- 24%Tax rate
- 4 weeksTime of establishment of the company
- 10 000€Minimum capital
The Italian economy has changed dramatically since the end of World War II. From an economy based on farming, Italy now ranks as the 5th industrial state in the world. The World Bank also considers the country as attractive for business, investment, and trade.
Types of companies
There are several types of businesses for foreign investors:
- Limited liability company (SrL)
- Public limited company (SpA)
- Partnership (SNC)
- Limited partnership (SAS)
- Cooperative society (SC)
Limited liability companies (SrLs) are the most common corporate status of medium and large businesses. They are usually used by foreign companies to become established in the country.
Company registration procedure
Registration of the company:
- Preparation and signing of the articles of association and the articles of association in the form of a notarized confirmation.
- Payment of the initial capital
- Obtaining a VAT payer’s number and tax identification number
- Registration of a company in the Register of Companies
- Registration of the company with the Social Security Institute and the Personal Accident Insurance Institute
There are no restrictions on the number of shareholders, however, a minimum of one shareholder is required to establish the company. In the case of only one shareholder, the entire capital has to be paid in at the time of establishing the company. Foreign shareholders are allowed. The administrative and economic rights of the shareholders depend on the number of their shares in the company.
The company is managed by its directors. Shareholders decide whether it is a board or a director. The board of directors may be held by an elected shareholder.
The supervisory board is not required, unless the company’s articles of association provide otherwise. If shareholders decide to appoint a board of supervisory directors, it may be a single auditor or a board of auditors. When the board is appointed, it is also responsible for reviewing the company’s accounts and accounts, unless the company’s articles of association require that such review be carried out by an auditor.
The company must have a registration address, which can be provided by a virtual office. For administrative reasons it is recommended to open a stationary office.
Time to open a company:
The time for setting up a company is about 4 weeks.
The minimum capital is EUR 10000. At least 25% of this amount must be paid into the company’s account during registration. This capital can be obtained on a “progressive capital” basis, i.e. every year the company transfers 20% of its annual net profit to a supplementary capital reserve.
It is also possible to pay in a minimum capital of 1 Euro (simplified S.r.L.). The capital is divided into shares which correspond to the number of shareholders. These shares are freely transferable, unless the articles of association provide otherwise.
Taxes and finances
Tax residence of the company
A company is resident if it is registered in Italy or is managed and controlled from its territory for most of the fiscal period (min. 183 days). Residents pay tax on income from both domestic and non-resident activities. Non-residents pay tax only on income earned in Italy. It is levied on the company’s income from its activities, passive income and capital gains.
24% To this is added a regional tax on production activities – the basic rate is 3.9%, they may vary depending on the type of company and the sector in which it operates. Normal operating expenses can be deducted. Depreciation is carried out on a straight-line basis. Depreciation rates vary according to the economic sector in which the company operates. Losses may be deducted at any time in the future, however, in a given year they may not exceed 80% of revenue. Retrospective deduction is not permitted. Capital gains are taxed in the same way as income (24%). In the case of a sale of shares, 95% of the transaction value is exempt from taxation if the relevant criteria are met.
Italy ensures exemption from double taxation, inter alia, by virtue of its tax treaties.
Counteracting tax avoidance
Like other European countries, Italy has implemented a transfer pricing system, the regulations of which largely follow those issued by the OECD. The principle of full competition applies. There are no thin capitalization rules as such, but the rules for the deduction of interest costs are precisely defined. CFC: The income of a foreign company is attributed to an Italian resident if he or she directly or indirectly controls it and if it is registered in a blacklisted jurisdiction (a jurisdiction whose rate is less than half of the Italian CIT rate). The international company must report on its activities in each country in which it operates.
A tax year is a calendar year or a financial year. Tax returns must be submitted electronically within 9 months from the end of the tax year (entrepreneurs whose tax year coincides with the calendar year have to do it until the end of October). Tax payments are made in advance in two parts: the first – 40% and the second – 60%. Payments are made by the end of the 6th month and the end of the 11th month of the financial year. Consolidated accounts may be submitted. In order to be eligible, the parent company must have a minimum of 50% of shares in the company and is entitled to a minimum of 50% of profits. The limitation period is a maximum of 7 years.
- Dividends, Interest – the rate is 26%, unless it is reduced by a tax treaty or EU regulations.
- Royalties – non-residents are subject to the rate of 30% – calculated from 75% of gross royalty, which translates into the actual rate of 22.5%, unless EU regulations or tax agreements reduce it.
The standard rate is 22% (reduced by 10%, 5% and 4%). VAT registration is compulsory. The annual return must be submitted in electronic form by the end of April of the following year, and the payer must report all invoices and bills every quarter.
- Real estate tax – imposed by local authorities, its amount depends on the location – the standard rate is 0.76%. In the case of a change of ownership, there is also a property transfer tax.
- Stamp duty – levied on legal and banking transactions. The amount depends on the type of transaction.
- Customs duty is levied on products coming from outside the EU. Excise duty is levied on fuels, alcohol, tobacco, electricity and gas.
Italy, due to the high CIT and PIT rates as well as slow administration, is not a preferred direction for tax optimisation purposes. The main motives behind the company’s registration in Italy are the willingness to invest directly in the country or to take advantage of Italy’s reputation in the world – mainly in the clothing, fashion and food production industries.