Italy: How To Take Advantage Of An Undoubtedly Profitable Marketplace

Last Updated: 26 January 2018
Article by Carlo Fossati, Franco Tofacchi and Maria Clavarino

Italy normally reminds you of not worrying, being happy, easy life-style, and, if anything, holidays.  It is still a destination reached by people from all over the world either for business or for leisure or, possibly, for both.  Furthermore, it has one of the highest per capita incomes in Europe, especially in its most affluent regions.  Sounds like you can be optimistic in Italy, despite the crisis.  However, from 2011 data reported by official sources such as World Bank, it does not seem the easiest place where to do business.  And yet, there are many successful stories of overseas Companies investing in Italy: the ingredients for a perfect recipe are a few aspects to be borne in mind, and some local people you can rely on.

Firstly, globalization has not made business etiquette standards alike everywhere.  In Italy, they are not always predictable, and they may vary depending on the region, even if the whole Country territory is not so wide.  Having said that, the 80th position out of 183 economies, where Italy is ranked by World Bank with respect to ease of doing business, might not be final.  It could vary depending on the actual context in which a foreign Company is planning to invest.  Therefore, before implementing any action in Italy, it is worth considering the actual area where to establish and the achievable mutual understanding with future local associates, suppliers, and customers.  Of course those are variables strongly impacting any enterprise success, yet even more so in a Country stretching from the Alps to North Africa latitude. 

As regards to the hardest problems you may face in Italy, according to World Bank ranking for the year 2011, enforcing contracts and paying taxes are the most critical aspects lowering Italy's score compared to other economies.  Indeed, a company will have to rely on the guide of a good consultant before - or   contextually to - drafting any agreement: it cannot be taken for granted that any fair and reasonable contract under international standards is bound to be enforced swiftly in Italy.  As regards paying taxes, again, tax consultants are needed for any forecast as well as for complying with tax regulations.

There is good news, though.  A new tax regime, to the benefit of foreign enterprises investing in Italy, allows EU-resident companies to set up and begin business activities in Italy, requesting the application of their own EU country's tax law in lieu of the Italian tax regime.  This is called "EU Attraction Tax Regime". Also non-European entities may profit from this regime, given that it also applies to non-resident corporations setting up the new economy activity in Italy, provided that they have been resident for at least 24 months in an EU Member State, truly doing business in that country.

Finally, labour law regulations are strict on employers, and they can affect the needed flexibility in reducing or expanding businesses.  Nevertheless, there are some paradoxes even in this field.  Small entities, for instance, will find Italian labour law policies far easier to comply with than in other European Countries (procedures are simplified for entrepreneurs or companies employing less than 15 people).  However, employment contracts for blue-collars, white-collars, and executives, are regulated by the Italian Civil Code, as amended by several pieces of legislation, but most importance is given to collective agreements.  The onus is on the employer to comply with such a complex legislation.  Employees hired locally in subsidiaries may have a different view of performance benchmarks, corporate culture, and acceptable business practice.  Nevertheless, they may be enthusiastic workers and reveal unexpected talents in different fields.

In conclusion, a key success factor for foreign investors is to identify the right advisers.  They must be deeply rooted in Italy, experienced across the whole country, but at the same time capable of interfacing cross-border requirements.  It is worth highlighting that consultants' fees are not exorbitant, by comparison with costs for the same services in some other Western European Countries.

Originally published in Corporate LiveWire

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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