Why do business in Italy?

Italy is an appealing location in Europe to establish a business presence. With the 8th largest economy in the world and the 2nd largest manufacturing economy in Europe, Italy offers plenty of opportunities for businesses looking to expand internationally. What’s more, Italy is truly a global trading hub, with strong links to Europe, America, Africa and Asia.

It’s true that getting started in Italy can be frustrating and there are a number of corporate hoops to jump through before you can establish a business. You must ensure you follow compliance and regulatory guidelines which is why UnaTerra is here to help you navigate.

Territory data

Local currency

EUR

Dialling code

+39

Local time

CET (GMT+1)

Pay periods

14

World Bank Ease of Doing Business Ranking (1-190)

58

Tax rates 2020

Company tax

24%

Social security

32%

Wages tax

27-43%

VAT

22%

How to set up payroll in Italy

Getting started in Italy and setting up your payroll is definitely more challenging than some countries. Italy takes anti-money laundering procedures very seriously. All business financial affairs are thoroughly checked and reviewed.

Your first step will be to register your business with an Italian notary public. Once this is done, you can register with the Agenzia Delle Entrate (Italian tax office), Provincia (Italian Labour Office), INPS (Italian Social Security Institute) and INAIL (Italian Insurance Institute). 

You’ll also need to submit any documentation to the Register of Enterprises, as well as gaining a VAT number and taxpayer number. You can then open a local bank account – another essential for doing business in Italy.

Italy is quite open to overseas employees, so most applications will automatically have the right to work in Italy. Anybody from an EU member nation will not require any kind of visa or documentation. You’ll know if somebody can work in Italy – they’ll provide you with a Codice Fiscale. This 16-digit code is a taxpayer reference, similar to the National Insurance number in the UK.

There is no payroll tax in Italy payable by a business. However, you will be liable for a flat-rate corporate tax of 23%. Income tax in Italy is known as imposta sul reddito delle persone fisiche, or IRPEF for short. Employees earning €14,999 PA or less are exempt from income tax. The minimum wage in Italy varies between sectors and CBAs, as there is no government-mandated salary.

Employee income tax varies between 27% and 43%, depending on salary – there are four tax bands in Italy. Further local and regional taxes will also be levied against employees, usually accounting for a further 1.5 – 2% of salary. As an employer, you will need to withhold social security taxes. Overall, the cost of a new hire in Italy will be anywhere between 1.3 and 1.5 times an employee’s annual salary.

Italian employment law and HR considerations

Italian employees enjoy a generous mandatory benefits package. This will typically vary based on the industry that your business operates within. If your employees are members of a national trade union, consult the Collective Bargaining Agreement (CBA) to ensure compliance.

The hours worked by Italian employees are inscribed in law. The Italian Department of Labour decrees that no employee can be made to work in excess of 48 hours per week, including overtime.

As part of a contract, an employer will be expected to provide a healthcare insurance package, life insurance and any allowances for unemployment and disability. In addition, a retirement pension package will be expected.

Legally, Italian employees are entitled to 26 days of paid holiday and a further 11 public holidays. Weddings are a big deal in Italy, so employees are also entitled to a further 15 days of paid wedding leave. This should be planned in advance between employer and employee. Wedding leave can start 3 days before marriage but can be taken within one year of a wedding of the employee prefers to save it for a honeymoon.

When sick, employers must pay 100% of a salary for three days. After this period, sick pay is divided between the employer and the government. Employees can also apply for paid or unpaid leave for studying or social programs, depending upon their contract.

Parental leave is also generous in Italy. Maternity leave must cover a minimum of 5 months at 100% salary. Further leave can then be negotiated – typically, an additional six months of unpaid leave (rising to 10 months for single parents) can be negotiated. Paternity leave covers 5 days at 100% pay.

Setting up a subsidiary entity in Italy

When setting up in Italy, you can either open a branch of your business or a separate company. A branch will require a lot of paperwork, extremely vigorous financial checks, and taxation on your global profits.

With this in mind, most SMEs set up a Società a Responsabilità Limitata, or SRL. This is a limited liability company. An SRL can trade all across Italy and is subject to far fewer restrictions on a national level. You’ll only need one director, and they do not have to be an Italian resident (though the business will require a local address and Italian bank account).

As is so often the case, it’s in matters of tax that the advantages of an SRL over a branch become apparent. Any business in Italy will be taxed twice – IRES is the Italian corporation tax, while IRAP is the Regional Tax on Productive Activities. 

If opening a branch, however, your business must also pay taxes in other nations. Italy is not protected by a double tax treaty, and the laws are vigorous. If your company is deemed to be withholding tax, whether by accident or design, you will be liable for substantial repayments and fines – as well as a lengthy, intrusive audit from the Italian tax authorities. 

Country nuances

If you plan to open an SpA in Italy, you should be aware of the overwhelming amount of red tape involved. Italian banks have extremely rigid and laborious anti money laundering measures in places, installed to prevent the funding of terrorism. This means that any significant financial transaction can be held up for quite some time, including large purchases and the application for any form of loan or financial assistance.

Many employees in Italy will be members of a trade union. There are three major unions in Italy. These unions establish a Collective Bargaining Agreement, or CBAs. These unions will dictate what benefits an employee is entitled to by law, and what social security category an employee falls into. Ensure you are compliant with the rules laid out by these CBAs. Italian trade unions are rarely shy about calling a strike, which could cause significant issues to your business.

When it comes to directorship of an Italian business, there are no restrictions on age, location or salary. A business can have just one director, and they do not need to be a resident of Italy. There are three main employee categories in Italy.

  • Impiegati translates as, “employees” – those on the ‘shop floor’ of your business, so to speak
  • Quadri are executives or middle managers in a business
  • Dirigenti are the decision-makers, directors and owners of business in Italy

This hierarchy is very important in the Italian workplace, and respect is key. Senior staff members do not expect to be addressed by their first name, and a degree of deference is to be expected. This formality also extends to dress code – always dress to impress in Italy – but do not be shy about expressing yourself and speaking out. Strong opinions, passionately presented, are welcomed in Italian business. 

Do not be misled, though – Italy does not have a workaholic culture. Colleagues are often friends, and a two-hour lunch break is sacred in Italy. For most Italians, work is a means to an end, not a way of life. Italians have no problem working hard and meeting deadlines and expectations, but family life will usually take precedence over business.

Setting up in Italy FAQs

How long does it take to set up an Italian entity?

Expect to wait up to 10 weeks before your Italian entity is ready to start trading. If you’re fortunate, this may be closer to 8 weeks.

What is the minimum share capital required to establish an entity in Italy?

This depends on what kind of entity you set up. An SRL, the most popular form of subsidiary business in Italy, has a minimum share capital requirement of €10,000. An SpA requires a minimum capital of €50,000.

What documentation will I need to set up an Italian entity?

Setting up an SRL requires less paperwork. For this business, you’ll need:
 
● A list of the directors of the business
● Proof of identity of the directors, and evidence that they are of good standing
● An Italian tax code
● The deed of the business, confirming that it has been approved by Italian law
● Power of attorney for a representative of the business
 
You may also be asked to provide further information about the directors of the business, including personal financial histories. At least 25% of the minimum share capital will also need to be placed into a deposit scheme. 
 
An SpA requires more paperwork. You’ll be expected to provide:
 
● A list of the directors of the business, and any other business interests they hold
● The ledger and certificates of any company shares
● An Italian tax code
● The deed of the business, confirming that it has been approved by Italian law
● Power of attorney for a representative of the business
 
Perhaps more importantly, the entire minimum share capital must be paid in full, and you’ll likely to subject to more forensic financial reviews by the Italian authorities.
 
Finally, if you prefer to open a branch, you will need:
 
● Registration of the business in Italy
● An Italian tax code
● A statement of activity in Italy
● Power of attorney for a representative of the business
 
Again though, the financial affairs of the parent company will be examined with a fine-toothed comb.

What is the difference between an SpA and SRL company in Italy?

A Società a Responsabilità Limitata, or SRL, is a limited liability company in Italy. This is a popular choice for any foreign business opening an Italian presence. As a limited liability company, an SRL will be a separate legal entity from your parent business. It’s cheaper to set up, will incur less tax, and offers more trading flexibility – though the company must be folded if the named directors wish to move on.
 
A Società per Azioni (SpA) is a corporation. This is the kind of business you would need if you plan to open a branch of a major international company in Italy. While this will bring greater brand recognition, you will be taxed on your profits on a global level and will be subject to considerably more rigorous financial regulation.

Can you establish a branch of your company in Italy?

You can open a branch of an existing business in Italy, though this requires more paperwork and red tape than opening a subsidiary business. Unless the brand name of a parent company is particularly valuable, consider starting at SRL to trade in Italy.

Do you need to set up a local bank account in Italy?

Yes, you’ll need a local bank account to do business in Italy. You’ll need to do this in person, and most banks will require proof of address before opening an account. Obviously, in the case of a business account, this can be the address of your company. You do not need a personal residence in Italy to open a bank account.

Is there a residence requirement for directors of Italian entities?

No, there is no legal requirement for any director of an Italian business to be a resident of the country. You will need an Italian bank account registered to an Italian address though, so some kind of reliable agent in Italy will be essential.

What is the standard working week in Italy?

The Italian working week is very structured. The usual pattern is from Monday to Friday, starting at 8 or 9am. Italians take a two-hour lunch break, then return to the office at 2 or 3pm and work until 6 or 7pm. This means that the average working week is 36 hours, with 40 hours the maximum allowed by law before overtime (capped at 2 hours per day, and 8 hours per week).

What is the standard annual leave entitlement in Italy?

Italian employees are entitled to 26 days of paid annual leave. In addition, there are a further 11 public holidays in Italy. Some regions have an additional public holiday day.

What are common supplementary employee benefits in Italy?

The mandatory benefits package in Italy is already considered generous by many. In addition, supplementary perks are often provided by employers. 
 
Private health insurance is a big deal in Italy, so consider a generous package here. Study leave and the opportunity to train and enhance skills are often welcomed. 
 
Many businesses offer flexibility around political elections to encourage voting, and social programs such as blood donation. In addition, Italian employees are entitled to 15 days of paid wedding leave when they get married. 

What is the statutory notice period in Italy?

Unless instantly dismissed on the grounds of serious misconduct, an Italian employee can expect a minimum of 30 days’ notice when having their contract terminated. In the case of large-scale redundancies or the liquidation of a business, more notice will be required. A business will be expected to notify an employee of their termination in writing.

In Italy, can employment contracts be terminated at will by the employer?

No, employees are protected against instant dismissal in Italy. There are three grounds for termination of an employment contract outlined in Italian law.
 
● Justified objective reason (i.e. redundancy)
● Justified subjective reason (i.e. misconduct or breach of contract, such as constant tardiness)
● Just cause (i.e. gross misconduct that makes a working relationship untenable, such as physical assault of a colleague or embezzlement)
 
An employee can launch an appeal citing unfair dismissal. It is advisable to consult a legal professional before attempting to terminate a contract of employment in Italy.

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