Establishing your business in Italy

Why do business in Italy?

Italy is an appealing location in Europe to establish a business presence. With the 8th largest economy in the world and the 2nd largest manufacturing economy in Europe, Italy offers plenty of opportunities for businesses looking to expand internationally. What’s more, Italy is truly a global trading hub, with strong links to Europe, America, Africa and Asia.

It’s true that getting started in Italy can be frustrating and there are a number of corporate hoops to jump through before you can establish a business. You must ensure you follow compliance and regulatory guidelines which is why UnaTerra is here to help you navigate.

Territory data

How to set up payroll in Italy

Getting started in Italy and setting up your payroll is definitely more challenging than some countries. Italy takes anti-money laundering procedures very seriously. All business financial affairs are thoroughly checked and reviewed.

Your first step will be to register your business with an Italian notary public. Once this is done, you can register with the Agenzia Delle Entrate (Italian tax office), Provincia (Italian Labour Office), INPS (Italian Social Security Institute) and INAIL (Italian Insurance Institute). 

You’ll also need to submit any documentation to the Register of Enterprises, as well as gaining a VAT number and taxpayer number. You can then open a local bank account – another essential for doing business in Italy.

Italy is quite open to overseas employees, so most applications will automatically have the right to work in Italy. Anybody from an EU member nation will not require any kind of visa or documentation. You’ll know if somebody can work in Italy – they’ll provide you with a Codice Fiscale. This 16-digit code is a taxpayer reference, similar to the National Insurance number in the UK.

There is no payroll tax in Italy payable by a business. However, you will be liable for a flat-rate corporate tax of 23%. Income tax in Italy is known as imposta sul reddito delle persone fisiche, or IRPEF for short. Employees earning €14,999 PA or less are exempt from income tax. The minimum wage in Italy varies between sectors and CBAs, as there is no government-mandated salary.

Employee income tax varies between 27% and 43%, depending on salary – there are four tax bands in Italy. Further local and regional taxes will also be levied against employees, usually accounting for a further 1.5 – 2% of salary. As an employer, you will need to withhold social security taxes. Overall, the cost of a new hire in Italy will be anywhere between 1.3 and 1.5 times an employee’s annual salary.

Italian employment law and HR considerations

Italian employees enjoy a generous mandatory benefits package. This will typically vary based on the industry that your business operates within. If your employees are members of a national trade union, consult the Collective Bargaining Agreement (CBA) to ensure compliance.

The hours worked by Italian employees are inscribed in law. The Italian Department of Labour decrees that no employee can be made to work in excess of 48 hours per week, including overtime.

As part of a contract, an employer will be expected to provide a healthcare insurance package, life insurance and any allowances for unemployment and disability. In addition, a retirement pension package will be expected.

Legally, Italian employees are entitled to 26 days of paid holiday and a further 11 public holidays. Weddings are a big deal in Italy, so employees are also entitled to a further 15 days of paid wedding leave. This should be planned in advance between employer and employee. Wedding leave can start 3 days before marriage but can be taken within one year of a wedding of the employee prefers to save it for a honeymoon.

When sick, employers must pay 100% of a salary for three days. After this period, sick pay is divided between the employer and the government. Employees can also apply for paid or unpaid leave for studying or social programs, depending upon their contract.

Parental leave is also generous in Italy. Maternity leave must cover a minimum of 5 months at 100% salary. Further leave can then be negotiated – typically, an additional six months of unpaid leave (rising to 10 months for single parents) can be negotiated. Paternity leave covers 5 days at 100% pay.

Setting up a subsidiary entity in Italy

When setting up in Italy, you can either open a branch of your business or a separate company. A branch will require a lot of paperwork, extremely vigorous financial checks, and taxation on your global profits.

With this in mind, most SMEs set up a Società a Responsabilità Limitata, or SRL. This is a limited liability company. An SRL can trade all across Italy and is subject to far fewer restrictions on a national level. You’ll only need one director, and they do not have to be an Italian resident (though the business will require a local address and Italian bank account).

As is so often the case, it’s in matters of tax that the advantages of an SRL over a branch become apparent. Any business in Italy will be taxed twice – IRES is the Italian corporation tax, while IRAP is the Regional Tax on Productive Activities. 

If opening a branch, however, your business must also pay taxes in other nations. Italy is not protected by a double tax treaty, and the laws are vigorous. If your company is deemed to be withholding tax, whether by accident or design, you will be liable for substantial repayments and fines – as well as a lengthy, intrusive audit from the Italian tax authorities. 

Country nuances

If you plan to open an SpA in Italy, you should be aware of the overwhelming amount of red tape involved. Italian banks have extremely rigid and laborious anti money laundering measures in places, installed to prevent the funding of terrorism. This means that any significant financial transaction can be held up for quite some time, including large purchases and the application for any form of loan or financial assistance.

Many employees in Italy will be members of a trade union. There are three major unions in Italy. These unions establish a Collective Bargaining Agreement, or CBAs. These unions will dictate what benefits an employee is entitled to by law, and what social security category an employee falls into. Ensure you are compliant with the rules laid out by these CBAs. Italian trade unions are rarely shy about calling a strike, which could cause significant issues to your business.

When it comes to directorship of an Italian business, there are no restrictions on age, location or salary. A business can have just one director, and they do not need to be a resident of Italy. There are three main employee categories in Italy.

• Impiegati translates as, “employees” – those on the ‘shop floor’ of your business, so to speak
• Quadri are executives or middle managers in a business
• Dirigenti are the decision-makers, directors and owners of business in Italy

This hierarchy is very important in the Italian workplace, and respect is key. Senior staff members do not expect to be addressed by their first name, and a degree of deference is to be expected. This formality also extends to dress code – always dress to impress in Italy – but do not be shy about expressing yourself and speaking out. Strong opinions, passionately presented, are welcomed in Italian business. 

Do not be misled, though – Italy does not have a workaholic culture. Colleagues are often friends, and a two-hour lunch break is sacred in Italy. For most Italians, work is a means to an end, not a way of life. Italians have no problem working hard and meeting deadlines and expectations, but family life will usually take precedence over business.