Key Considerations For Starting A Business In Italy 2024

Italy, known for its rich cultural heritage and thriving tourism industry, offers entrepreneurs many reasons to start a business there. The country’s deep-rooted traditions in art, fashion, and cuisine make it a lively place to operate, while its advanced manufacturing sector, particularly in luxury goods and automotive, leads Europe.

However, there are important factors to consider when setting up a business in Italy. The current economic state, legal and regulatory requirements, taxation for businesses, and labour laws must all be thoroughly understood.

Understanding these factors are crucial for establishing a successful business. With careful planning, Italy can present unique and rewarding opportunities for entrepreneurs.

 

Economic Overview

 

Italy’s economy is a mix of recovery signs and ongoing challenges. The OECD reports that in 2022, the country showed resilience with a 3.7% growth, but this momentum slowed in 2023. Rising interest rates, weakening global trade, and the end of pandemic-related stimulus measures have contributed to this slowdown.

According to the OECD, economists predict growth to remain below 1% for both 2023 and 2024.

There are positive aspects as well. Italy’s manufacturing sector, especially in luxury goods, continues to perform well. The government is also investing in infrastructure through the European Union’s Recovery and Resilience Facility (RRF).

However, the country faces long-term challenges, including high public debt and demographic shifts, such as an aging population, which will increase pressure on social spending.

 

Legal and Regulatory Framework

 

Italy offers several business structures, with the most popular being the Limited Liability Company (Società a responsabilità Limitata – SRL) and the Simplified Limited Liability Company (Società a responsabilità Limitata Semplificata – SRLS).

The SRLS is a quicker and more cost-effective option for smaller businesses, though it has limitations on minimum capital.

The registration process involves multiple steps. Entrepreneurs must draft Articles of Association with a notary public, obtain a tax code, open a bank account, register for VAT, and enrol with the Italian Chambers of Commerce (Camere di Commercio). Depending on the industry, additional permits or licenses may be required.

Given the challenges of registration, many entrepreneurs find assistance from commercialists (dottori commercialisti) or lawyers specialising in business formation. These professionals can provide valuable guidance, ensuring compliance and avoiding potential delays.

 

 

Taxation and Financial Management

 

Starting a business in Italy involves dealing with a complex tax system. Here are some of the key taxes you’ll encounter:

Corporate Income Tax (IRES): This is the main tax on a company’s profits, currently set at a standard rate of 24%.

Regional Production Tax (IRAP): Applied to the net value of a company’s production, this tax varies by region, with a national average rate of 3.9%.

Value Added Tax (VAT): Italy has a multi-tier VAT system with a standard rate of 22%. Reduced rates of 10% and 4% apply to specific goods and services. Businesses must register for VAT if their annual turnover exceeds a certain threshold, detailed on the Italian Revenue Agency (Agenzia delle Entrate) website.

Depending on the industry, additional taxes such as withholding tax on dividends or local business taxes may apply. Italy also offers tax breaks for new businesses, like the flat-rate scheme (regime forfetario) with a substitute tax rate of 15% (or 5% for specific categories) for the first five years.

Compliance with Italy’s tax system can be complicated with its specific rules and exemptions. Consulting a tax advisor familiar with Italian business startups is highly recommended. They can help determine the most beneficial tax regime for your situation and ensure compliance with regulations.

 

Hiring and Managing Employees

 

Italy has various employment contracts, with the most common being permanent contracts (contratto di lavoro a tempo indeterminato) and fixed-term contracts (contratto di lavoro a tempo determinato). Fixed-term contracts need strong justification and can only be renewed a limited number of times.

Italian labour laws emphasise employee rights and benefits. Employees are entitled to at least 20 working days of paid annual leave, extensive sick leave provisions, and robust maternity and paternity leave options. Working hours are regulated, with a standard 40-hour workweek and restrictions on overtime.

Many industries in Italy operate under collective bargaining agreements, which set industry-specific minimum wages and working conditions. These agreements can complicate the hiring process and highlight the importance of being informed about industry specific regulations.

Employers are responsible for social security contributions, payroll taxes, and maintaining a safe and healthy work environment. It is essential to remain compliant with these regulations and penalties for violations can be significant.

Many companies starting operations in Italy partner with Employer of Record (EOR) services. EORs handle payroll, taxes, and employee relations, allowing you to focus on building your team and managing your business.

In conclusion, Italy is a lively environment for entrepreneurs, thanks to its cultural heritage and strong manufacturing sector. However, setting up a business requires careful planning and understanding of the economic conditions, legal and regulatory framework, taxation, and labour laws.

By navigating these factors with professional guidance, entrepreneurs can leverage Italy’s unique opportunities and build successful enterprises. With the right approach, Italy’s challenges can be managed, making it a rewarding place to start a business.