If you plan to start a business overseas, you must ensure compliance with the legal norms of the chosen country. Legal compliance facilitates seamless operations and high earning potential, even in a relatively unexplored market. On the other hand, not doing so can lead to unexpected challenges and hassles that can impede the long-term growth of your business.
Italy is an attractive business destination for global entrepreneurs because of its opportunities. Although the country was initially known for a rigid labor market and red-tapism, things have changed significantly in recent years. It is a preferred country to start a business and achieve growth faster than you expect. But everything boils down to ensuring that your startup is on the right side of the country’s law. Here are some facts you need to know about legal compliance for new businesses in Italy.
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Start with a business plan and market survey
Setting up a business in an overseas market is a big step, and there are several challenges you may have to face. Not knowing your prospects before taking the leap elevates the risk of failure, so it is best to start with proper planning and research. The first step would be to get a good understanding of the market, which is possible only with an in-depth market survey. When you research the market, focus on the audience as well as the competitors operating in the same domain.
A clear plan of action is equally important as it sets a roadmap for what you want to achieve and how you will go about it. The plan also determines the feasibility of the proposal and cuts the risk of startup failure in the long run. Additionally, it outlines the short-term and long-term business objectives along with timelines so that you can take a more realistic approach to start up. Even though this step isn’t exactly about legal compliance, it goes a long way in setting your company on the right track.
Know your options for company status.
Even before knowing more about the compliance norms, you need to understand the options in company status because this is where it starts. Fortunately, Italy offers diverse legal structures for setting up new businesses. Your choice will depend on the objectives, the capital investment, the founder liability, and tax implications. Even people who retire to Italy choose to open small businesses and gain some extra money in addition to their pensions.
The most common legal structures for those looking to set up with other shareholders are:
- Societa per azioni (SpA)- In this model, you can start with a minimum capital of 120,000 EUR and have any number of shareholders, as in the case of a public limited company. The liability of the partners is limited to the amount they contribute. Before registering the company in Italy, a quarter of the initial investment must be paid.
- Societa a responsabilita limitata (SRL): This model is more like a limited liability company and can be started with a minimum capital of 10,000 EUR. Like SpA, this model too limits the partners’ liability to their contribution. While it also requires a quarter of the initial investment to be paid before registration, the model is simpler as it has less paperwork and no incorporation taxes and notary fees.
Although SpA and SRL are the most popular options for company structure in Italy, there are more models to explore as well. These include Societa Cooperativa (SC)/cooperative society, Societa Semplice in Accomandita (SAS)/simple convenience company,Societa in nome collettivo (SNC)/General Partnership and Societa in accomandita per azioni (SAPA)/Partnership Limited by Shares.
Understand your eligibility to set up
Once you have clarity about the structure you want to start with, diving in straightaway doesn’t make sense. You need to know whether you can operate a company in the country. The country follows the condition of reciprocity when setting up businesses by non-citizens. Anyone looking to establish a startup here will be allowed only if an Italian citizen can do the same in their country. So, you should start by checking the conditions of reciprocity in your country.
If you plan to stay and run your business here for the long haul, you must have a legal right to live and work here. It is best to procure a residence permit before you start operating the company here. Those with Italian ancestors can consider getting citizenship as well. The next question would be how to get Italian citizenship by descent, which is fortunately an easy process. Having an expert handling your immigration case means that you will be able to breeze through.
Register your business in Italy
After you are sorted out with the citizenship or legal residency issue, the next step would be to register the company in Italy. Even as the process is relatively simple, getting legal and financial assistance for it keeps you in a good place. You can use a notary or seek the guidance of a certified agency (galoppini) to handle the entire registration steps. Here are the ones they will take you through.
- Draft the memorandum of the company.
- Register it before a notary public
- Provide the requisite documents to the Register of Enterprises
- Buy corporate and accounting books according to Article 2478 of the Code
You will also be required to open a bank account in Italy as a part of the process. So make sure that you have one before going ahead. The company will be regarded as an existing entity only after registration in the country. Once registered, it will get a reference number, the VAT number and the tax identification number. It means that you are good to go!Â
Stay ahead of the taxes
Even as your company is registered legally in Italy, it is only half the work done. Legal compliance also extends to other aspects of operations, and taxes are on the top of the checklist. Unless you stay ahead of filing and paying taxes, there could be hassles with the authorities. You should avoid it, considering you are not running a business in your native country. According to Italian law, there are five types of taxes. These include:
- Imposta sul reddito/income tax
- Imposta sulle società /corporate tax)
- Imposta sui servizi/tax on services
- Imposta sul valore aggiunto/VAT or sales tax
- accise/excises
Individual income tax in Italy is charged progressively from 23% to 43%, while additional taxes are rated according to local (0.1% to 0.8%) and regional (0.9% to 1.4%) levels. For foreign residents working in Italy, taxes are levied only on the income they earn here. However, your global income is subject to individual income tax in Italy if you are an Italian resident, have business and investments, and spend more than 183 days a year here.
Regarding business taxes, you will have to pay corporate tax and VAT after registration. Corporate tax is charged at about 24%, and it will be added to a regional tax of 3.9% on productive activities. A VAT of 22% is levied as well. You can also expect other minor taxes like property tax and tax on financial transactions. It is best to hire a local tax expert to ensure that you never miss out on tax compliance for personal and business taxes.
Learn more about customs and imports
Another legal aspect that foreigners must be aware of while setting up a business in Italy is customs and imports. Even though the country is liberal in terms of trading, there are some strict rules that you will have to follow while importing goods. For example, you cannot import specific items such as live animals and animal products, Genetically Modified Organisms (GMO) and pirate or counterfeit items. Further, there is also a curb on the import of products containing chemicals like mercury, PCB, HCFC and PCT CFC.
If you want to import goods from an EU member state, you need not make a customs entry. However, you must file an Intra-state declaration if you are importing items beyond an annual value threshold. Overseas imports also require commercial invoices and shipping documents to be legally compliant. You may take customs and import less seriously, but non-compliance can land you in big trouble. Planning everything to the last detail is critical because even a small error with documentation can put your imports off track.
Apart from staying ahead with legal compliance for your new business in Italy, it is equally important to understand the business culture of the country where you plan to operate for the long haul. Although it may be a challenge when you just get started, you will gradually learn the ropes and be able to operate seamlessly. The work culture is pretty liberal here, and you can expect long food breaks and last-minute appointments, so be ready to align with them. Also, the country is well-known for its penchant for fashion, so don’t forget to dress to impress every day as you step into the office!
