Start a business in Italy: types of companies in Italy, advantages of setting up a Limited (LLC), documents needed to register a company, costs of setting up and maintaining a company, time required to establish a Limited in Italy.
Foreigners may open a business in Italy through different legal forms, from the opening of a VAT number for freelancers to company incorporation.
How to start a business in Italy: what legal form of business to choose?
Those who intend to undertake a new business in Italy may choose to do so:
- In an individual form (open a self-employed activity: freelancer or sole proprietorship);
- In an associated form (incorporation of a company).
How to start a small business in Italy: opening a business in an individual form
If you want to start a new business in Italy and the turnover for the first years is expected to be very modest, the fastest way to open your business is as a self-employed.
Moreover, self-employment activities may access significant advantages, both on taxation and on social security contributions. Among these incentives are the 5% flat tax regime and the inpatriate regime (70% reduction on taxable income).
These are the benefits of starting a business in Italy and they can be obtained only by opening a self-employed activity, as a freelancer or sole proprietor.
Italy business registration
It is possible to obtain an Italian VAT number within 24 hours for consulting, commercial or craft activities and, in the majority of cases, it is possible to start the activity immediately.
How to start a business in Italy: the establishment of a company in Italy in individual or associated form
On the contrary, if you want to start a new business in Italy and the turnover is expected to range from medium to large, the best option is the establishment of a company.
Companies in Italy are classified into:
- Partnerships;
- Private and Public Limited Liability Companies;
- Cooperatives.
Types of company in Italy
Partnerships
Examples of partnerships are:
- Ordinary Partnership (SS);
- General Partnership (SNC);
- Limited Partnership (SAS).
The most frequent form is the General Partnership (SNC). The main features of SNC Partnerships are the following:
- A minimum of 2 partners is required for incorporation;
- Such partners are exclusively natural persons, who are financially liable to third parties, with their present and future assets. Partners’ liability in this case is unlimited;
- Income taxation only occurs in tax transparency regime and thus it is borne by the partners;
- Shares may be transferred, both by deed between living persons and mortis causa, with the authorization of all partners.
Private and Public Limited Liability Companies in Italy
Examples of Private and Public Limited Liability Companies are:
- Private Limited Liability Company (SRL);
- Public Limited Liability Company (SpA);
- Limited Partnership with share capital (SapA);
As opposed to Partnerships, Public and Private Limited Liability.
Companies provide for limited liability of shareholders. Moreover, legal persons may become partners too, in addition to natural persons.
Cooperatives
Cooperatives are a peculiar form of company, since they pursue non-profit mutual-aid purposes. This means that they exclusively engage in the production of goods and services, which are addressed to the founding subjects.
What is the LLC in Italy: the main features of a limited liability company
The most frequent form of company in Italy is the Private Limited Liability Company (LLC, or SRL in Italian). It provides for perfect capital autonomy and its establishment and management are easier, with respect to Public Limited Liability Companies (SpAs).
The main feature of SRLs is their perfect capital autonomy. Art. 2462 of the Italian Civil Code provides for this aspect:
For Limited Liability Companies, financial liability for social obligations is exclusively on the company, with its own assets.
This means that there is a clear separation between shareholders’ personal assets and the company’s assets.
Company creditors shall take action only against the company, which will be liable with its own assets exclusively.
What are the risks for shareholders of an SRL in Italy
Liability of shareholders of a company in Italy
Shareholders’ liability is limited to the subscribed share capital and thus it is exclusively limited to payments still due.
Such payments are those mandatory for reaching the minimum capital of €10.000 provided by law.
Single-member companies
In single-member companies, sole shareholders risks the illimited liability of their own assets even when they do not comply with the following publicity requirements, provided by law:
“When the company is owned by a single shareholder or the identity of such single shareholder changes, administrators shall deposit a declaration for registration in the company register. Such declaration should contain indications on first and last name, denomination, date and place of birth or State of establishment, domicile or place of business and nationality of the single shareholder (Art. 2470 c.c.)”
If such requirement is not complied with, shareholders are liable for the company’s obligations with all their present and future assets.
Types of Limited Liability Company in Italy
There are three types of Limited Liability Companies in Italy:
- Limited Liability Company (SRL)
- Simplified Limited Liability Company
- Innovative Startup
SRL in Italy
What is the minimum capital for SRL in Italy?
Traditional SRL is the Limited Liability Company providing the most flexibility.
In the past, its only limit was the subscription of a minimum capital. Indeed, in order to start an SRL, shareholders were obliged to subscribe a minimum share capital of €10.000, paying at least 25% of it at the time of establishment.
Such capital could be deposited in cash but also:
- In kind (work performance or provision of services to the company by the shareholder);
- In tangible or intangible assets (which will be subject to expert evaluation);
- In credits;
- In other assets subject to economic evaluation.
Law n. 99 of 9 August 2013 reduced the minimum mandatory share capital, which currently may also be just €1.
How to set up a company in italy with only 1 euro
It is possible to set up an SRL in Italy by paying just €1. Let us see what the limits and disadvantages of this type of SRL are:
Payment of the share capital
Shareholders must pay the subscribed share capital in whole, and not just the 25% of it.
Example:
Shareholder A and shareholder B set up an ordinary Limited Liability Company and decide to subscribe a share capital of €4.000. At the moment of incorporation, they will have to pay the whole amount, equal to €4.000.
Shareholder A and shareholder B set up an ordinary Limited Liability Company and decide to subscribe a share capital of €10.000. At the moment of incorporation, they may choose to pay the whole amount, or just the 25%.
Form of Deposit
Shareholders may only deposit the capital in cash.
Legal reserve
Shareholders must mandatorily set aside a legal reserve every year, equal to 20% of the profits. Such amount shall be destined to the share capital until reaching a minimum share capital of €10.000.
Example:
Shareholders A and B set up an ordinary LLC and decide to subscribe a share capital of €4.000.
The company’s profits for the first year correspond to €20.000.
Shareholders are obliged to set aside an amount equal to: 20.000 x 20% = €4.000.
This amount will be destined to increase the share capital, which will then amount to €8.000.
For the second year, the company’s profits correspond to €25.000. In this case, the 20% of the profits will be equal to: 25.000 x 20% = €5.000.
Shareholders will be obliged to set aside only an amount equal to €2.000, which is needed to increase the share capital up to a minimum capital of €10.000.
Therefore, shareholders will be able to choose whether to distribute, carry forward or set aside as a reserve the rest of the profits, for an amount equal to €23.000.
Liability
Shareholders are liable for payments not yet made, aimed at reaching a total of €10.000 of share capital.
Simplified SRL: how to open a Limited in Italy without costs
The greatest advantage of a Simplified Limited Liability Company (SRLS in Italian) is the absence of initial costs for incorporation. Indeed, no fees are due to the notary, and there is an exemption from the payment of duties, stamps and administrative fees.
However, such saving is only initial, since the requirements following the incorporation imply the same costs as an ordinary SRL.
Disadvantages of the Simplified SRL
The SRLS is characterised by the following features which, in general, represent some limits and disadvantages, with respect to ordinary SRL:
- Share capital. Share capital is limited. It can be subscribed only up to €9.999,99, also for the subsequent years.
A reduced share capital may make it difficult to obtain loans, and credit institutions may request shareholders to provide unsecure guarantees (thus losing the advantage of limited liability). Should shareholders want to increase the share capital beyond the amount mentioned above, they would have to go back to the notary and transform the SRLS into an ordinary SRL. This implies further costs. - Articles of Association. The company’s Articles of Association must be drafted in accordance with a standard model. The standard model to be followed is the one provided for in Art. 2463 bis of the Italian Civil Code.
Innovative Startup
A Limited Liability Company acquires the status of Innovative Startup when meeting some requirements, provided by law. The law governing Startup companies in Italy is Decree Law n. 179/2012.
The status of Startup allows Italian companies to access a series of fiscal, administrative and financial benefits.
How to register a company in Italy?
There are 2 ways to carry out a work activity in Italy as a company:
- Set up a new SRL (register a new company)
- Open a branch in Italy (in all cases, it will be considered a permanent establishment in Italy)
This article will explore the incorporation of a new Limited Liability Company.
How to register a new company in Italy?
Art. 2463 of the Italian Civil Code determines the ways in which a Limited Liability Company must be registered.
Requirements to start a new company in Italy
Shareholders: How many shareholders can an SRL have?
An SRL may be established by:
- Two or more shareholders (the number of shareholders may be illimited)
- A sole shareholder, by unilateral act (Single-member Company)
Both natural persons (private individuals or freelancers) and legal persons (companies) may be shareholders of a company.
Certificate of incorporation: What does it have to contain?
The certificate of incorporation must be drafted by a notary.
The certificate must contain some minimum compulsory information the shareholders must agree on. It is therefore advisable to ask for the support of a Tax Advisor, to make sure that the clauses contained in the certificate of incorporation and in the Articles of Association reflect the will of all shareholders.
The certificate of incorporation indicates:
- Last/first/company name – date/place of birth/State of incorporation – domicile/place of business/nationality of every shareholder;
- Company name and municipality where the company’s place of business and the possible secondary offices are located. The company name must contain the indication of limited liability company (SRL);
- Description of the activity representing the business purpose (in this sense, it is advisable to ask for the support of a Tax Advisor, so that the business purpose can be sufficiently comprehensive);
- Share capital subscribed and the amount of it paid;
- Contributions made by each shareholder, as well as the value attributed to credits and goods contributed in kind;
- Shareholding of each partner;
- Rules related to the functioning of the company. Among these, the rules related to administration and representation are compulsory;
- Persons in charge of administration and, possibly, the subject in charge of carrying out the statutory audit (the statutory auditor is mandatory only in some cases);
- Total amount of the expenses for incorporation charged to the company (the value may be approximated).
Capital: Payment of the share capital
Shareholders determine the amount of the company’s share capital (subscribed capital).
At the moment of conclusion of the certificate of incorporation, shareholders must pay, based on their shareholding:
- At least 25% of the share capital subscribed, if higher than €10.000;
- The entire share capital subscribed, in case of a sole shareholder (even if the capital is higher than €10.000);
- The entire share capital subscribed, if lower than €10.000.
If contributions are made in cash, the amount of paid capital must be handed over to the administrator, who will deposit it on the company’s bank account.
Can a non-resident open a company in Italy?
In case one or all shareholders of a newly established company reside abroad, it is necessary to ensure compliance with the principle of reciprocity. This means that a foreign citizen may enjoy the same rights as an Italian citizen, only if the Italian citizen is able to enjoy the same rights in the foreign country (Italian Civil Code, Preliminary provisions, Ch. II, Art. 16).
uch assessment is not necessary for those States in which EU law, inspired by the principles of free movement and standardisation of the rights and duties of EU citizens, is applicable.
What documents do you need to open a business in Italy through a new company?
Shareholders must hold a valid identification document and an Italian tax code.
Moreover, if the shareholder is a legal person (a company), other documents needed are the minutes through which the board decided to establish/have a shareholding in the new company, and authorised a natural person to act on the company’s behalf, to perform all necessary acts for such purposes.
How to set up a company in Italy as a foreigner: the case of a foreign shareholder
Non-resident shareholders must obtain the attribution of an Italian tax code, prior to the conclusion of the certificate of incorporate.
In case a sole shareholder, or one of the shareholders, is a legal person residing abroad (for example, a foreign company), the following documents are required:
- Company’s extract/registration certificate from the Chamber of Commerce or other competent authority. It may be an original document or a true copy, certified by a notary of the foreign country. Legalisation and apostille may be required (based on the country where the company’s registered office is located). The document must also be translated and legalised in Italy.
- Translated and legalised Certificate of incorporation/Articles of Association of the foreign company;
- Minutes through which the foreign company’s board approved the incorporation of the new company and conferred to a natural person the power to act on the company’s behalf, to represent it and set up a company in Italy. The minutes shall include all necessary information; for example: what the company name will be, its place of business, business purpose, duration etc.
- Power of attorney for the person in charge of performing all acts needed for incorporation. The power of attorney shall be authenticated and legalised by a notary of the foreign State. Then, the document must also be translated and legalised in Italy.
- Declaration through which the legal representative appointed by the new company declares the absence of incompatibility with the assigned position.
How long does it take to register a company in Italy?
The incorporation of an SRL in Italy is usually possible within a couple of weeks. If all information needed to draft the certificate of incorporation and the Articles of Association are already available, the notary will usually schedule the certificate of incorporation within 1-2 weeks.
Then, in order for the company to become operational, the following requirements must be complied with:
- Application and assignment of an Italian VAT number;
- Declaration of business start-up and activation with the competent Chamber of Commerce;
- Registration of the shareholders to the mandatory social security fund, if applicable;
- Notifications to the competent authorities (for example, the SUAP – Single Contact Point for
- Productive Activities – of the municipality where the company has its registered office), in case the chosen activity requires it.
How long to set up a company in Italy for foreigners
If the new company is set up by a foreign company, the time required for incorporation will be longer.
Indeed, it will be necessary to wait for the authenticated copy (with apostille, for some countries) of some of the foreign company’s documents (see paragraph above), among which:
- Certificate of registration with the Chamber of Commerce or equivalent authority, and related company registration report;
- Minutes on the resolution to establish a company in Italy;
- Declaration by the new company’s legal representative.
This authentication process is performed by the notary of the foreign State; timing may vary from 1 to 3 weeks. Moreover, these documents must also be translated and legalised in Italy (timings vary from 1 to 2 weeks, depending on the language).
How many days does it take to start a business in Italy through a company in the case of a foreigner?
To conclude, the time required for a foreign company to establish a Limited in Italy may vary from 20 to 40 days.
How much does it cost to register a company in Italy?
A Limited Liability Company’s certificate of incorporation must be drawn up by public deed.
A notary will draft the certificate of incorporation and the Articles of Association. In addition, the notary will complete the registration with the Company Register of the city where the company has its place of business.
- Notary costs. Notary fees may vary, depending on the share capital subscribed or on the presence of contributions different from cash (e.g.: contribution of immovable property, movable property, credits etc.);
- Average fees for the incorporation of an SRL with a minimum capital of €10.000 and contributions in cash only are around €2.500 (excluding taxes and stamps).
- Business start-up procedure. Once incorporated, a company must:
- Apply for an Italian VAT number and notify the starting of the activity to the Italian Revenue Agency;
- Get a certified electronic mail address (PEC);
- Notify the starting of the activity to the Company Register of CCIAA (Chamber of Commerce) and, in some cases, to the SUAP (Single Contact Point for Productive Activities) of the municipality where the company has its place of business (taxes and stamps: around €150);
- Register working shareholders to the compulsory INPS social security fund (craftsmen or traders register);
- Authenticate the mandatory company books (taxes: €309,87).
- These requirements are performed by a certified Tax Advisor or other certified professional. Fees may vary, depending on the type of activity and the qualifications needed.
- Average fees for these requirements are around €800 (excluding taxes and stamps).
In case the shareholder is a foreign company, the costs mentioned above increase of about 30%. In addition, legalisation and translation costs are excluded, as well as taxes and stamps.
Corporate tax rate in Italy
What is the tax rate for Italian companies?
Taxation – The corporate income tax in Italy is Ires (corporate tax).
Tax rate – Ires is a proportional tax and it includes only one tax rate, which is currently equal to 24% (Art. 77 T.u.i.r.).
Tax assumption – Art. 72 of T.u.i.r. provides that the tax assumption for corporate income is the possession of income in cash or in kind, among the types of income listed in Art. 6 of T.u.i.r.
Taxable base – The tax is applied on total income, calculated according to the provisions of Artt. 81 to 116 of T.u.i.r. The taxable base is thus represented by total income (balance sheet profit), net of the tax adjustments provided by the T.u.i.r.
Irap – Limited Liability Companies are also liable to another tax. Indeed, in addition to Ires, a regional tax on productive activities (Irap) is also applied. Irap is calculated on a proportional basis, by applying a single tax rate (which is currently equal to 3,9%) to the value of net production.
Methods to determine the value of net production are provided for in Legislative Decree n. 446 of 15 December 1997.
Taxation on the shareholders
Up to this point, this article has described the taxes applicable to corporate income, which are Ires (24%) and Irap (3,9%).
In the case of an SRL on ordinary tax regime, the profits made, net of Ires and Irap, are taxable only if distributed. Thus, the applicable regime is the cash accounting scheme.
Indeed, only when profits are paid, a 26% tax is applied on the amount distributed to the shareholder. Such tax is withheld from the shareholder, and it is directly paid by the company on the 16th of the month following the payment.
What are the benefits of starting a business in Italy through a Limited?
There could be several reasons to choose a Limited Liability Company, instead of a partnership or a sole proprietorship. There might be some economic, statutory and fiscal benefits:
- Limited liability – The first advantage arises from the very definition of LLC and from its most important feature: perfect capital autonomy. Unlike sole proprietorship or partnerships, there is a clear separation between shareholders’ personal assets and the company’s assets. See Chapter 1 of this article for more information on this aspect.
- Deductible costs – The second advantage is the possibility to reduce the company’s income through costs related to the activity. These costs could not be allocated in the case of sole proprietorship or partnerships. Indeed, it is possible to provide remuneration to the administrators of a SRL and refunds for travel expenses. Such refunds are exempt from taxation for administrators and are entirely deductible for the company, if related to transfers made outside the municipality of the company’s place of business. Moreover, fringe benefits granted to the administrators (as well as to employees),within the limits set forth in Art. 51 of T.u.i.r., are exempt from taxes and deductible for the company.
- Taxation – The third advantage concerns the possibility to apply an Ires tax rate to company profits which is 24% lower than the highest Ires tax brackets (these can reach a maximum rate of 43%). There is a clear fiscal benefit when it comes to reinvesting the company’s profits, for example to make new investments. Indeed, in this case, since the profits are not distributed, the 26% substitute tax will not be applied.
- Social security contributions – For limited companies, only working shareholders have the obligation to pay INPS social contributions, which are only due on their own shareholding. Indeed, no social security contributions are due on the shareholding of non-working shareholders.