ITALY GUIDE
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Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.
Expanding to countries such as Italy – which is characterized by a talented and multicultural workforce, multifaceted employment and tax laws, a strong infrastructure network linking to the rest of Europe, and leading sectors in tourism, precision machinery, motor vehicles, chemicals, pharmaceuticals, electrical goods, and textiles – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.
Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.
Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.
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Italy – The Economy
The economy of Italy is a highly developed market economy. It is the third-largest national economy in the European Union, the eighth largest in the world by nominal GDP, and the 13th-largest by GDP (PPP).
Italy is a founding member of the European Union, the Eurozone, the OECD, the G7 and the G20. It is the tenth-largest exporter in the world, with $632 billion exported in 2019. Its closest trade ties are with the other countries of the European Union, with whom it conducts about 59% of its total trade.
Italy owns the world’s third-largest gold reserve and is the third-largest net contributor to the budget of the European Union. Furthermore, the advanced country private wealth is one of the largest in the world. In terms of private wealth, Italy ranks second, after Hong Kong, in private wealth to GDP ratio.
Italy is a large manufacturer and exporter of a significant variety of products. Its products include machinery, vehicles, pharmaceuticals, furniture, food, and clothing. Italy has therefore a significant trade surplus.
The country is also well known for its influential and innovative business economic sector, an industrious and competitive agricultural sector (Italy is the world’s largest wine producer), and manufacturers of creatively designed, high-quality products: including automobiles, ships, home appliances, and designer clothing. Italy is the largest hub for luxury goods in Europe and the third luxury hub globally.
Despite these important achievements, the country’s economy today suffers from structural and non-structural problems. Annual growth rates have often been below the EU average. Italy was hit particularly hard by the late-2000s recession. Massive government spending from the 1980s onwards has produced a severe rise in public debt.
In addition, Italian living standards have a considerable North–South divide: the average GDP per capita in Northern Italy significantly exceeds the EU average, while some regions and provinces in Southern Italy are significantly below the average. In Central Italy, GDP per capita is instead average. In recent years, Italy’s GDP per capita growth slowly caught-up with the Eurozone average, while its employment rate still lags behind.
Small and Medium-Sized Companies
Italian small and medium-sized enterprises (SMEs) have a pivotal role in the economy. There are about 4.3 million SMEs in Italy, 95% of which are micro-enterprises. They account for 80% of employment and 70% of value added. Their contribution to exports is larger than in other EU countries (53% of exports in Italy vs an EU average of 40%, and 25% in both France and Germany).
SMEs overall value added in the Italian ‘non-financial business economy’, exceeds the EU average of 56.4%. The share of employment generated by SMEs is even larger, at 78.1%, compared to the EU average of 66.6%. Italian SMEs employ an average of 3.1 people, slightly fewer than the EU average of 3.9.
Average SME labor productivity, calculated as value added per person employed, is approximately €42,000, also somewhat lower than the EU average of €44,600. Micro firms are particularly important in Italy, providing 28.4% of overall value added and 44.9% of overall employment in the ‘non-financial business economy’.
Their productivity is below the average SME labor productivity in Italy, amounting to €31,000 per person employed. This is also below the productivity of micro firms in the EU of €37,000.
| Country | Italy |
| Capital | Rome |
| No. of States/Provinces | 20 regions, which are subdivided into 110 provinces |
| Principal Cities | Rome, Milan, Naples, Turin, Palermo, Genoa, Bologna, Florence, Catania, Bari |
| Language(s) | Italian |
| Local Currency | Euro (EUR) |
| Major Religion | Roman Catholic Church |
| Date Format | day/month/year |
| Time Zone | Central European Time (GMT+2) |
| Country Dial Code | +39 |
| Population | 60.3 million |
| Border Countries | land borders (France, Switzerland, Austria, Slovenia, Vatican City, San Marino) and maritime borders (Croatia, Bosnia-Herzegovina, Montenegro, Albania, Greece, Libya, Tunisia, Algeria, Malta, Spain) |
| Tax Year | 1st January – 31st December |
| VAT % | 22% |
| Minimum Wage | N/A |
| Taxpayer Identification Numbers | The Italian Codice Fiscale (TIN) Social Security Number Business Registration Number VAT Number |
| Leading Sectors | tourism, precision machinery, motor vehicles, chemicals, pharmaceuticals, electrical goods, textiles, fashion, clothing, and footwear |
| Main imports | Crude Petroleum, Cars, Packaged Medicaments, Petroleum Gas, and Gold |
| Main exports | Packaged medicaments, electric generating sets, pig meat, refined petroleum, blood, antisera, vaccines, toxins, and cultures |
| Main trading partners | Germany, France, United States, Switzerland, United Kingdom, Spain, Belgium, Poland, China, and the Netherlands |
| Government Type | Unitary parliamentary republic |
| Current Prime Minister | Sergio Mattarella (President), Mario Draghi (Prime Minister) |
The Main Sectors of the Italian Economy
Italy focuses on the following key sectors, which all have a significant impact on the country’s economy:
- Services – The Italian service sector is an industry which continues to grow. 68% of Italians work in the service sector, which contributes to 74% of the nation’s GDP. The banking sector flourished in medieval Italy, and it is still a major component of modern Italy’s economy. UniCredit Bank is ranked among the top in Europe in terms of market capitalization.
Italy is home to the world’s second largest insurance company in revenues, namely the Assicurazioni Generali. The citizens of Italy are served by a network of banks and other credit enterprises. The thriving tourism industry has triggered the development of hotel and accommodation infrastructure, as well as tour companies.
The country’s 4,600 miles of coastline feature many ports which support maritime transport. The Italian railway lines not only connect its cities, but other European nations as well.
Italy has also developed an expansive road transport system in addition to efficient air transport. Italy’s telecommunication sector is impressive in the number of subscribers and internet penetration rates. - Tourism – It is estimated that tourism accounts for 11.8% of Italy’s GDP and 12.8% of the total jobs. The country boasts 51 UNESCO as world heritage sites, the most of any other country in the world. The cities of Pisa, Rome, Florence, Trento, Venice, Trieste, Milan, and Turin are among the most visited cities in the country.
Visitors flock to Italy from countries such as Germany, China, Austria, US, Switzerland, France, and the UK. In 2014, Italy welcomed approximately 48.6 million visitors, making it the fifth in the world by number of international arrivals.
In 2015, international visitors accounted for nearly 36 billion euros, which was equivalent to 7.2% of the value of Italy’s exports. It is calculated that the sector of tourism, including the activity it generates, contributes approximately one-third to the overall GDP by creating over one million jobs. - Agriculture – A total of 1.6 million farms were identified in Italy in 2010, which total 12.7 million hectares of land. 63% of these farms lie in the south of Italy. Nearly all of the farms are family-operated and have an average size of eight hectares.
Agricultural production in the nation took off with the Land Reforms Act (1950), which redistributed land and facilitated efficient use of land. The act was subsequently reformed to rectify its weaknesses.
Grain fields account for 31% of agricultural land, while olive tree orchards and vineyards take up 8.2% and 5.4% of the surface area, respectively. Sugar beets account for 2.4% of land use and 2.4% for horticulture. Southern Italy largely produces citrus fruits and wheat, while the northern region produces dairy products, maize corn, fruits, meat, soybeans, rice, and sugar beets. Italy is the world’s largest producer of wine, including the popular Piedmontese Barolo, Frascati, Barbaresco, and Tuscan Chianti.
The country is a leading producer of fruits like oranges, kiwi fruits, peaches, olives, plums, lemons, apples, cherries, apricots, and grapes. Italy also has thriving fishing and livestock sectors. - Manufacturing – Rather than a large pool of global multinational corporations, Italy has more small and medium-sized businesses, most of which are grouped in clusters. These enterprises specialize in high-quality products and lower labor costs enable them to withstand competition from upcoming economies.
The north is mainly industrialized with a network of private companies. The emergence of the Fiat Company in Turin in 1899 facilitated the development of an automobile industry in Italy. The industry was decentralized following the establishment of other automobile plants in Naples, Milan, and Brescia.
The industry’s stagnation in the 1970s began to improve in the 1990s. Italy boasts some of the largest numbers of automobiles per capita. The iron and steel industry in Italy has been privatized since the 1990s. Four extensive iron and steel plants from the old republic continue to operate in Trieste, Genoa, Taranto, and Piombino.
The northwest region of Italy is home to the “Industrial Triangle,” which links Milan, Turin, and Genoa, and is characterized by a modern group of industries focused on naval production, machinery, aerospace, as well as automobiles. The central and northeast regions feature small businesses of high craftsmanship and low technology. Sassuolo, for example, is renowned for the production of ceramic tiles, while Nogara is known for producing wooden furniture products.
Other businesses specialize in textiles, jewelry, footwear, appliances and spare parts, clothing, and machine tools. Italy also has many chemicals and food and beverage manufacturers spread across the country. - Trade – The country’s position along the Mediterranean Sea has enabled it to cultivate a vibrant trading industry especially with North Africa, Eastern Europe, as well as the Middle East. Italy’s participation in the EC from 1957 multiplied its trading options.
Italy’s economy, however, began recording a rising trade deficit with nearly all nations and it was not until the 1990s when positive trade balances were recorded. Italy is currently the 8th top exporter in the world.
In 2016, exports amounted to $436.3 billion. Among the exports of Italy are engineering products, precious metals, paper, stone, aircraft, footwear and clothing, vehicles, textiles, cement, electrical equipment, in addition to food and beverage. Germany, the United States, Spain, the UK, Switzerland, and France are Italy’s primary export partners. Italy’s imports in 2016 were valued at $372.2 billion.
The bulk of the country’s imports consisted of textiles, minerals, automobiles, base metals, engineering products, plastics, and chemicals. Italy mostly trades with territories of the EU and other countries such as Russia and China.
Compliance Highlights
- The Revenue Agency – The Revenue Agency is a non-economic public body that operates to ensure the highest level of tax compliance. It is mainly responsible for collecting tax revenues, providing services and assistance to taxpayers, and carrying out assessment and inspections aimed at countering tax evasion.
It also provides cadastral and geocartography services, manages all the payment to public administration through the F24 online system, handles the e-invoice for all the public authorities and the Health Insurance Card. - The Labor Inspection Directorate – The Labor Inspection depends on the Ministry of Labor and Social Policy. Its structure includes an authority at the central level, a regional labor directorate (Direzione Regionale del Lavoro: DRL) for each region and a provincial labor directorate (Direzione Provinciale del Lavoro: DPL) for each province.
Labor Contracts Law
National employment legislation, collective agreements, and works council agreements are the main sources of employment law in Italy, which govern employment conditions, benefits, and health and safety regulations. The conditions performed vary according to the industry and sector.
To be fully aware of what you can and cannot apply to your employment practices in Italy, it is important for the employer to know the existing labor laws and employee entitlements, as well as collaborate with the appropriate local employment organizations.
In Italy, an employment contract is not required by law to be concluded in writing. Oral contracts are also practiced. However, for a contract to be valid, certain clauses must be in writing, and they must be presented to the employee within 30 days of starting employment. This document must include:
- Name and address of the employer and the employee
- The place of work
- The commencement date of employment
- Anticipated duration of employment, specifying whether it is indefinite or fixed term
- The probationary period
- The job title or category
- The employee’s salary
- The duration of annual leave
- The working hours
- The length of the notice period (in case of termination)
- A reference to any collective bargaining agreements, works or services agreements that are applicable to the employment relationship (if there are any)
Payroll – Tax Contributions and Benefits
Income Tax: In Italy, the individual’s ability to pay income tax depends both on their residency status, as well as the source of their income. All Italian residents are taxed on their worldwide income, regardless of their nationality. Non-residents, however, are only taxed on Italian-sourced income. Income Tax in Italy is progressive, based on the amount of income that the individual receives, which applies for both residents and non-residents. In Italy, there are two types of income tax returns that can be done, which depend on specific tax rules:
- Mod. 730 (Modello 730) – this is a simplified tax return, which only applies for incomes subject to ordinary taxation, and taxpayers must meet the following conditions in order to qualify for this return type:
– the individual is an Italian tax resident in the year of filing this return, as well as the previous one
– the individual has a withholding agent (or employer) in Italy in the period of the filing of the Italian income tax return
– the individual does not have a VAT number
For this tax return type, no taxpayer is obliged to prepare any calculation – but the balance is withheld by the employer or refunded to the employee in their pay slip. For this type, married couples can file jointly.
The Mod. 730 must be submitted to the Italian tax authorities by the 30th of September, via electronic filing. - Dichiarazione dei Redditi – in the cases where Mod. 730 is not applicable, the individual must then file a tax return known as Dichiarazione dei Redditi. This is done through self-assessment.
This tax return type must be filed to the tax authorities by the 30th of November via electronic filing. Married couples cannot file this tax return type jointly.
On employment income, the Italian employer acts as a “withholding tax agent” and must effectively withhold both income tax on the basis of the progressive income tax rates, as well as social security benefits.
The employer is also obliged to issue an annual employment certification or Model CU, within or before the 31st of March of the following year. This certificate must certify the individual’s taxable income as well as the withholding taxes done for them during the fiscal year.
If foreign individuals have no employment relationship with an Italian company, they are then obliged to declare their tax income through the second tax return type, Dichiarazione dei Redditi or the ‘self-assessment’ method.
Other income taxes:
Individuals are also subject to two other types of income taxes that an individual must compensate:
- Regional income tax – this tax depends on the individual’s region of residence in Italy, and ranges from 1.23% – 3.33%.
- Municipal income tax – this tax depends on the individual’s municipality of residence in Italy, and ranges from 0% – 0.8%. Municipalities also have the option to establish progressive tax rates that apply to the national income bracket.
Health and Social Insurance: In Italy, social security contributions are also settled through the employee’s salary. Social security contributions are withheld from the employee’s salary monthly, which are then sent to the tax office. Employers are also obliged to make their own contributions.
Like income tax, social security contributions are affected by categories of employment, as well as seniority. However, the figures listed above are the general rates. The contributions listed above go towards the following funds:
- The National Pension Fund (INPS)
- Unemployment
- Sickness
- Maternity
- Temporary unemployment compensation
- Social mobility
- Other minor funds
Sick Leave and Pay: Entitlement to sick leave in Italy is usually specified by the employee’s labor agreement. Workers typically get full pay during sick leave, which is partly paid from the employer, and partly paid from the National Social Security Institute.
Annual Leave: Employees in Italy are entitled to a minimum of 28 days, or 4 weeks of paid leave per year – 2 of those weeks can be taken consecutively, at the employee’s request. Two of the four weeks can be taken in the year they were given, whilst the other half can be carried over to the next one for an additional 18 months.
Maternity Leave: Pregnant workers in Italy are entitled to 5 months’ maternity leave, which can either be taken from two months before delivery and for three months after. As of an amendment effective from 2019, a pregnant employee may also choose to start her maternity leave after childbirth.
Pregnant employees can stay at work until the ninth month of pregnancy with the prior authorization of their gynecologist. During pregnancy, the employee must not be given tasks that may endanger her health.
Pregnant mothers also have the right to be transferred to a different job with no pay reduction, if necessary, in order to protect the mother’s or the child’s health.
During maternity leave, the mother is entitled to 80% of her regular pay from the social security system.
Paternity Leave: Paternity Leave in Italy consists of 5 days, which can be taken during the first five months following the child’s birth. A working father can benefit from an extra leave day, which can be taken from the mother’s maternity leave, as long as she agrees to it.
Parental Leave: Parents in Italy are entitled to parental leave of up to six months per parent, but with a limit of 10 together, during the child’s first 12 years. Parental Leave pay is 30 percent of their average daily pay.
Requests for smart working are allowed to be made by parents during parental leave. This, however, should be given priority for mothers during the first three years after the end of maternity leave, and both parents in case of a child affected by disability.
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