Italy offers a wide range of opportunities for both local and international entrepreneurs looking to establish a business. Whether you aim to tap into its domestic market or leverage Italy’s position as a gateway to Europe, understanding the legal frameworks and tax regime is essential. We cover the various business forms available, the tax implications, and the process of setting up a company in Italy.
Types of legal entities in Italy
When registering a company in Italy, you can choose from several legal forms, each with different capital requirements, responsibilities, and administrative obligations.
1.1 Società a responsabilità limitata (SRL)
The Società a Responsabilità Limitata (SRL) is the most popular type of company in Italy, equivalent to a limited liability company (LLC). It is favored for its flexibility and limited liability protection for shareholders. The key features include:
- Minimum share capital: €10,000 (with at least 25% to be paid at incorporation).
- For smaller businesses, an SRL Semplificata (SRLS) can be set up with a capital as low as €1. However, this version comes with certain restrictions, such as prohibiting in-kind contributions.
- The SRL can also be a unipersonale, meaning it can have a single shareholder, but the capital must be fully paid upfront.
1.2 Società per azioni (SPA)
The Società per Azioni (SPA), equivalent to a joint-stock company, is suitable for larger enterprises. The SPA is more structured and requires:
- Minimum share capital: €50,000, divided into shares.
- Liability is limited to the capital contributed, and shareholders are not personally liable for the company’s debts.
- SPAs must have a board of directors and a supervisory board if specific thresholds are exceeded (such as a turnover of more than €4 million).
1.3 Partnerships (Società in Nome Collettivo – SNC and Società in Accomandita Semplice – SAS)
Partnerships like the SNC (general partnership) and SAS (limited partnership) are more common for small businesses. In an SNC, partners have unlimited liability for the company’s debts, while in an SAS, only general partners have unlimited liability, with limited partners liable only for their contributions.
2. Tax Regime in Italy
Italy‘s tax system is comprehensive, with specific rules that apply to different company structures. Here’s an overview of the main taxes applicable to businesses:
2.1 Corporate Income Tax (IRES)
Companies in Italy are subject to a corporate income tax known as Imposta sul Reddito delle Società (IRES), with a flat rate of 24%. This applies to the net income of the company, with adjustments for deductible and non-deductible expenses.
2.2 Regional Tax on Productive Activities (IRAP)
In addition to IRES, companies must pay Imposta Regionale sulle Attività Produttive (IRAP), a regional production tax. The standard rate is 3.9%, but it can vary slightly depending on the region and industry. For banks and insurance companies, the IRAP rate is typically higher.
2.3 Dividends Taxation
For dividends, Italy imposes a flat 26% withholding tax for individual shareholders. Corporations pay tax on 5% of the dividend received, which is subject to IRES.
3. Capital Gains Taxation
Capital gains taxation in Italy depends on the structure and type of asset sold. For individuals, a 26% capital gains tax applies to the sale of shares or securities. Corporate shareholders benefit from a 95% exemption on capital gains from the sale of shares, provided the shares are held for at least 12 months and the company has an active trade.
4. Steps to register a company in Italy
4.1 Preparation of Documentation
To register a company in Italy, you’ll need to draft and notarize the articles of association. This process involves defining the company’s name, business activity, and initial directors.
4.2 Opening a bank account and depositing share capital
Once the articles are notarized, the company must open a bank account and deposit the required share capital. A certificate from the bank confirming the deposit is necessary for the registration process.
4.3 Registering with the business register
The next step is to submit the incorporation documents to the Registro delle Imprese, the business registry maintained by the local Chamber of Commerce. This is a crucial step that officially recognizes the company in Italy.
4.4 Obtaining a VAT number and registering for taxes
All companies must register for Value Added Tax (VAT), and receive a Partita IVA. This number allows the company to conduct business and charge VAT. You will also need to register for corporate taxes (IRES, IRAP) and social security if the company plans to hire employees.
5. Special Tax Regimes and Incentives
5.1 Patent box regime
Italy offers a favorable Patent Box Regime, allowing businesses to exclude up to 50% of income derived from the use of intellectual property, such as patents and trademarks, from their taxable income. This regime is attractive to companies in research and development sectors.
5.2 Super-depreciation and hyper-depreciation
To stimulate investment, Italy allows accelerated depreciation for certain assets. The Super-Depreciation regime lets companies depreciate the cost of new tangible assets by 130%, while the Hyper-Depreciation applies a 250% rate for investments in innovative technologies.
6. Compliance and ongoing obligations
After incorporation, businesses must meet several ongoing obligations, such as:
- Filing annual financial statements with the local Chamber of Commerce.
- Submitting tax returns (typically by November 30 of the following year).
- If the company meets certain size thresholds, it must appoint auditors or a board of statutory auditors to monitor financial reporting.
Setting up a company in Italy can be an attractive option for entrepreneurs, thanks to the flexible legal structures available and the various tax incentives in place. From choosing the right corporate form to understanding the taxation system, it is essential to align your business strategy with the Italian legal and tax requirements to ensure smooth operations.
Starting an SRL or SPA offers liability protection and, in the case of an SRLS, an affordable entry point. At the same time, keeping up with tax obligations such as IRES and IRAP and taking advantage of the country’s tax incentives, can help businesses thrive in Italy’s dynamic market.
Damalion helps international entrepreneurs to register their company in Italy. Contact your Damalion expert now.
This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
