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Italy
Company formation

Italy, often celebrated for its rich history and exquisite cuisine, is also a land of business and innovation. At the heart of Europe, its strategic location has for centuries made it a pivotal point for trade and commerce.

Modern Italy is home to some of the world’s most iconic brands and industries, from luxury cars to high-end fashion. Entrepreneurs seeking to expand their horizons would do well to consider this Mediterranean gem, which combines a strong industrial backbone with a dedication to craftsmanship and quality.

Company formation in Italy: types of incorporation, advantages, disadvantages and taxes
Aerial view of Bosco Verticale, residential towers in the Porta Nuova district, Milan

The Italian Republic is more than just a tourist paradise; it’s a thriving hub for businesses and enterprises. With its vast network of skilled professionals, favorable geographic location in the Mediterranean, and a robust infrastructure, Italy provides entrepreneurs a lucrative platform for growth. While it is renowned worldwide for its arts, culture, and iconic landmarks, the business side of Italy is equally commendable. Its diverse industrial sectors, commitment to innovation, and resilient economy make it an ideal destination for business endeavors, mergers, and expansions.

Country Italy
Population Approximately 60 million (source: World Bank, 2020)
Language Italian (95%)
German (0.5%)
Slovene (0.2%)
Ladin (0.2%)
Other languages (4.1%)
Time in Italy Central European Time (CET)
Currency Euro (€, EUR)
Religion Roman Catholic (80%)
Atheist/Agnostic (15%)
Muslim (3%)
Other religions (2%)
Tax regime Personal income tax ranging from 23% to 43%
VAT Standard rate of 22%
Overage salary €30,000 per year (source: ISTAT, 2020)
Types of incorporations Società per Azioni (S.p.A.)
Società a Responsabilità Limitata (S.r.l.)
Società in Nome Collettivo (S.n.c.)
Società in Accomandita Semplice (S.a.s.)

Why opening a company in Italy

Italy presents an advantageous business environment due to its position in the global market. Its diversified economy, coupled with strong sectors such as machinery, textiles, and luxury automobiles, make it an appealing destination for investment. The local government provides various fiscal options catering to both local and international entrepreneurs. Startups and SMEs can benefit from certain incentives and tax breaks, making Italy particularly suitable for businesses in their early stages or those looking to penetrate the European market.

Advantages

Strategic Location

Italy’s geographic position, connecting Europe to Africa and Asia, serves as an excellent trade conduit. It offers businesses a doorway to multiple markets, ensuring efficient distribution and accessibility.

Diverse Industrial Sectors

With strengths ranging from manufacturing to technology and services, Italy provides ample opportunities for businesses to find their niche and thrive in a supportive environment.

Disadvantages

Bureaucracy

While Italy offers numerous opportunities, entrepreneurs may find the bureaucratic process of setting up a business time-consuming and somewhat complex. This may pose initial hurdles for those unfamiliar with the system.

Variable Economic Growth

The Italian economy, although resilient, has seen periods of stagnation. Investors must be aware of the cyclical nature of the economy and be prepared for fluctuations.

Taxes

Italy’s tax system is progressive, with rates ranging from 23% to 43% based on income brackets for individuals. Corporate entities are subject to the IRES tax, which stands at 24%. The nation has double taxation treaties with several countries, allowing for tax credits on foreign income. Moreover, to encourage business ventures, the government offers incentives, including tax credits for research and development, and deductions for innovative startups.

Company types in Italy

Società per Azioni (S.p.A.)

Type Cost of incorporation Minimum share capital Taxes
S.p.A. Approx. €2,500 – €5,000 (including notary fees) €50,000 IRES tax at 24%

The Società per Azioni (S.p.A.) is akin to a public limited company or joint-stock company. Ideal for large-scale enterprises, an S.p.A. demands a rigorous organizational structure, including a board of directors and mandatory auditing. Its main advantage lies in its ability to raise capital by offering shares to the public. However, with this comes stringent regulatory compliances and increased scrutiny. Investors’ liabilities are limited to the value of their shares in the company.

Società a Responsabilità Limitata (S.r.l.)

Type Cost of incorporation Minimum share capital Taxes
S.r.l. Approx. €1,500 – €3,500 (including notary fees) €1 IRES tax at 24%

The Società a Responsabilità Limitata (S.r.l.) resembles a private limited company. Most suited for small to medium-sized businesses, an S.r.l. offers the flexibility of a simpler structure, fewer formal obligations, and more straightforward management. Shareholders’ liability is limited to their capital contributions. Given its fewer compliance mandates, many entrepreneurs opt for an S.r.l. as it provides the balance of limited liability without the rigors of an S.p.A.

Società in Nome Collettivo (S.n.c.)

Type Cost of incorporation Minimum share capital Taxes
S.n.c. Approx. €1,000 – €2,500 No formal requirement Taxed at individual partner’s personal income tax rate

Società in Nome Collettivo (S.n.c.) is similar to a general partnership. In this setup, all partners have unlimited liability, meaning they’re responsible for the company’s debts and obligations. Given the nature of shared responsibility and risks, it’s crucial for partners to have trust and clear communication. S.n.c. is best suited for small businesses where the partners are closely involved in day-to-day operations.

Società in Accomandita Semplice (S.a.s.)

Type Cost of incorporation Minimum share capital Taxes
S.a.s. Approx. €1,000 – €2,500 No formal requirement Taxed at individual partner’s personal income tax rate

The Società in Accomandita Semplice (S.a.s.) operates similarly to a limited partnership. It consists of general partners with unlimited liability and limited partners whose liability is confined to their capital contribution. Given this structure, S.a.s. provides a mix of hands-on involvement and passive investment. It’s ideal for businesses where some partners prefer to invest capital without engaging in daily operations.

VAT in Italy

In Italy, the standard VAT rate is 22%. However, reduced rates of 10%, 5%, and 4% apply to certain goods and services. This tax is applied at each production and distribution stage, ensuring that the end consumer ultimately bears the cost. Businesses must register for VAT once their revenue exceeds the specified threshold.

Common questions

What is the primary difference between S.p.A. and S.r.l.?


The primary difference lies in their structure and scale. An S.p.A. (Società per Azioni) is comparable to a public limited company suitable for large-scale businesses. It can raise capital by offering shares to the public but comes with more regulatory compliances. On the other hand, S.r.l. (Società a Responsabilità Limitata) is akin to a private limited company, best suited for small to medium-sized enterprises. It offers a simpler structure, fewer formal obligations, and more flexibility in management.

How quickly can I incorporate a company in Italy?


Typically, the process of incorporating a company in Italy can take between 6 to 8 weeks. This duration includes obtaining relevant approvals, documentation, notary validation, and registration with the Chamber of Commerce. However, the exact time can vary based on the type of incorporation and specific circumstances.

Are there any annual compliance requirements for Italian companies?


Yes, Italian companies have several annual compliance requirements, which include:

  1. Financial Statements: Companies must prepare and file annual financial statements. These statements need to be approved by the shareholders, usually within 120 days from the end of the financial year, but this can be extended to 180 days in certain circumstances.
  2. Audits: Depending on the size and type of the company, an external audit might be necessary. For instance, S.p.A. (Società per Azioni) companies typically have more stringent audit requirements compared to S.r.l. (Società a Responsabilità Limitata) companies.
  3. Tax Obligations: Companies must prepare and submit an annual tax return. They are also subject to other tax-related obligations, including payment of corporate income tax (IRES) and regional production tax (IRAP).
  4. Registry Updates: Any significant changes in the company’s structure or management, like changes in directors or shareholders or modifications to the company’s bylaws, must be reported to the Chamber of Commerce.
  5. Social Security Contributions: Companies need to ensure that they are up to date with their social security contributions for their employees. These contributions are made to the Italian National Social Security Institute (INPS).
  6. Insurance against Workplace Accidents: Companies must register with and make contributions to the National Institute for Insurance against Workplace Accidents (INAIL).
  7. Data Protection: Companies that process personal data must comply with data protection regulations, including GDPR, and may need to notify the Italian Data Protection Authority about their data processing activities.
  8. Anti-Money Laundering: Companies involved in certain sectors (e.g., financial services) may have specific compliance requirements related to anti-money laundering regulations.

It’s worth noting that the complexity and specifics of these obligations can vary depending on the size, nature, and type of the company.

Can a foreign entrepreneur own 100% of an Italian company?


Absolutely. Yes, a foreign entrepreneur can own 100% of an Italian company. Italy encourages foreign investment, and there are no restrictions on foreign ownership for most types of businesses. A foreign entrepreneur or investor can hold all the shares of a company, such as an S.r.l. (Società a Responsabilità Limitata), without the requirement for an Italian partner or shareholder. It’s always advisable, however, to consult with local legal and business experts to understand specific nuances and requirements when establishing and operating a company in Italy.

Is it mandatory to have a physical office in Italy for company registration?


No, it’s not mandatory to have a physical office in Italy for company registration. However, you do need to provide a legal address (domicilio legale) for correspondence and official communications. Many companies opt for virtual office services, especially when they don’t have a physical presence but want to establish a company in Italy.

What are the primary responsibilities of a company director in Italy?


In Italy, a company director’s primary responsibilities encompass managing the company’s day-to-day operations, ensuring compliance with statutory and legal obligations, preparing and presenting accurate financial reports, safeguarding the company’s assets, and acting in the best interests of the company and its shareholders. Failure to uphold these responsibilities can lead to legal consequences.

Can a company formed in Italy do business outside the country?


Absolutely. A company incorporated in Italy can conduct business both domestically and internationally. However, it’s essential to be aware of the tax implications and regulatory requirements when doing business outside Italy. Such cross-border activities might bring about double taxation treaties or necessitate additional permits and licenses.

What is the process of hiring employees for my Italian company?


Hiring in Italy involves a series of steps: drafting a detailed job description, advertising the vacancy, conducting interviews, and finally, signing an employment contract that abides by Italy’s labor laws. You must also register your employees with the Social Security Institute (INPS) and the National Institute for Insurance against Workplace Accidents (INAIL). Furthermore, be mindful of the various types of employment contracts in Italy, such as permanent, fixed-term, and part-time, as each has different regulatory nuances.

Are there any specific industries or sectors that receive special incentives or support in Italy?


Italy offers special incentives for various sectors, including agriculture, technology and innovation, manufacturing, and renewable energy, among others. These incentives can range from tax breaks, grants, reduced bureaucratic procedures, to financial support. The government’s aim is to promote sustainable growth, innovation, and employment opportunities within these sectors.

What are the challenges of doing business in Italy for foreign investors?


While Italy offers numerous opportunities, foreign investors may encounter challenges such as bureaucratic red tape, lengthy administrative processes, and understanding the complex tax system. It’s advisable to seek local expertise or hire professionals who are well-acquainted with the Italian business environment to navigate these challenges efficiently.
Company formation in Italy: types of incorporation, advantages, disadvantages and taxes

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