Doing Business in Italy: Advantages & Disadvantages

A major economic force in Europe, Italy is an attractive economy for investment. It is the eighth largest economy in the world, the third-largest economy in the European Union, and the 20th largest market for the U.S. It continues to recover from the global financial crisis and is growing steadily year over year.

While known for its art, food and rich history, Italy also offers businesses well-established infrastructures for R&D, innovation and design and a strong manufacturing base. Italy’s geographic location is significant, making it a strategic logistics hub and a gateway to the European Single Market.

However, companies that want to capitalize on these advantages should be prepared to deal with a complicated regulatory environment that can lack the transparency, clarity, and efficiency offered by other Eurozone economies.

Advantages and benefits of doing business in Italy

Strategic logistics hub

Located at the center of the Mediterranean Sea, Italy gives businesses a strategic gateway to consumers across the European Union, Northern Africa and the Middle East. It is also a primary hub that links southern, central and eastern Europe.

Much of Italy’s extensive transportation network is among Europe’s priority logistic nodes. Due to its central Mediterranean position, 20% of world maritime traffic, 30% of fuel traffic, and 25% of container traffic pass through Italy’s ports.

A total of 432 million tons of goods and 1 billion people move through Italy’s 40 major ports and 42 airports. As a member of the European Union, businesses in Italy have duty-free access to over 50 million consumers in over 30 national markets within the European Economic Area.

Pro-investment culture

Italy’s open economy welcomes investors. The country has implemented significant reforms to gain investor trust and confidence, including forming a high-level committee within the Ministry of Economic Development. The Italian Trade Agency offers a “one-stop shop” for pre-investment information, business set-up support, and ongoing after-care for incentives and contracts.

The government offers numerous tax credits and incentives to attract FDI. These include tax credits for employment (especially for hiring women and younger workers), tax deductions for energy efficiency, and tax reductions on income derived from specified intangible assets. The government also offers significant tax credits for R&D: 25% for private investments in R&D which increase to 50% for projects within universities or research institutions; and 15% for investments in machinery and capital goods. Businesses investing in new manufacturing and R&D in Italy’s southern regions are eligible for additional public support.

Robust manufacturing base

Italy is among the largest manufacturing countries in Europe, second only to Germany. Products made in Italy continue to enjoy a reputation for high quality and design. Investors can seek to partner with a large pool of experts in diverse sectors such as machine tools, fashion items, food products, automotive and pharmaceuticals. Companies can also access an extensive network of intermediate suppliers in a wide range of sectors, including industrial machinery, metals, chemicals, plastics, paper, ceramics, textile, marine industries, among others.

Italy is one of only five countries with an export trade surplus. Italian manufacturers are keen to protect this export advantage by investing in advanced manufacturing technologies that improve production and reduce costs, including industrial automation, robots and additive manufacturing.

A tradition of innovation

Italy spends over 25 billion euro per year in R&D, making it the fourth-highest in R&D investment in Europe. Its manufacturing base is increasingly integrating digital technologies in their production processes.

Italy is developing a network of innovation incubators and science and technology parks, many of which are connected to universities and local development agencies. Italy has encouraged thousands of spinoffs and startups to disseminate new knowledge and technologies into the market from this network.

The government agency, Invitalia, provides extensive incentives to both Italian and foreign companies by financing all sizes of projects in strategic sectors in industry, tourism and environmental protection.

High-tech performance

Consistent with Italy’s goal to attract FDI focused on innovation and advanced technologies, investors can find opportunities in several high-tech sectors with a range of government incentives, depending on the region and the sector. The biotechnology, chemicals, aerospace and automotive industries can offer attractive opportunities.

Biotech is recognized as a “Key Enabling Technology” across Europe. Accordingly, Italy’s biotech industry is among its faster-growing sectors and is helped by a well-established academic and industrial research infrastructure. Most of the sector is focused on R&D, with a high concentration in the life sciences, including medicine and human healthcare, agriculture, veterinary, and the environment.

Italy is Europe’s third-largest chemicals producer, primarily targeting the agriculture, food and beverage markets. Many large multi-national companies have a well-established presence in Italy, leveraging Italy’s skilled labor and strategic location in Europe.

In the aerospace sector, Italy is a leading producer of helicopters and is a partner in the construction of the international space station. Italy’s automotive industry is known for its high-level design and technology, with well-developed manufacturing facilities and skilled labor.

Disadvantages and risks of doing business in Italy

A challenging business environment

As described in the global report Doing Business 2020, Italy still performs below the EU average for ease of doing business. Italy ranks 58th for overall ease of doing business and 98th for starting a business, out of 190 economies.

Starting a business in Italy can take less time but costs more than the EU average. Across a sample of 13 Italian cities, starting a business can take about a week on average. This is five days faster than the EU average.

However, it costs 13.8% of income per capita, the highest in the EU. About 75% of this cost is for the required notary fees for drafting the company deed and preparing other formation documents. Italy also requires entrepreneurs to pay EUR 310 for a government grant tax, EUR 200 for the registration tax, EUR 156 for a stamp duty, as well as the Chamber of Commerce’s registration fee of EUR 90 and an annual membership fee of EUR 120.

Long construction timelines

Permits for construction in Italy take longer and are more expensive than the EU average. Obtaining construction permits in Italy can require completing 14 procedures over 198 days, at a cost of 4.6% of the warehouse value.

Location makes a difference. While construction permits are governed by national law, each city interprets the law differently. On measures of the number of procedures, time in days and costs, some Italian cities are above the EU average, while many are below.

Slow contracts enforcement

While Italy made several improvements to its procedures for filing and process service for commercial lawsuits, it ranks 122nd in the category of enforcing contracts according to the World Bank’s Doing Business report. Enforcing final judgments is a lengthy judicial process with considerable regional variability, as cities are challenged by backlogs, adjournments, delays in judgment issuance and staffing shortages. The average of calendar days to resolve a commercial dispute in Italy is 1,120 days, with filing and service taking an average of 10 days, trial and judgment 840 days, and enforcement and judgment 270 days.

Regional regulatory disparities

Businesses must be aware that local regulations and procedures for the same business activities will be different in different municipalities, as it’s the local authorities who determine how to implement national laws and regulations.

On every variable measured by Doing Business in the European Union, some cities will rank well for one business activity and low on another. For example, a commercial dispute takes 860 days to resolve in Turin. In contrast, it takes twice as long to resolve disputes in Reggio Calabria. Getting electricity is easiest in Bologna, with an average of 75 days. In Palermo, it can take 231 days, because of the length of time needed to obtain excavation permits.

High taxes

Italy’s corporate tax burden is one of the heaviest in Europe. It ranks 128th in the World Bank’s Doing Business report for the category of paying taxes. While the 24% corporate tax rate is on par with the average statutory corporate tax rate of other OECD countries, many additional items factor into the overall tax requirements. For example, businesses must pay 14 tax payments each year, including the corporate income tax (IRES), regional production tax (IRAP), social security, real estate, and VAT.

On average, it takes 238 hours per year to prepare, file and pay (or withhold) the various taxes, including corporate income tax, value-added or sales tax, and labor taxes, including payroll taxes and social contributions. The total tax and contribution rate averages 59.1% of profit.

Business culture

Relationships are very important in Italian business culture. Italian businesspeople want to be familiar with their business contacts, so work with a local representative to arrange introductions and appointments before your trip.

Italians expect formality. When meeting contacts for the first time, address them as “Signor(e)’ (Mr.)” or “Signora’ (Mrs.),” with their surname. Wait until you’re invited to use their first name in subsequent meetings to be safe. It’s important to show respect for elders, people in positions of authority and people with professional titles such as “Dottore/ Dottoressa (Doctor).”

Italian companies often employ a horizontal chain of authority, called “cordata” (which literally translates to a team of mountain climbers on the same rope). To fully understand this concept, maintain a good relationship with contacts who can educate you on the internal structure of the companies you wish to do business with.

Also, anticipate that negotiations often take time. Trying to rush the process or conveying urgency can weaken your bargaining position.

Doing business in Italy with greater success

Successfully doing business in Italy requires thorough research on the different regional bureaucracies and their requirements. Personal relationships are a vital part of doing business there, thus finding the right local agent, distributor, or business partner is essential. Build plenty of time into your business plans, as it can two to three times longer than you expect to cultivate the necessary relationships, establish a market presence and be ready for business.

Without a firm grasp of local laws, regulations and business practices, expanding businesses can face the possibility of delayed entry, rising costs, tax penalties—or even civil or criminal litigation.

With our experience and global footprint, CT Corporation delivers the products and services you need to keep you compliant as you do business in Italy.