Italy offers a number of options when it comes to establishing a company in the country. Our summary introduces the conditions required and provides an overview of taxes in general.
Types of companies in Italy
S.R.L. – Limited Liability Company (LTD)
It is a form of business organization combining elements of both partnerships and corporations. In this type of business entity, the capital participation of the owners is represented by quotas instead of shares. The Company is only answerable with its assets for its obligations. There is no a minimum capital; we recommend at least 10k euros. At least 25% of the capital subscribed in cash must be paid in at the moment the company is formed. In the case of a Company founded by a single stockholder, 100% of the capital must be paid in at that time.
The management of the Company may be entrusted to a Sole Director or a Board of Directors.
With regards to the controlling body, it consists of a single Statutory Auditor or a board of three Statutory Auditors.
The appointment of a controlling body or a Registered Auditor is mandatory when one or more of the following conditions are met:
- for two subsequent financial years, the company has passed two of the following three limits:
- total assets in the balance sheet: euro 4,000,000;
- earnings from sales and provisions of services: euro 4,000,000;
- staff employed as an average during the financial year: 20 units;
- the company have to draw up consolidated financial statements;
- the company controls another company that is subject to the accounting audit.
P.A. – JOINT STOCK COMPANY
In an S.p.A., shares represent the participation of the Shareholders, the minimum capital is euro 50,000 and the Company is only answerable with its assets for its obligations. At least 25% of the capital subscribed in cash must be paid in at the moment the company is formed. In the case of a Company founded by a single stockholder, 100% of the capital must be paid in at that time.
S.p.A. governance could adopt three different models: A Board of Directors, Sole Directors or Director with disjoint powers. All S.p.A. must have a so-called “Board of Statutory Auditors” (“Collegio sindacale”).
Members of the Board are entrusted with supervising the following areas:
- compliance with the law and the By-laws of the company;
- correct administration and internal controls;
- adequacy and reliability of the organizational and administrative structure;
- adequacy and reliability of the accounting system.
The Board of Statutory Auditors is comprised of three or five permanent members and two auxiliary members; at least one of whom must be listed on the Roll of Auditors at the Ministry of Justice.
The Board of Statutory Auditors is appointed by the Stockholders for a period of three years. It cannot be dismissed except for good cause and with the approval of the local court.
The Stockholders, in conformity with a fee schedule established by a specific Ministerial Decree, determine the remuneration of the Statutory Auditors.
When the appointment of the Board of Statutory Auditors is mandatory, the appointment of a Registered Auditor or an Audit Firm registered within the Roll of Auditors at the Minister of Justice is also compulsory.
Among other tasks, the Registered Auditor (or the Audit Firm) must perform a quarterly audit. In addition, they must prepare a report on the financial statements that includes an assessment on accounting, the reliability of the financial statements and the results of the audit performed during the financial year. This report must then be submitted to the annual general meeting.
In a S.p.A., the company’s By-laws may entrust the audit to the Board of Statutory Auditors when the company does not have to draw up consolidated financial statements.
When the Board of Statutory Auditors is entrusted with the audit of the company, all its members must be registered auditors.
Also the remuneration of the Registered Auditors is established by the Stockholders.
According to Italian legislation and to the OECD Tax Model Convention to avoid double taxation, if the Italian office of a foreign company performs any business activities (selling goods, providing services, etc.), it is considered a permanent establishment (branch). A Public Notary act is required for the setting up.
The branch must apply for a VAT number, is subject to separate accountancy and bookkeeping in Italy, must deposit the mother company’s annual balance sheet and is subject to corporate tax in Italy on the income that derives from its activities carried out in Italy. The establishment of a branch by a foreign investor must be registered with the Registrar of Companies.
The taxation of an Italian branch is the same as the taxation of an Italian corporation.
In the case of a branch, the parent company is directly responsible for all the debts of the Italian branch.
Social Security Representative
It is an individual or a limited which represent the foreign employer in Italy in relation to Social security obligations. The SSR is jointly liable with the employer for the payment of social security.
The SSR scheme doesn’t pay corporate tax, doesn’t have a vat number, and is not subject to accounting and tax compliance, based on OECD international rules. The SSR scheme is applicable when there is not the assumption for a permanent establishment.
Taxation in Italy
Corporate Income Tax – (IRES)
The tax rate of the corporate income tax (Ires) is 24%.
Under Italian tax law, all profit must be increased or decreased in accordance with the tax provisions governing the determination of the tax base for Ires purposes.
The Tax Return should be filled in every year. The corporate income tax return must be submitted to the Revenue Agency online no later than the last day of the eleventh month following the closing.
Regional production tax – IRAP
The regional production tax (Irap) is a local tax on productive activities carried out within a regional territory. The standard rate is 3.9%, but higher Irap rates are, for example, applicable to banks and financial institutions (4.65%) and insurance companies (5.90%).
Regional authorities have the right to increase or decrease the Irap rates within the limit of 0,92%.
Irap taxpayers must e-file their tax return every year. The deadline for submitting the return is generally fixed at 30th November of each year.
VAT in Italy
Vat – Value added tax (IVA). The standard VAT rate is 22%; reduced rates are provided for several supplies of goods and services, such as: 4% for listed food, drinks and agricultural products or 10% for electric power supplies for listed uses and listed drugs. Specific supplies of goods and services expressly listed in Presidential Decree n. 633/72 are exempt from Vat, for example education, insurance services, specific financial services, supply, leasing of particular immovable property.
VAT due is paid on a monthly or quarterly basis.
The annual VAT return covering all the transactions carried out in the previous year should be delivered on every year within 30th April.
Senior Tax Manager | LDP Tax & Law
LDP Tax & Law is well established provider of BPO and consulting services in Italy, present on the market since 1993. LDP offers a full range of professional services for multinational companies such as market entry and incorporation services, accounting and bookkeeping, tax and vat compliance, financial reporting, payroll and HR, labour law support, global mobility services as well as M&A, transfer pricing, corporate finance, legal advice and more.