How to Do Business in Italy as a Foreigner
Italy is a country of opportunity for entrepreneurs who have the capital to invest, undying love for pizza, and tolerance for complicated bureaucracy and taxes. If you are looking to expand your business into Italy or start a new life as an expat in the Mediterranean, this guide will help you to become familiar with:
- The benefits of doing business in Italy
- The challenges of doing business in Italy
- Investment opportunities
- Business legal structures
- Business culture
Benefits of Doing Business in Italy
Italy is the third-largest economy in the Eurozone and the eighth-largest economy in the world, measured by gross domestic product. Italy also has the third-largest reserve of gold in the world. The economy has improved steadily each year since the global financial crisis.
While Italy is known for its historical and cultural wealth, the northern region, in particular, has an excellent transportation network and well-developed infrastructure for manufacturing, design, and research and development.
Located right in the middle of the Mediterranean Sea, Italy is a strategic logistics hub for the European Single Market, Middle East, and Northern Africa. Within the European Economic Area alone, businesses have duty-free access to 30 countries with a total of more than 50 million consumers.
Welcomes Foreign Investors
The Italian government has gone to great lengths to help and encourage foreign investors, including establishing a specialised trade agency and offering several tax credits and incentives:
Italian Trade Agency
The Italian Trade Agency (ITA) is the go-to place for interested entrepreneurs. Here, you will find:
- Information about investment opportunities and business opportunities in Europe
- Information about legal frameworks and taxes for businesses
- Advice on the best Italian cities and regions to open a business
- Introductions to service providers and potential Italian partners
Several government incentives and tax credits are also available to foreign investors, including:
- A tax credit to assist with job creation (especially for women and young adults)
- A tax credit for R&D
- Subsidies for capital investments, including buildings and machinery
- Additional support is available from provincial authorities for manufacturing and R&D projects in the southern regions of Italy
Challenges When Doing Business in Italy
Complex Regulatory Environment
Whereas some countries have a streamlined process for starting a business in Europe, the regulations governing business activity in Italy are decided by the local authorities.
For example, construction permits take far longer to obtain in Palermo than they do in Bologna, and you could be asked for different documents from one bank to the next when opening a bank account in Italy.
Enforcing Contracts Is Slow
In the World Bank’s Doing Business Report, Italy ranked 122nd out of 190 countries for enforcing contracts. It typically takes 1,120 calendar days to resolve a commercial dispute in Italy, and there are significant regional differences.
High Tax Rates and Setup Fees
Taxes in Italy are higher than they are in many countries in the European Union, with income taxes increasing progressively from 23% to 43%. When setting up a business in Italy, companies will need to pay:
- €310 government grant tax
- €200 registration tax
- €156 stamp duty
- €90 Chamber of Commerce registration fee
- €120 annual membership fee
Once your company is registered, you will need to make 14 tax payments per annum, including:
- Corporate income tax (IRES), set at 24%
- Regional production tax (IRAP), set at 3.9% for manufacturing and trading companies
- Sales tax (VAT), set at 20%
- Payroll taxes
- Social security contributions
- Welfare contributions
In total, you can expect to pay out 59.1% of your profits in taxes and contributions, although this amount can be strategically reduced with deductions.
Italy is divided into three main regions: north, central, and south, each with unique industries and investment opportunities. There are strong economic and cultural differences between Italy’s northern regions and southern regions, and the centre offers a mixture of the two.
In the northern regions of Italy, the main industries are:
- Clothing and footwear
- Textiles and ceramics
- Machinery, steel, and iron
In the southern regions, the main industries are:
Italy regularly exports products from all of the country’s main industries, including:
- Olive oil
- Clothing and textiles
- Motor vehicles
- Transport equipment
- Production machinery
- Nonferrous metals
There is enormous potential for selling goods and services online in Italy as the range of products offered online at the national level is limited. The most popular categories for ecommerce by sector include:
- Travel and tourism
- IT and consumer electronics
- Video, music, and books
Infrastructure cloud services (IaaS), software as a service (Saas) and Platform cloud services (PaaS) are also experiencing significant growth.
Number of Internet Users in Italy
There are 50.85 million internet users in Italy (as of January 2022) and 44.18 million mobile internet users (as of 2021). In 2019, the Italian ICT market was worth around €31 billion with an estimated annual average growth of 1.6%.
Ecommerce Regulatory Framework
Ecommerce businesses in Italy are subject to ecommerce regulations in Europe and you’ll need a payment gateway and reliable merchant services to sell goods and services online.
Physical Investment Opportunities
On the ground, there are several industries that foreign companies and entrepreneurs can invest in with great success.
Manufacturing continues to be a major industry in the north as well as the south of Italy. Opportunities exist for companies that can integrate digital technologies, automation, and robots into the production process.
While most of the primary materials are produced abroad, investors can readily find intermediate suppliers for:
- Industrial machinery
Companies that specialise in R&D and advanced technologies will find opportunities in high-tech product design, including:
- Veterinary care
- Environmental care
- Food and beverage
- Airport equipment
- International space station
Tourism is a major economic force in Italy, especially in the picturesque south where regions like Tuscany attract several million tourists every year. Foreign companies that can capitalise on the country’s tourism sector could be eligible to receive finance from the government agency Invitalia.
Environmental protection is another area of opportunity for foreign investors in Italy. On 8 February 2022, environmental protection was added to the Italian constitution. Projects that can help Italian companies transition to a more sustainable way of doing business will be in high demand as the amendment to Article 41 takes effect. According to the amendment, “Business activity must not be harmful to people’s health and the environment.”
Business Entity Types in Italy
There are four main entity types that companies can use for doing business in Italy:
Traditional Limited Liability Company (S.R.L.)
S.R.L.s are small companies or partnerships established with a minimum corporate capital of €10,000. Instead of shares, the corporate capital is divided into quotas that are recorded in a “quotas book.”
The setup for an S.R.L. is similar to the setup in other countries, requiring a public deed with articles of incorporation that lists the directors, board members, and shareholders. The directors of an S.R.L. can serve indefinitely, and an auditor is only required under certain circumstances.
Simplified Limited Liability Company (S.r.l.S.)
The S.R.L.S. is a simplified version of the traditional S.R.L. with lower costs and a simpler setup process. Instead of articles of association, all you need is a memorandum of association written up as a public deed by a notary.
The share capital for an S.R.L.S. can be anything from €1 up to €9,999.99 and is paid in cash at the time of incorporation. In contrast to other entity types, the shareholders of an S.R.L.S. can only be individuals (not companies), and one person is allowed to own all of the shares.
Public Limited Companies by Shares (S.p.A.)
An S.p.A is a large corporation with a minimum corporate capital of €50,000. This capital is divided into shares, represented and traded in stock certificates.
The directors of an S.p.A can serve for no more than three years at a time, and the SpA must appoint a Board of Statutory Auditors with three to five members.
Italian Branch Office
Foreign companies can easily set up a branch office in Italy without needing to create a separate legal entity. There is no minimum share capital required for an Italian branch office.
To open an Italian branch office, all of your shareholders must agree. If this requirement is met, you can open an Italian bank account and appoint a legal representative in Italy. Then you can begin hiring Italian staff.
Understanding Italian business culture is essential if you want to be accepted and move forward with your Italian partners. The following aspects of business culture in Italy are especially important to keep in mind as you leave your mark on Italian society.
Italy is a relationship-oriented country, and this applies to business as well. Before you arrive in the country or register your business, find an Italian contact who can introduce you and help you network. This will save you a significant amount of time in relationship-building once you eventually get set up.
It’s not by accident that Italy is home to many of the world’s top fashion brands, including Gucci, Prada and Giorgio Armani. When doing business in Italy, dress smart, stand up straight, and make sure that your business card, hand-outs and gifts are aesthetically pleasing.
Italians typically exchange calling cards rather than business cards in social situations. When creating your calling card, it should be slightly larger than a business card with one side in English and the other side in Italian. Your title, qualifications, and contact details should appear on both sides of the card.
In Italy, it’s polite to greet a business contact with buongiorno in the morning and buonasera in the afternoon or evening, followed by the person’s title (Signor/e or Signora) and their surname. Shake every person’s hand individually and introduce older people and women first.
Italian culture is a popular subject of small talk, but don’t say anything negative about Italian people or talk about politics, family or the mafia. Sports, entertainment, local history, and the weather are all safe topics for conversation.
Business meetings in Italy frequently take place over lunch and can last up to three hours. While it’s likely that your Italian counterpart will arrive late, you are expected to be on time. Schedule meetings in writing 2-3 weeks in advance and confirm by telephone closer to the date.
Be careful not to schedule meetings on Catholic or national holidays or in August (many Italians go on vacation around this time) and expect business negotiations to take time. Your contacts will want to get to know you first and trying to rush things doesn’t work.
Put Your Best Foot Forward when Doing Business in Italy
If, after reading this guide to doing business in Italy, you feel that this is the right opportunity for you, take the time to create a detailed plan and seek expert legal advice.
Above all, start looking for business contacts that can advise you and introduce you to their networks. This is the most important business step you can take vis-a-vis Italy’s relationship-focused business culture and the best way to enjoy la dolce vita once you arrive.