Doing business in Italy

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2 Contents Foreword... 4 Nexia International... 5 Key personnel... 6 Chapter 1 Introducing Italy... 7 Geography and climate... 7 Political system... 7 Legal system... 8 Population... 8 Language... 9 Economy... 9 Currency Business hours Public holidays Chapter 2 Government policies and business regulatory environment Business regulations Bank accounts Copyright and intellectual property (IP) Privacy Mergers and monopolies Trademark Import and export controls Consumer protection Chapter 3 Banking and finance The banking system Sources of funds Currency exchange control Other financial and investment institutions Chapter 4 Business entities Sole Trader Partnerships Corporations Others Trusts Chapter 5 Company formations and administration Partnerships Corporations Studio Hager & Partners. All rights reserved. 1

3 Società per Azioni (S.p.A.) Joint Stock Company Società a Responsabilità Limitata (S.r.l.) Limited Liability Company Liquidations Administrative receivership Chapter 6 Financial reporting and audit requirements Reporting and audit requirements Sole Trader Partnerships Corporations Società per Azioni (S.p.A.) Joint Stock Company Società a Responsabilità Limitata (S.r.l.) Limited Liability Company Chapter 7 Company taxation Company taxation Resident companies Non-resident companies and entities Tax returns and assessment Profits subject to tax Employee taxes Calculating trading profits Interest deduction Capital assets Double taxation relief Withholding tax Capital Gains Tax (CGT) Use of tax losses General anti-avoidance provision Controlled Foreign Companies Transfer pricing Planning points for foreign investors Research and development (R&D) incentive Introduction of Patent Box rules Tax credit for investment in research and development Country specific rules International tax reform proposals Chapter 8 Personal taxation Residents and non-residents Income tax Capital Gains Tax (CGT) Individual tax rates Temporary residents Deductions and reliefs Studio Hager & Partners. All rights reserved. 2

4 Tax returns and assessment Chapter 9 Labour regulations, welfare and social security Employment and labour standards Other employment and industrial relations information Pension plan Chapter 10 Indirect taxes Indirect taxes Value-added Tax Accounting for Value-added Tax Other taxes Contact details Studio Hager & Partners. All rights reserved. 3

5 Foreword Hager & Partners was founded in 1995 in Bozen and in the following years offices in Milan (2000) and Rome (2012) were opened. Today, the Firm is composed of approximately 100 staff members, of which 60 professionals (including 7 partners). The Firm offers consultancy in national and international tax and company law, corporate finance, accounting and auditing, and is particularly oriented towards midcap companies, dynamic investors, and has 20-year experience in cross-border transactions. Tax consultancy services include assistance to companies and private subjects related to enterprises (contractors / managers / relatives), ordinary and extraordinary transactions (M&A), national and international tax consultancy, tax planning and optimization. Accounting services include assistance in individual financial statements and consolidated financial statements. Corporate finance advisory regards investment plans and financing, M&A and company valuations. Company law consultancy consists of a continuous assistance particularly on transaction services and with respects to specific consultancy the Firm s professionals join forces with other legal offices for high-standard results for clients benefit. The international attitude of the Firm is witnessed by the fact that about half of the clients are Italian branches of foreign-based companies (also listed in the stockexchange), and many of them are from Germany, Austria, Switzerland and Continental Europe in general, as well as from USA, UIC and China. Hager & Partners counts also on a fully-dedicated transfer pricing & supply chain department. The department advises, among others, on drafting transfer pricing documentation and benchmarking analyses (including financial transactions), business (re)structuring projects for Italian and foreign multinational groups, and projects for enterprise internationalization. The team provides full assistance to Firm s clients also in relation to procedures for solving double taxation issues like MAPs, EU Arbitration Convention and APAs. Another branch of specialization is represented by the Tax Controversy Department: it groups the skills of litigation experienced professionals characterized by tax and legal education and its span of competencies covers both direct and indirect taxes. This guide has been produced to give a brief introduction for anyone considering operating a business in Italy together with a broad overview of Italy s business environment. It is our intent to provide the general and most consistent details of setting up a business In Italy. Should you wish to explore the topic in greater depth or you are even interested in establishing part of your operations in Italy, we are ready to assist you. We hope that you find the material useful in making your decisions Studio Hager & Partners. All rights reserved. 4

6 Hager & Partners Bozen Musterplatz 2 I Bozen Phone Fax info@hager-partners.it Milan Via Borgogna n. 2 I Milan Phone Fax info.mi@hager-partners.it Rome P.zza della Rotonda 2 I Rome Phone. +39 / 06 / Fax +39 / 06 / info.rm@hager-partners.it Nexia International Hager & Partners is a member of Nexia International (Nexia). Nexia is a leading worldwide network of independent accounting and consulting firms, providing a comprehensive portfolio of audit, accountancy, tax and advisory services. Combining local expertise and global reach, Nexia member firms work together to help their clients achieve their business and financial goals. With a substantial presence both in the world s major financial and economic centres and elsewhere, Nexia member firms are strategically positioned to serve the diverse international requirements of their clients, ranging from globally listed entities and international subsidiaries, to owner-managed businesses and high-net-worth individuals. Nexia International does not deliver services in its own name or otherwise. Nexia International and its member firms are not part of a worldwide partnership. Nexia International does not accept any responsibility for the commission of any act, or omission to act by, or the liabilities of, any of its members. Each member firm within Nexia International is a separate legal entity. The trade marks NEXIA INTERNATIONAL, NEXIA and the NEXIA logo are owned by Nexia International Limited and used under licence. References to Nexia or Nexia International are to Nexia International Limited. For more information, visit Studio Hager & Partners. All rights reserved. 5

7 Key personnel HAGER & PARTNERS Dr. Dietmar Huber Managing Partner Registered at the Register of Professional Accountants Registered at the Register of Chartered Auditors Mr. Huber has many years of experience in mergers and acquisitions and in LBO transactions of several type of private companies. He advises leading industrial and financial entities and he is specialized in tax advises of energy sector. He is member of many board of auditors in different companies, among others in companies in the energy sector and also of Italian bank and financial companies. Contacts: Phone: / Fax: / Dr. Dirk Prato Partner Registered at the Register of Professional Accountants Registered at the Register of Chartered Auditors Mr. Prato is specialised in VAT legislation and in crossborder M&A, as well as in strategic acquisitions and special situations, mainly with foreign parent companies or permanent establishments in Italy. He is effective member of the Board of Auditors and Sole Auditor of several companies operating in the industrial, trading or energy sector. Contacts: Phone: / Fax: / Studio Hager & Partners. All rights reserved. 6

8 Chapter 1 Introducing Italy Geography and climate Italy is located in Southern Europe. The country is situated at the meeting point of the Eurasian Plate and the African Plate, leading to considerable seismic and volcanic activity. The total area of Italy is nearly km 2 ( sq mi), of which km 2 ( sq mi) is land and km 2 (2.784 sq mi) is water. Due to the great longitudinal extension of the peninsula and the mostly mountainous internal conformation, the climate of Italy is highly different. In the north of the country - the area between the Alps and the Tuscan-Emilian Apennines - the climate is harsh, with very cold winters and very hot, particularly humid summers. In central Italy the climate is milder, with a smaller difference in temperature between summer and winter and a shorter and less intense cold season than in the north; summers are longer, but the sultriness of the northern cities is mitigated by the sea. In southern Italy and the islands winters are never particularly harsh, and spring and autumn temperatures are similar to those reached in the summer in other areas of Italy. Italy is organized into regions, provinces, municipalities and metropolitan areas. Political system Italy is a parliamentary democracy. Sovereignty is exercised by the population through its political representatives, with powers and constraints laid down in the Constitution. Italy has a written democratic constitution, resulting from the work of a Constituent Assembly formed by the representatives of all the anti-fascist forces that contributed to the defeat of Nazi and Fascist forces during the Civil War. The President of the Republic is the head of state and is elected through a secret vote, every seven years, by a joint session of the Parliament along with representatives of each region. The Executive power is in the hands of the Counsel of the Ministers, presided over by the President of the Counsel (the Prime Minister, although this term is not constitutionally correct). The Legislative Power is executed by the Parliament (Congress), which is divided in Senate and Chamber (the House). The two wings of the Parliament are basically identical, and perform virtually the same functions. While the Senate is smaller in size and technically a little older in age, it is nonetheless very similar to the Chamber (House). It is common for laws to be sent back and forth between the Senate and the Chamber, often creating a lag in time. The Judiciary Power is handled by the Magistrates (Judges), whose only duty is to implement the laws. Judges are not voted in, but are selected through public selection, based on exams and internal commissions Studio Hager & Partners. All rights reserved. 7

9 Italy is a founding member of the European Economic Community (EEC) and North Atlantic Treaty Organization (NATO). It is also a member state of the United Nations (UN), World Trade Organization (WTO), and Organisation for Economic Cooperation and Development (OECD). Legal system Italian law is based on Roman law, particularly its civil law, and on French Napoleonic law (itself based on the Roman model). The Italian legislative system is founded on a hierarchical structure, under which the rule of a lower source cannot conflict with the rule of an upper source (hierarchy of sources). The Constitution of 1948 is the main source, to which all lesser legislation have to be conform. The codes of the Kingdom of Sardinia in civil and penal affairs were extended to the whole of Italy when Italy was unified in the mid-19th century. The revised 1990 penal code replaced the old inquisitory system with an accusatory system similar to that of common-law countries. Besides the codes, there are innumerable statutes that integrate the codes and regulate areas of law for which no codes exist, such as public law. Under the Italian Constitution, the judiciary is independent of the legislature and the executive, and therefore jurisdictional functions can be performed only by magistrates and judges cannot be dismissed. The Italian judicial system consists of a series of courts and a body of judges who are civil servants. The judicial system is unified, every court being part of the national network. The Supreme Court of Cassation is the highest court in Italy for both criminal and civil appeal cases. The Constitutional Court of Italy rules on the conformity of laws with the Constitution. Population The population of Italy is estimated at inhabitants according to estimates current as of January Its population density, at 201 inhabitants per square kilometre (520/sq mi), is higher than that of most Western European countries. However the distribution of the population is widely uneven. The most densely populated areas are the Po Valley (that accounts for almost half of the national population) and the metropolitan areas of Rome and Naples, while vast regions such as the Alps and Apennines highlands, the plateaus of Basilicata and the island of Sardinia are very sparsely populated. The population of Italy almost doubled during the twentieth century, but the pattern of growth was extremely uneven due to large-scale internal migration from the rural South to the industrial cities of the North. Italy used to be a country of mass emigration from the late 19th century until the 1970s. During the 1980s Italy became to attract rising flows of foreign immigrants. The present-day figure of about 5 million foreign residents, that make up some 9% of the 2015 Studio Hager & Partners. All rights reserved. 8

10 total population, include more than half a million children born in Italy to foreign nationals second generation immigrants, but exclude foreign nationals who have subsequently acquired Italian nationality; this applied to 106,000 people in Language The official language is Italian. It is estimated that there are about 55 million speakers of the language in Italy and a further 6.7 million outside of the country. However, between 120 and 150 million people use Italian as a second or cultural language, worldwide. Several minority and regional languages are legally recognized and protected, and they have co-official status alongside Italian in various parts of the country. French is co-official in the Valle d Aosta, German has the same status in the province of South Tyrol as, in some parts of that province and in parts of the neighbouring Trentino, does Ladin. Slovene and Friulian are officially recognised in the provinces of Trieste, Gorizia and Udine in Venezia Giulia. Sardinian language was recognized as co-official in Sardinia. Economy Italy has the eighth largest economy in the world and the third largest in the Euro Zone. Its economic structure relies mainly on services and manufacturing. The services sector accounts for almost three quarters of total GDP and employs around 65% of the country s total employed people. Within the service sector, the most important contributors are the wholesale, retail sales and transportation sectors. Industry accounts for a quarter of Italy s total production and employs around 30% of the total workforce. Manufacturing is the most important sub-sector within the industry sector. The country s manufacturing is specialized in high-quality goods and is mainly run by small- and medium-sized enterprises. Most of them are family-owned enterprises. Agriculture contributes the remaining share of total GDP and it employs around 4.0% of the total workforce. The country is divided into a highly-industrialized and developed northern part, dominated by private companies; and a less-developed, highly subsidized, more agriculture-depended southern part. As a result, unemployment in the north is lower and per capita income in higher compared to the south. Italy s main imports are fuels, which account for around 17% of total imports. This is due to the country s lack of natural resources, which makes it highly dependent on energy imports. Other imports include machinery (14.2%), raw materials (10.0%) and food (7.0%). Italy is a net food importer because the landscape is not suitable for developing agriculture. Regarding the export field, since the country s manufacturing sector is specialized in high-quality goods, Italy plays an important role in the global market of luxury goods. The country s main exports are mechanical machinery and equipment, which account for around 24% of total exports, as well as motor vehicles and luxury vehicles (7.2%) Studio Hager & Partners. All rights reserved. 9

11 Home to some of world s most famous fashion brands, Italy occupies a special niche in the global market of fashion and clothing. In fact, exports of clothing and footwear account for around 11.0% of the country s total exports. Other important exports include electronic equipment (5.6%) and pharmaceutical products (4.6%). Currency Italy is one of the 19 countries that joined the EMU the Economic and Monetary Union which introduced the single currency, the Euro ( ). One Euro is divided into 100 cents. Business hours Business in Italy is normally conducted during an eight-hour day, usually between 9am and 6 pm. A one hour lunch break is generally allowed between 1pm and 2pm. Most business offices are closed on Saturday and Sunday. Public holidays The following days, as regards most businesses and government offices, are public holidays in Italy: New Year s Day 1 January Epiphany - 6 January Easter Monday (Monday after Easter Sunday) Labour Day 1 May Anniversary of the Founding of the Republic 2 June Feast of the Assumption (Ferragosto) - 15 August All Saints Day 1 November Feast of the Immaculate Conception - 8 December Christmas Day - 25 December St. Stephen s Day (Boxing Day) 26 December In addition each city or town celebrates a public holiday on the occasion of the festival of the local patron saint: for example, Rome - 29 June (SS. Peter and Paul), Milan - 7 December (S. Ambrose). In South Tyrol, the holiday is instead on Whit Monday (which is also a public holiday in North Tyrol and the rest of German-speaking Europe). Public holidays and local saints' days are not transferred when they fall on a weekend. The number of working days given over to public holidays therefore varies year by year Studio Hager & Partners. All rights reserved. 10

12 Chapter 2 Government policies and business regulatory environment Business regulations Investments made in Italy by nationals of other European Union (EU) Member States are treated in the same manner as those by Italian nationals. Investments made by non-eu nationals are subject to certain restrictions. In particular, non-eu nationals may participate in Italian entities based on reciprocity (i.e., the country of citizenship of the foreign investor must allow the same benefit to Italian citizens or legal entities). Foreign investors who intend to conduct commercial activities in Italy can choose from a wide range of legal entities. Effective from 1 April 2010, communications to the Tax Authority, Register of Companies and Labour Authorities will be made through the so-called Sole Communication channel which allows for a short period of time to set up a business in Italy. The numerous and varied incentives are generally directed to enhance the economic development of the country and, in particular, to accelerate the industrialisation of southern Italy, including Sicily and Sardinia (Mezzogiorno), and certain localities in central and northern Italy which are recognised as depressed areas. Incentives are also available to encourage technological innovation and to assist in the development of exports. Incentives take the form of subsidised loans, cash grants, leasing assistance, tax credits and subsidised labour costs. The Italian government has enacted a new regulation aimed at encouraging innovation through the creation and development of new companies qualified as innovative start-ups. Several incentives as well as exceptions to the general rules applicable to enterprises are provided by the law to stimulate investments in innovative start-ups. Companies that increase their share capital can take a deduction from their business income in an amount equal to the figurative yield of their share capital. The deduction is allowed for the year when the capital was increased and for each year thereafter until such time as the company s equity decreases due to assignments or refunds made to the shareholders. Free competition is protected (as well as the provisions of the Treaty of Rome) by the rules dictated by the Italian antitrust law, which is modelled after the European provisions. The enforcement of the said Italian law is ensured by an ad hoc Authority (Autorità Garante della Concorrenza e del Mercato). Other authorities have been created in order to control the compliance with antitrust law provisions in specific sectors (telecommunications, energy, etc.). Bank accounts As will be better explained hereinafter the banking system is supervised by the Bank of Italy Studio Hager & Partners. All rights reserved. 11

13 As a rule it is possible, for a foreigner, open an ordinary bank account in Italy having the Italian residence; even those who do not reside in Italy have the opportunity to open a bank account in an Italian bank. These subjects have the possibility of access to a foreign bank account in Euros or in a foreign currency. The principal rules that could affecting business transactions into bank accounts in Italy are related to the money-laundering directive. The coordination of money laundering prevention activities is attributed to the Minister of Economy through the Financial Security Committee (Comitato di Sicurezza Finanziaria - CSF), chaired by the General Director of the Treasury. There have been many recent developments in the Italian Anti-Money Laundering legislation. The most relevant is the new Voluntary Disclosure law approved on December 4th, 2014 by the Italian Parliament. The Italian government approved a decree providing incentives for Italians (or foreigners resident in Italy) to repatriate funds they had improperly moved to offshore accounts. Copyright and intellectual property (IP) Foreign companies in the Italian market can rely on the same legal protection of Intellectual Property Rights (IPR) granted to Italian companies, and covering all key areas (patents, trademarks, copyright and designs) that foreign companies are used to enjoying in their home countries. The foundations of this legal certainty rest on Italy s membership of and respect for all the leading international agreements/treaties on IPR. The intellectual property code covers corporate confidential information, designations of origin and geographical indication. Registration does not provide protection for corporate confidential information but using or revealing such information to third parties is illegal and holders of IPR can make recourse to courts to protect their rights. In the last decade Italy has further increased its intellectual Property Rights protection system. Privacy The protection of personal data provided by a private individual or a company has been introduced through Legislative decree no 196 of 30 June 2003, called the Privacy Code. The failure to adopt the safety measures is an offence with a specific penalty system. The Privacy Code states that the concerned party is entitled to the protection of rights which refer to the existence and communication of personal and sensitive data, the knowledge of data processing procedures, the invention and access to its own data and, finally, the objection of their processing. The processing of personal data destined for systematic communication may be entrusted to a person, company, public administration and any other agency, association or body Studio Hager & Partners. All rights reserved. 12

14 Data processing must be carried out by adopting such safety measures and technical means as may guarantee safety and confidentiality (i.e. the Programmatic Document on Safety (DPS)). Mergers and monopolies The Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato) was established in Italy by Law no. 287 of It is an independent body, in that decisions are based on the competition law without interference by the Government. The main duties of the authority are: Vigilance against abuses from market dominance; Vigilance against cartels that may prejudice or restrict fair competition (Anticompetitive practices); Vigilance on takeovers to check concentration ratio and verify market impact; Consumer protection, against unfair trade practices and false advertising; Supervise and penalize the cases of conflict of interest regarding members of Government of Italy. Trademark In order to obtain trademark protection in Italy you can register your trademark in two ways: first option is that you request registration in the entire European Union with one single application; this can be done via the Community Trademark agreement which grants trademark protection in the 28 country members of the EU; second option is that you register directly your trademark in Italy. The exclusive rights granted by the registration of a mark in Italy consist of the following: exclusive use of the mark in the Italian market; the right to prevent non-authorized third parties from using an identical or similar mark for products or services identical or similar to the ones under the registered mark; the right to prevent by administrative proceedings the registration of marks that can be confused with your own; the right to request the cancellation of subsequent marks that become confused with yours; the right to transfer, sell or license the mark like any other company asset. Import and export controls Because Italy follows the principles of the General Agreement on Tariffs and Trade (GATT), and the regulations of the EU customs union and other international agreements, most goods may be freely imported. Existing restrictions are intended to protect the EU economy, so that the importation of certain items requires advance authorisation Studio Hager & Partners. All rights reserved. 13

15 Exports are generally unrestricted. Exporters have to comply with the requirements to submit a customs office declaration. Special export insurance is available from the Agency for Export Credit Insurance (SACE) for exports of durable goods machinery, equipment and transport vehicles as well as for services, studies and design projects, and for civil engineering works carried out abroad. To encourage such exports, funding is available from special credit bank departments and state agencies in the form of medium-term loans at low interest rates. Consumer protection As of June 13, 2014, the Antitrust Authority monitors compliance with the new rules on consumer rights provided by the European Directive 83/2011 / EU implemented by Legislative Decree n.21 / In addition, the Authority supervises in regard to prohibition of discrimination of consumers and micro-enterprises based on nationality or place of residence, as required by Law no. 161/2014. Since 1992, the Antitrust Authority was asked by the legislature to crack down on misleading advertising, shared with any media: TV, newspapers, leaflets, posters, telesales. The Competition Authority may also assess the unfair nature of contractual clauses in contracts with consumers, also in advance to companies that require relatively clauses they wish to use in business dealings with consumers Studio Hager & Partners. All rights reserved. 14

16 Chapter 3 Banking and finance The banking system The central bank, the Bank of Italy, stabilises money supply and supervises banking and credit institutions. The banking system, supervised by the Bank of Italy, consists primarily of: Ordinary banks, which include private companies and the subsidiaries and branches of foreign banks, Co-operative people s banks (banche popolari), which are generally active within provinces or regions. A Bank Deposit Insurance Fund (Fondo Interbancario di Garanzia dei Depositi) was created in 1987 to cover deposits in measures appropriate to different balances. Banks which participate in the fund hold 99% of Italy s customer deposits. Banking activities (i.e. collection of savings from the public and granting of credit) may be conducted only by banks authorized to perform such activities pursuant the Banking Law. The Banking Law requires the authorization of the Bank of Italy in order to conduct banking activities in Italy, while EU banks (banks having registered office and head office in an EU State other than Italy) may operate under the so-called mutual recognition framework. They can act in Italy availing themselves of the authorization granted to them in their home country, without any obligation to establish a branch in Italy, provided that the Bank of Italy has been duly informed by the competent authority of the home EU member State. In addition to banks, the Banking Law provides for several types of entities which may grant loans to public provided that they are enrolled with the Register held with the Bank of Italy. Financial intermediaries are subject to certain information and control requirements by the Bank of Italy. Sources of funds Banks have always been the main source of finance for the Italian economy. There are no legal prohibitions on an investor receiving bank loans, which are freely negotiated between a bank and an investor, subject to applicable provisions of law, which include usury legislation (it sets forth certain maximum threshold for the interest rates and other forms of remuneration applicable to financing transaction). The sources of financing used by Italian entities are also available to foreign investors. Currency exchange control There is no currency exchange control at present in Italy. Residents of Italy may hold foreign currency and foreign securities of any kind, within and outside Italy. Non-residents may invest in Italian securities and may export cash, instruments of credit and securities, in both foreign currency and Euro, representing interest, 2015 Studio Hager & Partners. All rights reserved. 15

17 dividends, other asset distributions and the proceeds of dispositions without restriction. For statistical purposes, banks file details of foreign exchange transactions for inbound and outbound movements of funds with the Financial Information Centre (Unità di Informazione Finanziaria) controlled by the Bank of Italy. Transactions of less than Eur are aggregated with other transactions for reporting purposes, while those above this amount are reported separately. Other financial and investment institutions CONSOB - supervisory authority for the Italian financial products market CONSOB is an «Independent Authority», with a particularly high level of operational independence. Incorporated in the 1974, as a government administration to which stock exchange functions, previously carried out by the Italian Treasury, were transferred. With the additional appointment to supervise listed companies, CONSOB became an independent authority about ten years later, when the Institute has been acknowledged as a legal entity incorporated under public law with extensive organisational and operational independence. CONSOB regulates: the provision of investment services and activities, the behaviors that have to be kept by intermediaries and financial salesmen in dealing with investors, principles and criteria related to organization of the Organismo per la tenuta dell Albo dei promotori finanziari and of the Organismo dei consulenti finanziari ; the provision of portfolio management services; the drawing up and publication of prospectuses and documents related to offers, as well the procedures for the execution of offers; the reporting obligations of listed companies; the terms and conditions for dissemination to the public, storage and filing of regulated disclosures; the minimum financial resources of regulated market management companies and of central depositories; multilateral trading facilities and systematic internalisers; the drawing up and publication of the financial reports of listed companies; the requirements auditors for independence, the audit group and the quality control carried out on public interest entities; the requirements for proper management of online portals for innovative startups and the discipline applicable to offers through such portals (i.e. crowdfunding); the organization and functioning of the Chamber of Conciliation and Arbitration. By 31 March of each year, CONSOB submits a report to the Ministry of the Economy and Finance on activities carried out, on current issues and on the guidelines and strategies of its programme. This report is presented to the market during an annual meeting with the market. By 31 May of the same year, the Ministry forwards the report to Parliament with comments where appropriate Studio Hager & Partners. All rights reserved. 16

18 Insurance and reinsurance in Italy - overview Insurance and reinsurance activities are regulated in Italy by the Private Insurance Code, which implements in Italy the EU Insurance Directive setting forth the regulatory and supervision regime for insurances and reinsurances (both for life insurance and for non-life insurance). Since January, 2013 IVASS (Istituto per la Vigilanza sulle Assicurazioni) superseded the former ISVAP (Istituto di Vigilanza sulle Assicurazioni Private e di interesse collettivo), integrating the supervision on insurance markets together with the supervision on banks, for which the Bank of Italy is responsible. Consequently, all legal and regulatory references to ISVAP must now be intended to IVASS. Private Insurance Code is a comprehensive law comprising 355 Articles, mainly regulating: Insurance and reinsurance companies; Insurance and reinsurance business activities; Insurance intermediaries. The Private Insurance Code allows IVASS to issue regulations in specific areas of insurance law (of which 48 regulations have already been enacted). The Private Insurance Code contains important provisions concerning the disclosure of information under insurance contracts and the policyholder's protection. The Private Insurance Code sets out the functions of IVASS, which among others is enabled of: Adopting all regulations necessary to properly and prudently manage insurance and reinsurance companies. For reasons of transparency and fairness, it discloses all appropriate recommendations or interpretations; Performing the activities necessary to promote an appropriate degree of consumer protection and to provide information on the insurance market, including: - statistical and economic surveys; - gathering input to formulate insurance policy lines. Promoting collaboration with other member states' authorities to make supervision over insurance and reinsurance businesses complete, effective and consistent, in line with EU law procedures Studio Hager & Partners. All rights reserved. 17

19 Chapter 4 Business entities In Italy, there are different types of corporate entities that may be incorporated depending on the size and features of the business intended to be carried out as well as the wishes of the participants in relation to their personal liability for the obligations of the company and the mechanics for the management thereof. Italy s corporate law primarily differentiates between: Sole Trader Partnerships, generally characterised by (save some exceptions as shown below for the S.a.s partnerships): 1. Unlimited joint and several liability of partners for company obligations, hence all partners current and future assets secure such obligations; 2. Each partner is a director of the company with administrative powers; 3. Non-transferability, either inter vivos or mortis causa, of the partner status except whereby authorised by all other partners; and Corporations, generally characterised by: 4. Legal personality, autonomous from company owners personality; 5. Limited liability for company owners, i.e. each owner s liability is limited to the cash or assets he/she has contributed to the company; 6. Separation of ownership and administrative powers; hence company owners are not necessarily also company directors, and directors are not necessarily company owners; 7. Ownership as freely transferable, either inter vivos or mortis causa. Sole Trader A sole trader (or Sole proprietorship) is a business set up by a single holder. The businessman conducting business is also financially responsible for it, (i.e. he/she is liable for the debts contracted by the firm with his/her own present and future personal wealth). If relatives (members of the family of the company holder up to the 3rd degree and relatives up to the 2nd degree) work in the business, it is regarded as a family business, for which the sole holder remains liable, receiving at least 51% of the business income (family workers do not share the losses). This kind of entity is suitable for small businesses and allows access to forms of concessionary funding. Partnerships Among partnerships we can find: Società semplice : is an Italian partnership owned and run by individuals and in which there is no legal distinction between the owners and the assets. Società in nome collettivo (abbreviated S.n.c.): it is an Italian general partnership owned by two or more partners who have full, joint and unlimited liability for its debts and obligations. Società in accomandita semplice (abbreviated S.a.s.): is an Italian limited partnership business entity in which the managing partners (so-called accomandatari ) are liable jointly and without limits for the debts of the partnership whereas the standard partners (so-called accomandanti ) are 2015 Studio Hager & Partners. All rights reserved. 18

20 liable within the limits of their equity and are not supposed to take part to the management of the company. Corporations Among corporations the most widespread types of companies in Italy, according to the size of the business project, are S.p.A. and S.r.l.. Medium- sized and large companies usually choose the joint stock company (S.p.A.); smaller entities usually adopt the limited liability company (S.r.l.). Both entities have legal personality. There is another type of limited liability company the Partnership Limited by Shares Società in accomandita per azioni (abbreviated S.a.p.a.); it is a hybrid form of an Italian company partially limited by shares that involves two different categories of shareholders, some with and some without limited liability: in particular, standard shareholders ( accomandanti ) have limited liability while managing shareholders ( accomandatari ) have full liability. Notwithstanding this, S.A.P.As are very similar to S.p.As, even though they are fairly uncommon. Others Other types entities are: Cooperative Companies Cooperative Companies are characterised by variable capital and mutual purposes. The purpose of the company does not lie in the profit distribution but rather in the possibility of offering to the members of the Cooperative some advantages consisting in saving expenses (consumers cooperative) or in a higher compensation for their services (workers cooperative). The Cooperative Company have to be constituted by public deed. Consortium A consortium is a contract through which individual entrepreneurs establish a collective organisation for the regulation or the performance of certain stages of the activities carried out by their respective companies. The main purposes pursued by Consortiums concern the limitation of competition or the reduction of management costs incurred by the various associated members in the consortium. In particular, the Consortium can serve the purpose of fixing the production quota or exchanges, or the joint-management of certain stages, in order to produce an economic saving for the members. The contract for the consortium have to be dealt with specified matters. It have to be dealt up in a written form, in default of which it will be considered null and void. Foundations Italian law also considers Foundations to be an entity that does exercise an economic activity. Foundations are characterised by the subordination of the assets to personal aims, which are constituted by the purpose to mutually satisfy needs of a moral, ideal or altruistic nature. Foundations can be established by public or inheritance deed Studio Hager & Partners. All rights reserved. 19

21 There are detailed requirements for the Articles of Association and Foundations can apply to be recognised by the Prefecture - in doing so, the foundation acquires juridical status and perfect asset autonomy. Associations Associations are collective organisations formed by individuals that collectively wish to pursue a common objective of an idealistic or charitable nature. In this sense, the juridical institution of the association can be beneficial for conducting activities concerning cultural, arts, sporting activities, etc. Associations must be formed by a notarial deed. European group with economic interest (GEIE) A European group with economic interest is a legal institution regulated by the EU, with the purpose of favouring cooperation between enterprises of different EU Member States. However, those participating in the GEIE do not lose their economic autonomy, and participation might envisage developing a sole corporation with no involvement of the activities of other adhering enterprises. Trusts Italy, even if it is a civil law country, since 1992 recognized the common law Trust with the ratification of the Hague convention of July Nevertheless, provisions concerning Trust have not been included in the Italian Civil Code, yet. Therefore it is possible to set up a Trust relying on foreign law subject to Hague Convention. In Italy are considered as domestic Trusts those that have as only foreign element their proper law. At the end of 2006 the Italian Parliament passed the 2007 Finance Act, introducing the first clear set of rules concerning the taxation of trusts in Italy. In addition, the new rules were clarified by a dedicated Circular letter n.48/e issued by the Italian Revenue (Agenzia delle Entrate), in August Clearly the stage is now set for the taxation of trusts in Italy Studio Hager & Partners. All rights reserved. 20

22 Chapter 5 Company formations and administration The company formation process in Italy is a six-steps procedure involving three main actors (Revenue Agency, Business Register and Notary): Obtaining the Italian fiscal code of the participants (if are not yet IT residents); Payment of the prescribed share capital from a temporary bank account; Drafting the relevant corporate documents (Articles of Association and By- Laws); Completion of the incorporation process before an Italian Notary Public; Application for the company's VAT number; Registration of the deed of incorporation by the competent Italian Business Register. The expected timeframe for the incorporation of an S.p.A., until the moment it will be considered 100% operative (i.e. registration by the Chamber of Commerce), is three / four weeks. Below principal information about the most used business entities in Italy. Partnerships As we mentioned in chapter 4, partnerships do not have legal personality and the partners have unlimited liability with the exception of the Italian limited partnership in which the partners, so-called, accomandanti are liable within the limits of their equity. However, creditors claims must be first applied to the assets of the partnership before invoking the liability of the partners. A partnership is created by a contract between two or more partners. Corporate entities may be partners of Italian partnerships. No minimum capital is required and contributions can be made in cash, in kind or in personal activity of the partners. The general partners are entrusted with the management of the company; limited liability partners may manage the partnership affairs only upon express specific instructions of the general partners. If a limited liability partner is engaged in the management of the limited partnership, he has unlimited liability. Corporations Società per Azioni (S.p.A.) Joint Stock Company An S.p.A. is the primary form of corporation, i.e. it best meets the needs of enterprises requiring significant capital Studio Hager & Partners. All rights reserved. 21

23 Capital The minimum capital required is Eur Capital is divided into shares. Different classes of shares may be issued, bearing different rights and obligations. The share capital amount is determined at the moment the S.p.A. is founded and shall be subscribed by those establishing the company. In the event of a single founder, one subscription only will therefore exist; in the event of multiple founders, all shall subscribe (varying) portions of share capital until the whole capital has been subscribed. In the case of multiple founding shareholders, those paying the capital subscription in cash are not required to pay the entire amount of their share(s) up front. They are entitled to deposit 25 per cent initially and agree to pay the remaining 75 per cent at a subsequent date consistently with the administrative body s (i.e. board of directors) request. When goods in kind and credits are conferred, the value of the contribution must be, as a rule, determined by a sworn appraisal by an independent expert. For an S.p.A. with a single shareholder, the capital have to be fully paid in, regardless of whether payment is in cash or kind (i.e. goods or receivables) and specific publicity requirements must be met. Founders and Shareholders A sole shareholder may incorporate a corporation. There are no limits on the maximum number, nationality or residence of founders/shareholders. Control Unless the corporate bylaws require higer majorities, as a simple majority of those present (representing at least 50 per cent of capital) is sufficient for ordinary matters. Shareholders representing more than 50 per cent of the capital must approve, among others: changes to the bylaws; change to the corporate purpose; the relocation of headquarters abroad; the winding-up of the company; the transformation of society; the issue of particular type of shares. Management An S.p.A. may choose its own management and control structure from three alternative model of governance: The ordinary structure, which is based on shareholders meeting whom appoints the administrative body (board of directors or sole director) and the supervisory body (board of auditors). The dual structure has management board that administers the company, plus a supervisory board appointed by the shareholders meeting. The supervisory may be comprised of three or more members that may or may not be shareholders; one of the members must be listed on the auditors register Studio Hager & Partners. All rights reserved. 22

24 The monistic structure involves a board of directors with administrative tasks appointed by the shareholders meeting, plus a supervisory management board elected internally within the board of directors. Shareholders Meetings Within the traditional system the Shareholders Meeting is the voting body that express the will of the shareholders and which holds the main governing powers. The shareholders meeting is either ordinary or extraordinary. Under the traditional models, the ordinary shareholders meeting: approves the balance sheet; appoints directors and the board of statutory auditors, and determines their remuneration, unless this is fixed by the by-laws. It also appoints the external auditor(s), where applicable; deals with any other business reserved to the shareholders meeting by the articles of incorporation or submitted to the shareholders meeting by the directors; decides on the liability of the directors and statutory auditors; modifies the articles of association. The shareholders meeting must be convened at least once every financial year to approve the balance sheet. Type of shares An S.p.A. can issue both registered and bearer shares with specific conditions applying to the share transfers, shares with full voting rights, shares with limited voting rights, shares with multiple voting rights and shares with no voting rights. Special categories of shares can be assigned to employees. Taxes and fees A flat fee of Eur 120 (Eur 90 on-line) is required for register a new stock company. There is an annual charge of Eur 309,87 to endorse company books, or Eur if company s capital exceeds Eur ,87. A fixed tax of Eur 185 (Eur 155 on-line) applies to contributions to capital in the form of cash, movable property or share companies. A fixed registration tax of Eur 200 is also generally payable. Property transfers required to complete contributions in kind may be subject to mortgage tax and land registry tax. Società a Responsabilità Limitata (S.r.l.) Limited Liability Company The limited liability company provides for more flexibility and autonomy for members in fact the model of management and control/supervision is defined by the members in the bylaws. Capital The capital of an S.r.l. is divided into quotas and not into shares. Each members holds one quota and it s not required for the quotas to have equal value. The minimum capital required is Eur One special types of S.r.l. have been introduced to foster the birth and growth of Italian businesses: 2015 Studio Hager & Partners. All rights reserved. 23