How best to tackle Italian regulation and a complex labour market to make your business in Italy successful
As the eighth-largest economy in the world and the third-largest in the European Union, Italy is an attractive destination for foreign investment. Besides food and fashion, it offers cutting-edge research and development, a key logistics hub and a strong manufacturing base. Still, foreign investors who are considering setting up or expanding their business in Italy should be prepared to deal with a complex regulatory system.
1. Starting a business in Italy
The benefits of setting up a business in Italy are clear, but the country lags behind the majority of its EU peers for ease of doing business, according to the World Bank’s Doing Business 2020 report. Italy ranks 58th for overall ease of doing business, out of 190 economies. Notary fees make up three-quarters of company formation costs. In addition, entrepreneurs should factor in grant, registration and stamp duty taxes in addition to Chamber of Commerce registration and annual membership fees. This can be a time-consuming process – made easier with the right local support.
2. Getting credit in Italy
Again, it can be harder to obtain credit in Italy, compared with other EU countries and OECD high-income peers – the country ranks 119th in the World Bank’s 2020 report. Many Italian banks are still feeling the effects of the 2008 credit crunch, meaning that entrepreneurs seeking credit financing must meet various different criteria and offer stronger guarantees than elsewhere in Europe. Businesses must be prepared to make their case.
3. Trading across borders
On average, export procedures take 19 days for exports and 16 for imports, with document preparation requiring at least 10 days. Customs clearance of goods is often lengthy, too. Being aware of these timelines upfront is crucial for business planning.
4. Paying Italian taxes
Although the tax burden for business has lightened in recent years – it currently stands at 24%, in line with the corporate tax rate for other OECD countries – it remains complex. Companies and self-employed individuals are required to make as many as 15 tax payments every year, including corporate income tax (IRES), regional production tax (IRAP), social security, real-estate and VAT. Some of these payments need to be made in advance because taxes are calculated in part on projected rather than actual income.
5. Regional disparities
There are large gaps between regions and cities when it comes to the ease of starting and running a business in Italy, according to the World Bank. Knowing these disparities can help foreign investors identify locations that are more suitable for their business needs.
6. Employment law
Italy’s labour market regulations are complex, comprising rules provided by law and collective bargaining agreements. A reform introduced in 2015 has helped relax Italy’s job market by reducing the cost of labour and minimising the risk of litigation. However, the system remains difficult to navigate without in-depth knowledge of up-to-date employment legislation and the assistance of well-informed HR experts.
7. Culture and traditions in Italy
As the accepted language for contracts and official documents is Italian, foreign investors should plan for professional translators. Learning some Italian can help establish more direct relationships with partners, employees and clients. Networking is crucial in Italy’s business culture and Italians expect to become acquainted with their contacts before moving to the next stage of a business relationship. Arranging introductions and appointments should be a priority when doing business in Italy.
8. Corporate hierarchy
In Italy, decisions are made only by the most senior people in a company. The decision-making process often happens outside company meetings, meaning that managers are expected to execute critical decisions without necessarily taking part in discussions. Reaching decisions and successfully doing business in Italy requires good diplomatic skills, patience and time.
9. Digital development
In recent years, Italian businesses have fallen behind the rest of Europe in terms of digital investments. Italy ranked fourth to last in the EU for digital competitiveness in 2019, according to the Digital Economy and Society Index (DESI). However, the government has earmarked digital investments as a priority in its Covid-19 recovery efforts and is offering tax breaks to companies seeking to boost digital spending.
10. Navigating changing bureaucracy
Italian bureaucracy is frequently cited as one of the main business challenges in global competitiveness surveys. The country has many more laws, rules and regulations than neighbours such as France or Germany. While the government has taken steps to cut red tape, foreign investors should rely on Italian legal experts to stay on top of regulations as they evolve.
Working with a local expert can help smooth the process of starting or expanding a business in Italy. Intertrust Group has the local knowledge and global experience to help foreign investors recognise the challenges and opportunities of this exciting market.
How Intertrust Group can help you in Italy
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- solutions customised and designed to meet specific client needs
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