It is often said that “Italy is the country of the sun”: its climate, its attractions (food, fashion), and its ancient history are just some of the reasons that bring many foreigners to decide to settle here. Italy emerged from recession in 2015 and is becoming one of the most attractive countries for business in Europe.
In 2016 Italy was the fourth market in Europe and one of the most important in the world, for these reasons any company that wants to be defined as a “multinational corporation” can’t ignore the importance of Italian customers. On the other hand Italy has one of the most complex bureaucracy and that’s why having a good local consultant is a must when you decide to do business in Italy. If your interest in Italy concerns work and business, we can give you some suggestions that will be a good guide to know what it doing business in Italy means:
First of all, you must remember that the European Union ensures service providers the right to practice their activity in the other Member States and they can choose between a temporary provision of services abroad and a business establishment:
If you are interested in doing business in Italy, you can choose among several options, we can expand4 main ways of doing business in Italy, listed from the simpler up to the more complex:
- Opening a representative office
The easiest option for a foreign company to do business in Italy is to set up a representative office. In this case, the company will have to submit a request to the local Chamber of Commerce (CCIAA) and to sign up to the local office in the economic and administrative register (REA). A representative office can’t subscribe contracts but only executes preparatory or auxiliary activities (public relations, collection of information, promotion etc.) and isn’t considered a “permanent establishment” of the foreign company for direct tax purposes.
- Establishing a permanent Italian branch.
Another solution to achieve your purpose of doing business in Italy could be to create a permanent establishment in Italy. A branch of a foreign company must be registered in Italy and the foreign head office wishing to register a branch must supply certified copies of its resolution to an Italian Public Notary. A copy of the certificate of incorporation will also have to be attached to the documents to establish a branch. There are no minimum capital requirements for a subsidiary establishment and the procedures doesn’t vary depending on the type of company. Keep in mind, however, that since a branch is not considered independent from its foreign head office this one responds for the obligations of the branch. The same rules concerning accounting and bookkeeping that are applied on a limited liability company, analyzed in the following point, are valid for a branch, which in fact should have its own accounting books and will have to write its own annual balance report only for tax purposes and fill in an income tax and VAT return. It will be also necessary to provide a translation of the financial statements of the foreign head office to send to the Chamber of Commerce. The branches and the subsidiaries are taxed at the same rate in Italy.
- Forming an Italian subsidiary.
The most common way of doing business in Italy is to open an Italian branch of your company as “società per azioni” (S.p.A.) or “società a responsabilità limitata” (S.r.l.). You must consider that usually medium and large companies opt for the joint stock company (Società per Azioni – S.p.A.) while smaller companies adopt the limited liabililty form (società a responsabilità limitata – S.r.l). They must be registered by an Italian Public Notary and you’ll have to pay income taxes in Italy and to publish the annual financial statement. Both the S.p.A. and S.r.l. are easily created and maintained and liability rests with the company to the full extent of its assets; shareholders are not liable beyond the amounts subscribed. In both cases, there is the chance to customize many aspects of corporate governance to achieve the goals of the company in the best way. Such flexibility is matched with effective shareholders’rights to monitor the company management. Shelf companies are not normally used in Italy, because, even when dormant, a company incurs costs, such as drafting and filing of annual accounts, holding of AGM, registration annual duties, etc.
- joint stock company (S.p.A.):
The minimum capital to set up an S.p.A. is 50,000 € and the founders sign the company’s deed of incorporation and subscribe to all or part of the share capital. A S.p.A. may be established also by a single shareholder and there are no limitations on the number, nationality or residence of directors, who are appointed for a maximum period of three years. Under certain conditions, the board meeting can take place outside Italy. If S.p.A. is what you need for doing business in Italy, also remember that,for Italian Civil Code S.p.A., you can apply one of the following three organizational models:
- Traditional Model, consisting of a managing body – that is a Board of Directors or a Sole Director – and a supervising bodycalled “Board of Statutory Auditors” which can control the actions of the directors and the accounts of the company. Both bodies are appointed by the shareholders meeting;
- Dual System, a traditional German model, consisting of a supervisory board, which is appointed by the shareholders and is granted some of the powers which would belong to the shareholders in the traditional model and a management board, which is appointed by the supervisory board and exercises the day-to-day management of the company;
- Unitary Board System, consisting of a Board of Directors which is appointed by the shareholders. There is an internal audit committee appointed by the same Board of Directors among its members.
Management Supervisory Traditional Model Sole Director
or Board of Directors
“Consiglio di Amministrazione”
Board of Statutory Auditors
Dual System Managing Board
“Consiglio di Gestione”
“Consiglio di sorveglianza”
Unitary Board System Board of Directors
“Consiglio di Amministrazione”
Management Control Commitee
“Comitato per il controllo sulla gestione”
- limited liability company (S.r.l.)
The minimum capital to set up an S.r.l. is 10,000 € and individuals can set up a “simplified” S.r.l. with a minimum capital of 1€when there are some certain conditions. The director can be one or more than one, with no limitations of any nationality or residence. For an individual S.r.l. the capital must be fully paid in. The setting up procedure of the S.r.l. may normally take 15/20 days. S.r.l. is usually the preferred vehicle for setting-up of NewCos, in view of their higher flexibility in the allocation of governance rights and their lower maintenance costs. The board of Directors meetings and shareholders’ meetings, under certain conditions, can take place outside Italy.
- joint stock company (S.p.A.):
- Acquiring an Italian Company
Companies interested in doing business in Italy could decide to acquire an existing Italian business rather than forming a new subsidiary. Mergers and acquisitions transactions in Italy follow the same general rules and processes as in other Western regimes. Before acquiring the target company a complete due diligence (tax, accounting, legal) is strongly recommended.
The Italian corporate entities are subject to Corporate Income Tax (IRES – Imposta sul Reddito delle società) and to Regional Production tax (IRAP – Imposta Regionale sulle attività produttive). The applied percentages are the following:
- IRES 24% (from January 2017, before 27,5%)
- IRAP 3,9% (some regional authorities may increase or decrease the standard rate up to 0,92%). In addition, different IRAP rates may apply to different sectors of the economy in different regions (for example banks and financial institutions).
The basis of computation of IRES is the income reported in the Statutory Financial Statement, at this amount you have to add or subtract revenues or costs according to specific tax rules. The most common IRES adjustments are, for example:
- car expenses
- travel expenses
- entertainment expenses
- phone expenses
- fines and penalties
- IRAP and some local taxes.
With regards to IRAP there is a different method of calculation of the taxable basis, depending on the nature of the business of the company (commercial and manufacturing companies or financial e-companies).
For commercial and manufacturing companies IRAP computation basis is the gross margin resulting from the Company’s Statutory Financial statement. Financial revenues and costs, provision for bad debts and accruals for risk are not part of the IRAP taxable basis.
The Italian VAT rate is 22%, there are also reduced rates for certain kinds of products and services (e.g. listed categories of food, agricultural products, etc.) and operation exempt from VAT listed in the article 10 of the DPR (presidential Decree) n. 633/1972.
There are also some local taxes that will have to be analyzed case by case. The most important of this category is IMU (Imposta Municipale Unica) which is a real estate tax.
Our independent professional multi-discipline Firm, CARAVATI PAGANI – Dottori Commercialisti Associati (Associated Chartered Accountants), founded in 1987, will be proud to assist you with qualified professional services for your Tax, Corporate, Business and Accounting needs. We assist from small/medium-sized companies to large international groups also with full outsourcing services (one stop shop)letting you focus on your business.