
- There are no formalities required to register it.
- The minimum capital is €10,000 for companies that deal in activities subject to VAT and €5,000 for other business activities.
Branch Of Foreign Company in Italy
A branch is not a separate legal entity but a foreign unit of the mother company.
Features of a Branch office in Italy
- It’s not a separate legal entity from its parent company
- It is independent concerning the way in which it organizes its activities in Italy
- It has the power to permanently represent the parent company in Italy
- It is taxed on its earnings at a corporate level.
- It has the decision-making ability to maintain the business of its parent company in Italy
Due to its progressive banking and credit system, opening a bank account (either personal or corporate) in Italy can be simple if you know how (hint: contact your Damalion expert and let us help).
As an entrepreneur looking to do business in Italy, having a bank account is essential to manage funds.
In Italy, anyone above the age of 18 can open a bank account. Also, you can open a bank account in Italy irrespective of your citizenship or visa status. But, you may encounter some restrictions regarding the type of account you can open depending on whether you’re a resident or a non-resident.
Type of bank accounts available to residents and non-residents in Italy
As a resident (you fall in the resident category if you spend over 183 days per year in Italy), you’ve got the option of opening the following types of bank accounts: Conto corrente (current account), Conto corrente cointestato (joint account), Conto di risparmio (savings account), and Conto di deposito (deposit account)
But as a non-resident, the only bank account option you have is the conto corrente non residenti, or conto estero, account.
Requirements for opening a bank account in Italy
Requirements to open a bank account in Italy may differ from bank to bank, and sometimes even from branch to branch. The most ideal option is to contact your local branch beforehand to know the particular requirements that apply to your immigration status and your banking requirements. However, despite the difference in the types of bank accounts that are available to residents and non-residents, the requirements for opening a bank account in Italy are the same for both sectors.
In order to open a bank account in Italy as a resident or non-resident, you have to present a valid ID or passport, Italian tax code (codice fiscale), residence permit, proof of employment or self-employment (e.g., income tax return)
Along with these documents, you’ll fill in a lot of paperwork and comply with an Anti-Money Laundry (AML) compliance.
Open a Nonresident Account from abroad
If you wish, you can also open an Italian bank account from abroad, but may not have a lot of choices. Some banks do permit nonresidents to open an account while outside of Italy, but only if the banking product is profitable.
Opening an account in Italy is quite straightforward but might be tricky for non-residents. You can save yourself a lot of stress by getting a specialized agency, e.g., Damalion, to help.
Italian Bank Consolidation
Italy’s banking sector has undergone serious consolidation since the mid-nineties; this decreases from roughly 1,000 banks through mergers, takeovers or asset transfers, liquidations, or, the conversion of banks into financial companies.
Consolidation was used mainly to bolster profitability. It has also been used to solve crises at some smaller banks, with the authorities providing incentives to support deals, such as enabling a portion of deferred tax assets to be converted into tax credits and count towards regulatory capital.
The fundamental purpose of this is to ease the impact of low rates and inflation, which will in turn make banking easier and more beneficial for customers.
The Italian government is also taking steps to further encourage the consolidation process to continue over the next years to improve the international competitiveness of the Italian banking sector.
Reasons to move to Italy are abundant, especially when you consider the thousands of years of history. Italian culture, incredible cities, low cost of living, delicious food, and fun-loving people.
Italy attracts thousands of tourists every year and many decide to move to Italy because, in addition to its many benefits, it is one of the easiest European countries to immigrate to.
Requirements for immigrating to Italy; getting an Italian visa
Individuals who want to immigrate to Italy must apply for one of the visas available under the National Immigration Law.
However, if you’re immigrating to Italy from another EU/EEA country, you won’t require a visa or residence permit. But if you want to move to Italy from any other part of the world, you’ll require a visa and residence permit.
When it comes to non-EU individuals immigrating to Italy, there are various types of visas they can choose from. These are:
Work visa: this is an employment permit that is available for those coming to Italy based on a job relation. A foreigner who has applied and acquired a job with an Italian company will be issued a work permit or employment visa. In this case, the employing company must perform the necessary processes in order to obtain the work permit on behalf of the foreign worker.
Study visa: this is a visa granted for a limited period to those who study in Italy. A big advantage of this is that the student visa can be converted into a work permit.
Golden/investor visa: the golden visa enables investors/any individual to apply for a residence permit based on investment. This type of visa is generally approved for non-EU citizens interested in making significant investments in Italy to obtain citizenship. This program was created by the Italian government in 2017. The conditions for this are:
- the least amount to be invested is 2 million euros in bonds issued by the government or companies or shares issued by companies
- investments of 1 million euros can also be made in cultural projects
- investments in startups are also allowed (minimum requirement is 500,000 euros)
- the investment must be kept for at least 2 years.
The investor will be granted a 2-year investor visa which can be renewed for an extra period of 3 years.
Freelancer visa: this is an entrepreneurial permit that allows a non-EU individual to set up a small business in Italy.
Retirement visa: this is given to senior citizens who want to retire permanently in Italy.
The other visas granted to non-EU individuals are the asylum and stateless person visas and the family reunification visa which are not very widespread in Italy.
Requirements for acquiring Italian visas
To apply for any type of Italian visa, a foreigner must prepare and submit several types of documents. These will depend on the visa applied for and the purpose of coming to Italy. Your Damalion experts can assist with these.
Italy is a dream country for many people, if you are among those people and you are contemplating moving to Italy, contact your Damalion expert and let us help.
TAX REGIME IN ITALY
Before engaging in business activities in Italy, the tax regime is one of the most crucial aspects that need to be understood, in order to increase tax compliance, and reduces tax liability for your business.
Taxation in Italy is charged by the central and regional governments and is acquired by the Italian Agency of Revenue (Agenzia delle Entrate).
The Italian law provides for a system based on the following taxes:
- Corporate Income Tax – 24% (IRES) & Regional Tax on Productive Activities – 3.9% (IRAP)
- Personal Income Tax – Progressive (IRPEF)
- Value Added Tax– 22% (IVA)
- Employer & Employee Social Security Contributions – 29-32%
Companies that derive income from Italy are subject to Corporate Income Tax, (IRES – Imposta sul reddito delle società) and Regional Production Tax, (IRAP – Imposta regionale sulle attività produttive). Companies with commercial activities in Italy must pay the corporate tax rate; domestic or established with foreign capital.
The standard rate of IRES is 24% but as for financial intermediaries, an extra 3.5% rate applies. Also, a 10.5% increase applies to so-called shell companies.
The standard rate of IRAP is 24% but different IRAP rates are applicable for specific entities. Also, some regions in Italy have the power to increase or decrease IRAP rates annually, within the threshold of 0.92%.
Personal Income Tax (IRPEF)
Personal income tax in Italy is known as IRPEF (imposta sul reddito delle persone fisiche) and the rates are set annually by the government. This type of tax is progressive and ranges from 23% to 43%. Extra taxes are due at the regional and local levels.
Italian residents are liable for IRPEF on their worldwide income but non-residents are subject to IRPEF only on income arising from Italian sources.
Value-added tax (VAT)
Value-added tax – IVA (Imposta sul valore aggiunto) is a consumption tax levied at a standard rate of 22% in Italy.
There are several reductions for VATs in Italy and these ranges from 10% to 0%. The filing deadline for VAT returns in Italy is 30 April of the next year.
Employer & Employee Social Security Contributions – 29-32%
Social security contributions involve everyone in the workforce. It is divided into contributions by the employer and the employee; both sides are required to participate.
Employers must register with the Italian Social Security Administration (Istituto Nazionale Previdenza Sociale or INPS). The total contribution rate fluctuates and will depend on their position in the company, on the industrial sector of the company, and the number of employees in the company.
Income of all kinds originating from all sources received by Italian resident are taxable in Italy. So, is any income received by non-residents from an Italian source. This rule is subject to the provisions of global tax treaties, of which Italy has signed up over 100.
Italy’s double tax agreements
Italy’s double taxation treaties in which Italy has signed up over 100 regulate the tax procedures of each category of income. All of Italy’s double taxation agreements are modified in order to provide a beneficial tax environment for investors in Italy and for Italian investors in other nations.
Italy has concluded over 100 double tax treaties with countries across the world. Also, the Italian authorities are presently drafting other agreements with the representatives of other states.
Italy’s taxation system is one of the most unique in the world, so if you are thinking of carrying out any form of business activities in this country, it’s highly recommended that you seek professional guidance, but look no further, your Damalion expert is here for you.
INTELLECTUAL PROPERTY (IP) REGULATION
Italian Intellectual property can be categorized into three main sectors; patents, copyrights, and trademarks. With that said, Italy protects these three categories under different laws, and for different periods. Italy protects the IP of both its citizens and foreigners, and the Italian laws respecting the protection of IP rights are the Civil Code and the Industrial Property Code.
Copyright in Italy
Copyright is an intellectual property right, referring to the fact that a legal entity in Italy is authorized to use and distribute certain intellectual property. Italy is a member of the European Union and, as such, acknowledged EU copyright laws. In addition to laws enacted by the EU, Italy also executes international copyright treaties and conventions. In Italy, you don’t have to go through any special process in order to be entitled to copyright protection.
Patents in Italy
A patent in Italy is the right bestowed on a person who has created an innovative product. A patent provides the owner of such an innovative product with a legal means to prevent others from exploiting the product.
The patent is the only legal way in which a new product can be insured against infringements of third parties. In Italy, patent protection is acquired through registration of the patent with the Italian Patent and Trademark Office. Patents also represent a way to protect intangible assets’ value, though the decision to file the application for an invention is a choice that must be carefully evaluated.
Trademark in Italy
According to Italian law, a trademark is a unique element of a product or service and its primary purpose is to represent the company that manufactures and sells that product (or service). A registered trademark is insured by Italian law against any form of usage without the permission of the owner.
Through the protection granted by a registered trademark, the owner can differentiate their products or services from others, accordingly increasing commercial reputation, trustworthiness by the consumers, and the financial value of the firm.
Just like a patent, the body that oversees the registration of a trademark in Italy is the Italian Patents and Trademarks Office.
With all that said and done, IP rights are private rights. As a result, they cannot be executed by the Italian government. It is your responsibility as the right holder to enforce your right when vital, or else, infringers will use your intellectual property for their economic gain.
If you require further information or legal assistance for intellectual property rights issues in Italy, contact your Damalion expert now.
LABOR AND EMPLOYMENT
National employment legislation, work council agreements, and collective agreements are the primary sources of employment law in Italy, and these govern conditions, benefits, and health and safety regulations.
Facts about employment in Italy
- In Italy, there is no government-regulated minimum wage. Due to this, the minimum wage is specified by collective bargaining agreements on a sector-by-sector rationale, or individual contract negotiation.
- The standard working time in Italy is 40 hours a week, 8 hours a day.
- Employees in Italy are privileged to a minimum of 28 days of paid leave per year.
- Sick leave is determined by the employee’s labor agreement.
- In Italy, a contract of employment in Italy can be terminated by resignation, dismissal by the employer, expiry of a fixed term, mutual agreement, or retirement.
Employment contracts in Italy
Every individual that wants to work legally as an employee in Italy requires an employment contract (“contratto di lavoro”), which will contain details such as job title, responsibilities, duties, salary, holidays, as well as all the rights and responsibilities of both parties.
The two main kinds in Italy are:
- Permanent contract (contratto a tempo indeterminato)
This is the regular type of employment contract in Italy. It has a limitless open period and guarantees the employee higher security than any other form of Italian employment contract.
- Fixed-term contract (contratto a tempo determinato)
This is a secondary employment contract, in which a predetermined duration is foreseen. It can last up to 36 months, including any expansion. Fixed-term contracts cannot be used to supplant workers on strike or to replace employees temporarily laid off.
Employee Benefits in Italy
Employee benefits in Italy, which include the following, depends on a company’s sector, an employee’s gender, age, salary level, and location.
- All Italian citizens are privileged to the national health system. And employers and employees must contribute to this system.
- All employees in Italy are liable to receive national holidays, but the number of paid days off and paid vacations differs by company policy.
- Employees in Italy must make a compulsory pension contribution which can vary by type of activity or profession.
- Employees must be covered for accidents at work through the compulsory state insurance program which is governed by the national institute for accidents at work.
- There is a maternity allowance which is equal to 80% of pay and is payable for 5 months. While paternity leave is equal to 100% of pay for seven days.
- There are incapacity and disability benefits in Italy. And regarding short-term sickness, all employee’s salaries will be paid by the NHS. The exception is the first three days, which will be paid by the employer.
Employee benefits in Italy are highly complicated, and the information above is a simplified outline to give employers a fundamental idea about some of the required benefits. It is by no means an extensive list.
Although it has a reputation for bureaucracy and a rigid labor market, Italy still has an attractive degree for foreigners to start their own business there.
So, are you thinking of entering the Italian market?
Your Damalion experts are here for you. We can assist in setting up a business in Italy.
Our Damalion experts are professionals who are skilled in providing several integral business solutions, including compliance, entity management, accounting, taxation, payroll support, and many more across Italy.
If you wish to learn more about our services and how we can assist you in entering the Italian market, contact us now.
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