Italy’s economy is based primarily on the transformation of raw materials (usually imported) into finished products to satisfy domestic and foreign demand.
Investment opportunities are encouraged and the government, regions and provinces offer investment incentives, many of which encourage industrialisation in the southern part of the country.
Italy’s economic development varies greatly from region to region. The north is highly industrialised with good infrastructure and a highly trained workforce. The south ranks low in these characteristic indicators and significant incentives are offered to investors to develop in the area.
The Italian economy consists of three major sectors: large private companies, the public sector and the small business sector.
Italy ranks among the seven most industrialised countries in the world. Italian industry consists of a few large companies and many small and medium-sized enterprises specialised in a variety of activities. Industry is presently declining due to high labour costs compared to those of less industrialised countries, while service activities are expanding.
Service activities represent about 74 % of gross domestic product (GDP) and include commerce, transportation, communications, property rental, banking and insurance.
The manufacturing industry represents about 24 % of GDP and includes construction, textiles and apparel, machinery, chemicals, pharmaceuticals, non-metal minerals and transportation vehicles.
The agricultural industry represents about 2 % of GDP; its principal products are wheat, rice and other cereals, vegetables, fruits, wine, olive oil and dairy produce.
The central bank, the Bank of Italy, stabilises money supply and supervises banking and credit institutions.
Historically, the Bank of Italy’s primary concern was to ensure the stability of the creditsystem. It currently encourages the merger of the smallest banking institutions with larger institutions and promotes the technological evolution of banks, assisting them in the modernisation of the payment system.
The banking system, supervised by the Bank of Italy, consists primarily of:
Ordinary banks, which include private companies and the subsidiaries and branches of foreign banks, and Co-operative people’s banks (banche popolari), which are generally active within provinces or regions.
A Bank Deposit Insurance Fund (Fondo Interbancario di Garanzia dei Depositi) was created in 1987 to cover deposits in measures appropriate to different balances. Banks which participate in the fund hold 99% of Italy’s customer deposits. They must meet standards of capital adequacy, asset quality and bad debt ratios set by the fund.
Banks are competing by engaging in new activities and acquiring interests in other financial activities, such as merchant banking, leasing, factoring, management of investment portfolios, payment services and information technology.
SOURCES OF FINANCE FOR FOREIGN INVESTORS
The sources of finance used by Italian entities are also available to foreign investors. The primary sources of finance for new enterprises are subsidised loans and medium-term loans at fixed or variable market rates.
IMPORTING AND EXPORTING
Because Italy follows the principles of the General Agreemen on Tariffs and Trade (GATT), and the regulations of the EU customs union and other international agreements, most goods may be freely imported. Existing restrictions are intended to protect the EU economy, so that the importation of certain items requires advance authorisation.
Exports are generally unrestricted. Exporters must comply with the requirements to submit a customs office declaration.
Special export insurance is available from the Agency for Export Credit Insurance (SACE) for exports of durable goods – machinery, equipment and transport vehicles – as well as for services, studies and design projects, and for civil engineering works carried out abroad.
To encourage such exports, funding is available from special credit bank departments and state agencies in the form of medium-term loans at low interest rates.
TYPES OF BUSINESS
PERSONAL COMPANIES WITHOUT LIMITED LIABILITY STATUS
These companies are as follows:
- Snc (società in nome collettivo) or general partnership – this is a partnership where all partners are jointly liable for all of the firm’s debts and obligations
- Sas (società in accomandita semplice) or limited partnership – this is a partnership with two different categories of partners:
− Silent partners (soci accomandanti) where the liability is limited to the extent of their per capita contribution, or
− General partners (soci accomandatari) where the partners are jointly liable for all debts and obligations of the partnership.
Companies with legal personality and limited liability status are:
- SpA (società per azioni) or corporation – in which the participants’ equity is represented by shares
- Srl (società a responsabilità limitata) or limited liability company – in which the capital stock is represented by quotas and not by shares
- Sapa (società in accomandita per azioni) or limited partnership by shares – this combines some of the features of both a limited partnership and a limited liability company. It is a company in which at least one member has unlimited liability, while the liability of remaining members is limited to the extent of their share capital subscriptions.
‘LTD TYPE’ SPA AND SRL
Both SpAs and Srls have a legal personality. The shares of a SpA may be quoted on the stock exchange; the quotas of a Srl may not. The shares of a SpA are generally freely transferable; the quotas of a Srl may be restricted by the articles of incorporation. The annual financial statements of a SpA and a Srl must be published.
Both SpAs and Srls can be formed by a sole shareholder. The sole shareholder, whether a legal or natural person, usually has limited liability for the company’s obligations. However, the limited liability benefit is lost if certain formalities are not met. Therefore, it is normally advisable to have a minimum of two shareholders.
BOARD OF DIRECTORS / MANAGEMENT BODY (ORGANO DI GESTIONE)
A SpA can be administrated by a sole director or by a board of directors.
In the latter case, one of them is appointed as chairman. It is recommended that at least one of the directors appointed is a local resident, because it may simplify a number of procedures (e.g. signature for annual tax return and social contribution returns). Otherwise a local proxy-holder must be appointed.
With the exception of those appointed with the articles of incorporation, directors are elected by the shareholders’ resolutions. A director’s term of office may not exceed three years, but it may be renewed.
In the instance of the resignation of the majority of directors, the whole board is void and a shareholders’ meeting must be called to appoint a new board. Directors can be removed by a resolution of the shareholders.
The board of directors can delegate some of its members to perform specific tasks. If the delegation is given to one or a few directors, they are appointed as managing directors.
The following powers may not be delegated in any instance:
- To draw up the financial statements
- To increase the share capital
- To call the shareholders’ meeting in the case of losses higher than one-third of the share capital and to ask the court to reduce share capital
- To prepare merger or de-merger projects.
The management structure of the company often includes general directors (direttori generali). These are employees who assist the board of directors in the exercise of its functions and are empowered to represent the company. The Civil Code extends the regulations on the responsibility of the directors to the general directors.
The articles of incorporation appoint the directors who may represent the company. Failing this, the company is represented by the directors appointed by the shareholders’ meeting.
If no such appointment has been made, the board of directors may specify who is entitled to represent the company or may reserve this right to itself. Usually, however, the chairman and the managing directors are entitled to be legal representatives.
Tax payments are due at the following times as set out below:
- Income taxes due by a company – two advance payments plus a balance payment. The balance payment and the first advance are due within the 16th day of the sixth month from the end of the financial year.
- VAT – this is due monthly or quarterly, depending on turnover, on the 16th day of each month
- Withholding taxes and social contributions on salaries, commissions and professional fees paid – these are due monthly, on the 16th day of each month
- Stamp tax on a company’s books (Imposta sulle Vidimazioni) – this is due annually by 16 March (at EUR 309.87 if stock capital is lower than EUR 516,456.90; otherwise, EUR 516.46)
- Tax and social security payments due by VAT registered entities are required to be made electronically, whether or not an intermediary is involved.
DIVIDENDS FROM NON-RESIDENT COMPANIES
Dividends from subsidiaries situated in countries which have privileged tax systems are fully taxable for IRES.
INTEREST AND ROYALTIES
Interest and royalties received by corporations from any source must be reported at their gross amount before withholding tax is deducted.
OTHER FOREIGN SOURCED INCOME
Other foreign sourced income is included in taxable income for corporate income tax purposes.
TREATMENT OF GROUPS OF COMPANIES
The option for group taxation is irrevocable for a minimum period of three years. The option must be exercised by the controlling company and by its subsidiaries and is subject to various obligations and covenants.
Worldwide group taxation has also been introduced and is applicable to Italian controlling companies quoted on the stock exchange or owned by shareholders not controlling other companies.