Once you have decided to expand in Italy and have researched your market, you must decide what is the best and most viable option to start your business.

But before digging in, please consider a few things worth knowing:

• to enter, live and work in Italy you must meet several requirements, such as (without limitation), having a residence permit, for instance.
• Pursuant to Article 16 of the “Disposizioni sulla legge in generale” (Provisions on the law in general), contained in the Royal Decree n. 262 of 16 March 1942, “The foreigner is allowed to have the same civil rights granted to the citizen, subject to reciprocity and to the provisions contained in special laws. This provision also applies to foreign legal entities”. In other words, if you are looking to set up a company or a business in Italy, you have to check that an Italian citizen can do the same in your own country.

According to the legislative decree n. 286/1998 exceptions to this rule include:

• Citizens (individuals or legal persons) from EU countries as well as from countries included in the European Economic Area (Iceland, Liechtenstein e Norway);
• non-EU citizens staying in Italy and holding a residence permit for employment and self-employment reasons, to run an individual business or for family, for humanitarian and study reasons;
• stateless persons residing in Italy for at least 3 years;
• refugees residing for at least 3 years.

Therefore, they are exempted from the verification of the condition of reciprocity: this means that they can make investments without limitations on their capacity to conduct a business.

To check if your country of citizenship is subject to the condition of reciprocity with Italy, please visit Italy’s Ministry of Foreign Affairs website.

Setting up a company

Starting a business in Italy has recently become much easier and quicker also thanks to the minimum capital requirement reduction and to the possibility of streamlining the registration procedures.

Thus, a foreign investor who intends to start a business in Italy can:

• Found a sole proprietorship, the so called “ditta individuale”;
• Start up an Italian company;
• Open a subsidiary of a foreign company;
• Open a representative office of a foreign company;
• Purchase an existing business.

This post inaugurates a series on the topic “investments in Italy” that I will propose periodically on this blog.

Today’s focus is…

The sole proprietorship

The sole proprietorship is the simplest and least expensive legal form because there are no mandatory legal provisions to respect – such as minimum capital – and a formal deed of incorporation is not necessary.

The entrepreneur is responsible for the whole entrepreneurial process and the business risk falls entirely on him: this means that, in the event of insolvency, the entrepreneur is liable to third parties with all his assets, including personal ones.

The formation

Setting up a sole proprietorship is quite simple: the only thing to do is register in the relevant Chamber of Commerce and open a VAT number.

Registration can take place with or without the immediate beginning of economic activity.

In the first case, the sole proprietorship can start its business at the same time as its formation.

In the second case, it is registered in Chamber of Commerce as inactive and then – once any preparatory documents have been completed and any necessary authorizing documents have been acquired – the entrepreneur must notify the actual start of the activity to the appropriate authorities (Chamber of Commerce, INPS and possibly INAIL).

The sole proprietorship can also be carried out in the form of a family business or a conjugal enterprise.

In the case of a family business, the spouse, relatives within the third degree and the in-laws within the second collaborate (art. 230 bis c.c.). All the participants in the family business are entitled to the distribution of profits and the owner remains the sole responsible for the company.

The conjugal enterprise shall meet several conditions:

1. it must be established after the marriage.
2. the spouses must be in the regime of legal communion of assets.
3. both spouses must manage the enterprise without any subordination restrictions.

As a matter of fact, the individual company is usually preferred as a legal form when it is necessary to carry out activities that do not require large investments and involve fairly limited risks. However, before choosing such a business form you should consider the main advantages and disadvantages.

The advantages are:

a) simple registration with the relevant Chamber of Commerce

b) rapidity of formation time

c) low administrative, accounting, and fiscal charges

f) speed and flexibility of decision-making process

g) low management costs

h) no obligation to prepare the financial statements at the end of the year.

The disadvantages are:

a) unlimited liability towards third party creditors: the entrepreneur responds with all his personal assets of debts contracted and unpaid

c) absence of partners to compare with

d) limited creditworthiness

e) tax disadvantages: in the case of substantial net profits, these are transferred to the total income of the holder. This latter then pays the taxes also based on the individual company income declared.

Have you found this information useful? Please share your comments below and do not forget to come next month to read about how to start an Italian company.