How to set up a company in Italy

Practical Guide

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Which corporate form is recommended for setting up a sole shareholder subsidiary company in Italy and why?

The recommended form for a sole shareholder subsidiary in Italy is the Società a responsabilità limitata (shortened as “SRL”), which is the most flexible form of limited company.

In the SRL the shareholder’s liability is limited to the share capital and there are very few mandatory requirements, so that the articles of associations can be shaped according to the needs of the shareholders.

It is possible to appoint one or more directors and to shape the extent of their powers, although directors legally represent the company vis à vis third parties.

Directors are liable towards the company and third parties for violations of their duties; such liability however extends to shareholders who have decided or authorized such violations, and this aspect should be very carefully considered when establishing the structure of the subsidiary.

Most relevant information on the SRL (including articles of association, name of the shareholders and quota owned, name of the directors and their powers, financial statements) must be published in the Commercial Register and will be accessible to anyone requiring such information.

What are the requirements for capital and ownership of quotas or shares by foreign companies in Italy?

The minimum capital of an SRL is 1 Euro. The capital must be fully paid up at the moment of establishment if the capital is less than 10.000 Euros or there is a sole shareholder. In other cases, only 25% of the capital must be paid up at the moment of establishment. If the capital is 10.000,00 or more it is also possible to contribute to the share capital with assets or even credits (the value must be certified by an expert estimate).

EU companies are subject to no restrictions in establishing a subsidiary in Italy although special requirements are established for regulated sectors (banking and finance, insurance, aviation, pharmaceutical etc.).

As a general principle, companies based outside the EU are admitted to exercise rights in Italy subject to the principle of reciprocity, i.e. as long as Italian companies can exercise the same rights in their country of origin. The same applies for natural persons who are appointed as directors of Italian companies.

In fact, such requirements are contained either in Bilateral Investment Treaties signed by Italy or in treaties on investments signed between the EU and third countries.

What are the requirements for the corporate governance of the company in Italy?

The rules on corporate governance in a limited liability company in Italy are very flexible and, in general, rules on corporate governance are not mandatory.

However, according to the Italian Civil Code, the corporate bodies of an SRL are:

  • the shareholders meeting and
  • the governing body;

The articles of association may provide for the appointment of a supervisory body or an auditor, determining their competences and powers. When the company exceeds certain size limits or is subject to the consolidated financial statements, the appointment of supervisory body becomes mandatory.

Unless otherwise provided in the articles of association, the administration of the company is entrusted to one or more shareholders, but the founding shareholder(s) may decide how to structure the governing body of the company including in the articles of association the following options: 1) a sole director; 2) a board of directors; or 3) directors acting jointly or separately.

Thereafter, the shareholders meeting may amend the structure of the governing body (special quorums are requested) and may remove or appoint the directors. A person who is not a shareholder and even a corporate entity may be appointed as director.

The directors are vested with the general power to act on behalf of the company and the articles of association shall also indicate who is the person having the power to represent the company. No legal provision limits the extent of the powers granted to the directors, with the exception of those expressly reserved to the shareholders’ meeting (such as: approval of annual accounts, amendments to the share capital or to the Articles of Association, merger decisions, etc.).

The directors’ powers may be limited by the articles of association or by a shareholders’ decision, but such limitations are not enforceable against third parties unless it is proven that such third party acted to the detriment of the company.

There are some conditions that prevent the appointment of a natural person: being bankrupt or having been convicted of some crimes can prevent a natural person from being appointed director.

There are no restrictions on the nationality or place of residence of legal representatives for citizens of the European Union. Vice versa, for all non-EU citizens, some additional conditions are required (e.g. the existence of a specific international treaty or the applicability of the “condition of reciprocity” provided in art. 16 of the preliminary provisions to the civil code of 1942, specific visa…).

The shareholders have the power to decide on the matters the articles of association reserved to their decision. In any case, the following subjects are reserved to the shareholders decision:

  • approval of the financial statements and distribution of profits;
  • the appointment of the directors;
  • the appointment, in the cases provided for by article 2477, of the statutory auditors and of the chairman of the board of statutory auditors or of the person in charge of carrying out the statutory audit;
  • amendments to the articles of association;
  • the decision to carry out operations that involve a substantial modification of the corporate purpose determined in the deed of incorporation or a significant modification of the shareholders' rights.

What are the legal requirements a foreign company should comply with when incorporating a subsidiary in Italy?

The first step will be to obtain a copy of the decision of the foreign company’s competent body to establish the subsidiary, together with the articles of association. If the decision was issued by a Notary, in some cases Apostille will be needed. The documents must be translated in Italian and the translation certified in Italy (traduzione asseverata). A legal opinion from a lawyer of the same legal system of the mother company may be required in some cases.

As the notarial deed of incorporation must be drafted in Italian, unless the representative of the mother company speaks Italian, it will be necessary to give power of attorney to an Italian-speaking agent to appear at the notarial deed. The power of attorney will be certified by a Notary which will certify that the person signing had the powers to represent the mother company. In some cases Apostille will be needed. The power of attorney must be translated into Italian and the translation certified.

All director(s) will have to obtain an Italian Tax ID Number. This requirement is necessary for registration in the Company Register. More and more registers also require all directors to have a digital signature device (necessary to file documents in the Register).

At the moment of instructing a lawyer or a notary to prepare the deed of incorporation and when opening the bank account, it will be necessary to provide all information concerning the mother company required by Anti-Money Laundering regulations (Beneficial Owner, Politically Exposed Persons, Origin of the Funds etc.).

Also, all companies need to obtain a certified email address (PEC) which must appear in the Company Register. Communications sent to such PEC email address are considered as received by the company.

What is the process for the incorporation of the subsidiary in Italy?

The steps are the following:

  • decision of incorporate the subsidiary; the mother company shall ensure that the decision in taken in compliance with its own rules by the competent body;
  • translation into Italian and (unless special treaty applies) legalisation or Apostille of the (i) certification of incorporation of the mother company, (ii) of articles of association and (if it is the case) (iii) of the decision to incorporate the subsidiary is required;
  • drafting the articles of association of the SRL. The public notary usually has a standard draft, but considering that the SRL structure is very flexible, this step is crucial and a tailored draft is recommended;
  • checking the company name or trade name in order to ensure that the intended company name or trade name is not already used by a competitor or by a company having similar activities or services;
  • once all documents are ready, notarisation of the incorporation deed is requested; the shareholders, in person or by proxy, must be present before the Notary; the Notary shall request all the documents listed hereabove (second point) and evidence of the payment of share capital to the directors (bank transfer or cashier's check. All the professional involved in the incorporation shall comply with anti-Money laundering rules;
  • registration of the incorporation deed by the Company Register where the SRL has its principal place of business; the timing between filing the request and registration depends on each Chamber of Commerce in charge of managing the Company Register;
  • registration and request to assign a Tax and VAT code to the tax authorities (Agenzia delle Entrate);
  • registration at the social securities authorities (INPS and INAIL);
  • stamping of company books;
  • formalities to be authorised the electronic invoicing (mandatory in Italy).

Thereafter you can start the business activity. In theory, all the latest registration formalities could be made through a single communication, "ComUnica", at the one-stop shop for the business activities; in practice this does not happen.

What are the usual challenges for foreign companies setting up a subsidiary in Italy?

  • Bureaucracy is the biggest challenge in Italy;

- Incorporation formalities: it is necessary to be assisted by two or more professionals for the establishment of a company;
- Regular formalities: Italian companies must comply with legal provisions requiring them to carry out certain formalities on a regular basis (e.g. monthly or quarterly VAT, tax and social declarations, annual accounts to be approved by the shareholder and filed, etc.); professional assistance is always necessary (two or more professionals).

  • Tax law is very complicated and there are a huge number of tax obligations: an accountant or tax advisor is necessary;
  • Complying with employment laws: social security and labour tax obligations and labour laws are complex and often incomprehensible; an expert in payrolls and social security and labour tax obligations is necessary;
  • When the company size grows, also deal with trade unions may be a challenge.
  • Experts (accountant, payroll expert …) speaking an acceptable English may be difficult to find.
  • Choice of directors: it is important that at least one director is fluent in Italian and familiar with the applicable rules, at least in general terms, and can understand the company documents; the director should also be able to be directly in touch with the company consultants.

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