by Eurolinkgeie


Italian Flag

POPULATION: 59.55 million


An Introduction to Italy

Italy is strategically placed for international commerce. It is at the center of the European market, serving as a bridge between Northern and Southern Europe, and as the gateway to North Africa and the Middle East.

The Italian peninsula is divided in 20 regions (which can be further divided into 107 provinces, 14 metropolitan cities and approximately 8,000 municipalities) and counts a population of nearly 60 million inhabitants. The majority of the population falls within the age range of 15-64. The elderly (+65) currently represent 23% of the population while the remaining 13% falls within the 0-14 age group.

The capital – Rome – is the largest Italian city, followed by Milan (Lombardia), Naples (Campania), Turin (Piemonte) and Palermo (Sicilia).

Italy has a significant north/south divide, with the key business regions located in the northern part of the country and sits far above the EU GDP average, while parts of the south are far below.

There are about 4.4 million companies working in a number of different sectors, but the drivers of the Italian economy are micro, small and medium-sized businesses – 85% of which are family-run and with less than 10 employees. These companies lead in the global value chains and supply of high-quality semi-finished products.

As a developed country, Italy has high levels of freedom for investment and business, with a quality of life ranked eighth highest in the world. In 2021, The Economist named Italy Country of the Year for its resilience and fast recovery after a challenging 2020.

Italy is one of the countries with the highest number of applications for the international registration of industrial designs, and third in the league table of countries with the highest number of trademark applications in the agricultural and food industry.


How the 2020 Pandemic Impacted Italy

The Italian economy, severely affected by the consequences of SARS-CoV-2 pandemic, contracted by 8.9% in 2020. The decline in GDP was significantly greater than the average decline recorded by the Eurozone (-6.6%). The negative peak occurred in the second quarter of 2020, when a national lockdown was imposed to curb contagion growth (trend GDP at -18.2% compared to the same quarter of year 2019). The decline in GDP was considerably affected by the collapse in household spending (-9.9%), gross fixed capital investments (-1.2%) and exports of goods and services (-8.1%). The only positive contribution came from general government spending (+ 3.2%), also deriving from the measures introduced by various governments to support companies and citizens hit by the effects of the recession.

In 2020, the estimated average monthly household expenditure fell by 9% compared to 2019. It is the strongest contraction since 1997. Consumption collapses for accommodation and food services (-38.9%), recreation, entertainment, and culture (-26.4%), transport (-24.6%), clothing and footwear (-23.3%).

Despite the heavy impact of Covid-19 on its economy, Italy remains the eighth biggest economy in the world and the third in the Euro zone, after Germany and France.

In 2020, industrial production also decreased considerably, compared to 2019 (-11.4%). The industrial sectors with the worst decline were leather goods (-28.5%), transportation equipment (-18.3%) and manufacturing of coke and refined petroleum products (-15.6%).

In 2020, the global recession caused by the pandemic caused a contraction of 9.7% in Italian exports. Imports, already characterized by a lower volume than exports, registered an even greater drop (-12.8% in 2020).

The trade surplus thus grew to 63.590 million euros (+86.125 million Euros, net of energy products). In 2019 it had amounted to +52.936 million euros.

The unfavorable economic situation also affected the labor market, bringing employment to a lower level than that recorded in December 2019 (-1.9%, or -444.000 units). The decrease involved both employees (-235.000) and the self-employed (-209.000). Despite registering almost half a million fewer jobs, unemployment fell to 9.7% in June 2021 and at the same time, the number of inactive persons fell, compared to June 2020 (-592.000).

The economic crisis provoked a decrease in current incomes of about 53 billion euros, against an increase in current outputs of nearly 47 billion. All this resulted in a worsening of the country’s public finance picture. The deficit/GDP ratio rose from 1.6% in 2019 to 9.5% in 2020 and the primary balance went from positive territory in 2019 (+1.8%) to negative territory in 2020 (-6%). The extraordinary expansionary policies implemented by the European Central Bank contributed to the decline in interest expenditure (-5%).

The increase in public debt and the fall in GDP led to the debt/GDP ratio rising from 134.6% to 155.6%, remaining well above the EU average.


Economic Recovery Underway

Estimates for the economic trend are influenced by the good performance of the vaccination campaign and the lifting of most restrictive measures as of the end of spring. These elements have enabled the Italian economy to partially recover lost ground.

The European Commission foresees an increase in GDP of 4.4% in 2022. Estimates could be revised upwards: in the second quarter of 2021, ISTAT in fact reported an acquired variation in GDP equal to +4.8%. Excellent signals from exports (+24.2% in the first six months of 2021), industrial production (+20% in the first half) and retail trade (+9.2% from January to June 2021). Employment has also recovered somewhat: the number of employed people in June 2021 is 1.2% higher than in June 2020 (+267.000).

Tertiary education is also of a high standard: 10 Italian universities are listed among the world’s top 400 by QS World University, which ranks 1000 universities across 80 countries.

To invest in Italy is to gain access to the very best know-how and skills in the machinery and automation, fashion and design, and food and wine industries, as well as energy, distribution, telecommunications, and transportation sectors.

Attracting foreign investment is a strategic priority of the Italian government. They are working their Recovery and Resilience Plan (PNRR) which is a very good opportunity to stimulate investments in Italy. The plan will outline the objectives, reforms and investments to be achieved using Next Generation EU funds, thus creating a favourable environment for foreign investors too.


Strong Italian Industries

The service sector is the fastest growing sector and a major contributor to the Italian economy, approximately accounting for 74% of the national GDP.

The industrial sector accounts for 19.4% of GDP. Motor vehicles, fashion and luxury goods, life sciences, aerospace, chemicals, information and communication technology, logistics, renewable energy, and precision machinery are among the most important sectors. Agriculture accounts for the remainder of GDP.

Fashion and luxury is without a doubt one of the most important sectors of the Italian economy. Aside from the household names that dominate the market worldwide, the sector is made up of a large number of SMEs which all contribute to the global image of the “Made in Italy” trademark.

Italy has more world heritage sites than any other country on the UNESCO list and, before the pandemic, was the fifth most popular tourist destination in the world. Historic and cultural heritage and natural landscapes, combined with excellent food and wine represent huge potential for growth and exceptional investment opportunities. In fact, tourism in Italy is one of the main driving forces of the national economy and its success is demonstrated by the large number of accommodation facilities (more than 32,000 hotels) across the country.

The Automotive sector in Italy is mainly led by the cross-border legal merger between FCA and PSA Group, followed by foreign brands (Audi in primis). The fuel in most demand remains petrol, while alternative fuels are growing.

Italy is also the largest pharmaceutical manufacturer in the EU; 80% of its production is exported.


The Transportation Network

The country has a dense transport network:

  • Roads: 837.493 km (state, regional, provincial and municipal roads) and 7.000 km of motorways (10% of the European motorway network)
  • 24.299 km of railways, of which 1.500 km of high-speed rail track (more than 800 miliion passengers and over 90 million tones of freight travel/year)
  • more than 300 ports (about 53 million passengers and 49 million tonnes of freight/year), strategically distributed for Mediterranean trade over more than 7.000 km of coasts, and
  • 130 airports (about 53 million passengers and 0.8 million tonnes of freight /year)


Tax System in Italy

Italy Income Tax Rates for 2022

Taxation of an individual’s income in Italy is progressive. In other words, the higher the income, the higher the rate of tax payable.

In 2022 the tax rate for an individual is between 23%-43%. In addition to direct taxation (IRPEF), there is also a regional tax of 1.2%-2.03% and a municipal tax of 0.1%-0.8%. There are reduced rates of tax and tax exemptions available to certain income earners.

The standard rate of Italian corporate tax (IRES) in 2022 is 24%. Additionally, local tax (IRAP) is generally imposed at a rate of 3.9%, bringing the effective tax rate around to 28%.


Italy Income Tax for an Individual

An individual is liable for tax on his income both as an employee and a self-employed person. Tax will be payable on income earned in Italy and overseas by an individual who meets the test of a “permanent resident” of Italy. A foreign resident who is employed in Italy pays tax only on income earned in Italy.

One of two tests must be passed to be considered an Italian resident: a life centered in Italy, or being registered in the Population Registry as living more than 183 days a year in Italy.

It is important to point out in regards to taxable income from outside Italy, that a “tax credit” is granted for tax deducted outside Italy. In the case of income from a salary, the employer is obligated to deduct the amount of tax payable on a monthly basis. A self-employed person must prepay income tax that will be offset on filing an annual return. The advance payment is determined on the basis of the return made for the previous year.

In the event of a new business, the advance will be calculated on the basis of estimates made by the owner of the business. Certain payments are deductible from taxable income as detailed below.

Italian Individual Income 2022 Tax Rates

Tax (%)

Tax Base (EUR)


0 – 15,000






50,001 and over

Note: An additional 3% solidarity tax is imposed on all personal income exceeding EUR 300,000.

Italy Capital Gains

For individuals and companies, capital gains are generally added to the regular income.

  • The rate of tax payable on capital gain interest and dividend from shareholding is 26%
  • For the purpose of calculating a capital gain, the gain is decreased in line with the rate of increase in inflation, from the date of purchase to the date of sale. In regard to capital gains in a corporation, identical relief is allowed at the rate of increase in the Index
  • Companies pay 24% tax on capital gains. In sale of participation, 95% is tax exempt, subject to certain conditions


Italy Reporting Dates and Payment

The tax year in Italy ends on December 31st. Advance payments of tax are made on the following basis.

  • An Individual whose only income is from a salary is not obligated to file an annual tax return. His employer deducts tax from the employee and transfers the payment immediately to the tax authorities on a monthly basis.
  • A Self-Employed Individual is obliged to pay 100% of the tax forecast for a year, or an amount that is the equivalent of 98% of the tax paid in the previous year, whichever is the lower, the pre-payment is made in two installments. 40% of the total is paid by June 20th and the remaining 60% is paid on November 30. The date for filing an annual return for an individual is November 30. Fines are imposed for arrears in filing an annual return at the rate of 120% – 240% of the tax, depending on the length of time that the return is in arrears.
  • A Limited Company is obligated to submit Financial Statements within 30 days of the date of approval of the Statements.
    • Up until the date of approval of the Statements, the Company is obligated to pay the amount of tax due for the previous year as well as 40% of the advance on account of the tax forecast for the current year.

Tax Deductions at Source in Italy

Taxation of Employees in Italy

For employed persons, the employer is obligated to deduct tax at source from an employee and to  make additional contributions to social security.

Social Security
  • An employed person – the employer’s contribution is around 30% of the salary and the employee’s contribution is around 10% of the salary.
  • A self-employed person – the rate of payment is between 24%-28% with an upper limit that changes from year to year.


Other deductions

Deductions must be made from the following payments to nonresidents according to this table:

Dividend26% (1.375% to EU and EEA residents)
Technical Fees30%
Branch Remittance0%

Types of Companies in Italy

Within Italian business law, S.p.A (corporation) and S.r.l. (LLC) suits foreign investor’s requirements the best.  Both requires a notary deed to be chartered, followed by registration in the Italian ‘Business Register’. Shareholder’s liability is limited to share capital owned. The S.r.l. benefits from a more flexible management structure, while the S.p.A. must comply with stringent regulation and corporate governance.

Company Type

Business Scope

Foundation & Registration

Minimum Capital Required



Società per azioni, S.p.a. (corporation)

Only business entity entitled to be publicly listed

Notary deed required as well as the registration to the Italian ‘Business Register’*


Share capital to be invested upon foundation: (a) 100%, if sole shareholder; (b)otherwise 25%

Liability limited to share capital owned

– Board of directors

– Supervisory board

-Shareholders assembly

– Shareholders’ meeting appoints the supervisory board’s members and the board of directors (corporate governance system for listed companies: unitary or dualistic)

Società a responsabilità limitata, S.r.l. (LLC)

Insurance and bank sectors are excluded

Notary deed required as well as the registration to the Italian ‘Business Register’*


Share capital to be invested upon foundation: (a) 100%, if sole shareholder (b) two or more shareholders 25%

Liability limited to share capital owned

– Members’ meeting (or sole proprietor)

-Management board (or manager)

Flexible management structure. It could also be chartered with one shareholder only

Extra-EU citizens willing to run a business in Italy as sole proprietorship or partner/manager of a corporation/LLC must:[1]

  1. Check whether existing “conditions of reciprocity” (condizioni di reciprocità) are satisfied (whether an Italian citizen would enjoy the same business and legal treatment in the country of origin of the foreigner); AND
  2. Have obtained the resident permit issued for self-employed, employees and other workers waiting for employment, family reasons, humanitarian reasons or political asylum[2] or be in the process to obtain it, if resident in Italy or expects to settle in Italy[3] (or, alternatively, they must get a residence and employment permit, in accordance with Leg. Decree 40/2014)


  1. Check solely whether existing “conditions of reciprocity” are satisfied (whether an Italian citizen would enjoy the same business opportunities in the country of origin of the foreigner) if resident abroad.




Trade Operations with Foreign Countries

Once all the obligations required to open a business have been fulfilled and all the information needed to operate safely with foreign countries have been collected, you can start your business.

There are, however, a number of considerations to keep in mind with reference to the following issues:

– countries of destination/source of the goods to be traded (EU or non-EU countries)

– goods to be traded

– taxes applied to the goods to be marketed

– contractual clauses for the delivery of the goods

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