Business Environment

Earning a living in Italy is no game for fainthearted. In case you want to start or carry out a business activity in Italy you might be interested in knowing the main aspects of the relevant legal environment.

That’s the sound of a man working on the chain gang…….

As a businessperson you have by now become used to thinking in terms of cost-effectiveness, tax efficiency planning, rates of return. You may also be aware that whatever industry your business is engaged in and whatever business structure you are going to adopt, you will never “walk alone”.

In fact a quite encumbering partner will always be beside you and sometimes ….after you. The partner of yours we are talking about is our beloved Government and its (at times) intractable Agencies that, at any level (State, Regional, Municipal) dictate the rules and regulations that any entrepreneur must abide by to avoid unpleasant consequences.

Three macro-areas of those rules and regulations are going to become your daily bread and butter:

1. the licensing restrictions on certain markets and industries;
2. the tax laws on income and business assets;
3. the labor laws that regulate hiring&firing personnel, wages and pension schemes.

A key ingredient that a business environment must feature for the business actors to thrive and prosper is the quality of the Legal & Justice system. It is in fact crucial both for citizens and businesses not only to be subject to laws and regulations worded in clear and comprehensible manner; but also to be presented with Courts of Law that are capable to handle litigations in a swift and efficient way and – through a set of published precedents – to render predictable rulings. Late justice is indeed denied justice.

Industry regulations and Licensure. A fact of life you should be aware of is that Italy is not ranking high in the International Enterprise Freedom Chart. That is because a close-mesh net of rules and regulations has been implemented over time  to micro-manage virtually all industries. For that and other reasons entry in an industry is most of the times obstructed by barriers that must be dealt with through encumbering and costly processes. Which bring us back to what we stated in our Legal Info Page: taking a shot at starting a business in Italy without the assistance of experts in the legal, tax and other professional fields is hardly an option.

A bird’s eye view on the Italian taxation system

It’s an old saying that only two things are certain in life: death and taxes. Turns out, however, that the great scientific progresses science attained of late have undermined the accuracy of the former statement, leaving taxes to be the last certain thing standing.

clip_image002The main features of the Italian taxation system are framed in and regulated by the very Law of the Land. In fact, while article 23 of the Italian Constitution instructs that no payments or other obligations «may be imposed on a citizen unless pursuant to the law», article 53 goes on saying that «everyone is called to contribute to public finances consistently with their means. The taxation system shall meet the progressive criteria (although the proportional criterion is also applied)».

Under the indicated frame of reference Italian government imposes and collects the payment of taxes (tasse) and levies (imposte). The payment of taxes is usually required against and upon the consumption of specific government provided services or goods. The payment of levies, in turn, is imposed by the government on the generality of the population in order to fund the provision of indivisible public services or the execution a fundamental public duty.

Levies are divided into two categories: direct levies (imposte dirette), which are imposed upon immediate manifestations of one’s contributory strength (e.g. the yearly income, the real estate assets owned); and indirect levies (imposte indirette), which are imposed upon wealth proxies such as acts of production, consumption, exchange.

Each fiscal payment may be examined from five different angles: (i) the entity that the law allows to impose a payment (State taxes, local taxes), (ii) the entity which such payment is imposed upon, (iii) the payment triggering event (receiving an income or inheritance, purchasing a property, filing a contract at the Registrar Office, etc.), (iv) the payment baseline (the net value subject to taxation), (v) the tax rate.

Enough lecturing already!

clip_image003Italiandesk website will mainly (if not exclusively) deal with taxation triggered by real estate asset transfer and possession; the lease of a property will be also examined under that light. A casual walk on the wild side of inheritance taxation may be undertaken as well every once in a while.

The choice of limiting our interest to specific areas of the taxation mare magnum is due to a couple of simple though compelling facts: (a) the usual visitors of this website are mainly non-Italian residents who seldom need to know how their personal income would be treated in Italy……..if they resided there; (b) over time fiscal matters have become so intricate, unstable and hardly interpretable that trying to handle them without the help of a tax expert is really not an option for those who need to make some sense of it.

Having said that, here’s the short list of items you will find addressed in the Italiandesk articles:

  • Registration Tax and Stamp Duty (imposta di registro e di bollo). This is a very important aspect of negotiating in Italy that involves – in the presence of certain conditions – a whole host of different contracts and deeds, from lease agreements, to out of court settlements agreements, to sale and purchase agreements, to mortgages (ipoteche). In the realm of real estate properties transactions, rural lands, apartments and townhouses, garages and storage rooms, are interested by specific tax rates. The Registration Tax is usually calculated as a percentage of the transacted value and as such is often times quite steep; it is also less than but intuitive to calculate and pay. Learning well the dos and donts here ….. «makes a man healthy, wealthy and free from even more expensive sanctions !».
  • Value Added Tax (IVA – Imposta sul valore aggiunto). VAT is applicable to real estate transactions when the owner and seller of the transacted property is a company and other conditions are there. When VAT is applicable the proportional Registration Tax is not.
  • Local taxes on real estate properties (Imposte locali sugli immobili). After the real estate property is purchased and during the relevant possession, the owner and the tenant are required to pay certain local taxes. The payment is usually calculated pro-rata temporis of possession. Rules and regulations on this topic are prone to frequent changes and because of that updated info may only and will be provided in articles posted from time to time on the Italiandesk blog. Suffice to say here that such taxes will either be the reflection of your wealth being assessed or will be levied to fund the garbage removal and processing services as well as the provision of other common local services (municipality offices, electric service in public places, common areas and streets general maintenance, etc.).
  • Residual taxes on real estate properties possession and transfer (imposte residuali sugli immobili o atti negoziali sugli immobili). I am not going to list any of those not to spoil the surprise for you! Go browse Italiandesk website and see what has been written on it to date!

Real estate transactions 

There are three situations involving real estate properties that we would like to highlight in this page:

the first situation deals with granting a party (the tenant) the right to use and occupy the property against the payment of rent money;

the second situation deals with the transfer of ownership by way of a voluntary deed of sale and purchase;

the third situation deals with the transfer of ownership upon the owner’s death, by way of last will and testament or pursuant to survivorship rules.

Rental operations

A bird’s eye view. Italian law provides very different sets of rules for rental operations depending on the use that will be made of the real estate property (such use, in turn, being affected by both the nature of the property and the restrictions and requirements that are legally imposed thereon). A first partition must therefore be made between “commercial uses” (points of sale, administration offices, any and all stores, accommodation facilities) and “habitation uses” (townhouses, villas and apartments). Promiscuous uses are sometimes allowed. Accommodations industry is heavily regulated and special restrictions are imposed on properties the destination of which is instrumental to an accommodation business. Rental operations are subject to many and sometimes tricky regulations. You should not think that renting out your property is a no-brainer: you might be bitterly disappointed down the road. Finally: as many other agreements, the lease agreements are subject to “registration” at the Agenzia delle Entrate, a tax branch of the government. Failure to register the lease agreement carries sanctions that include penalties and invalidity of the entire contract.


Rentals for commercial uses. These agreements are subject to no limitations on the amount of rent the landlord and the tenant may agree on. The maintenance obligations may also be freely agreed upon by the parties thereto. However, the law mandates a minimum duration of these contracts depending on the specific activity that the tenant carries out therein: (a) six year term for commercial, industrial and professional or self employment activities; (b) nine year term for hotel-like accommodation activities or for theatrical activities. Denial of renewal of the contract by the landlord upon expiry of the first term is subject to strictly itemized conditions; therefore the landlord must consider that a commercial lease agreement may very well have a twice as long duration than the minimum term. A shorter duration than the minimum term is permitted only in case that the activity is inherently transient.

The tenants who use the rented property to carry out a commercial activity that implies or requires access therein by consumers are granted the right to receive by the landlord, upon the termination of the leasing period and as a condition precedent to the actual vacation of the premises, an indemnity for “loss of goodwill” in an amount equal to 18 times the last monthly rent (36 times as much if the property was used as a hotel). A right of first refusal is also granted by the law to certain tenants upon the sale of the property during the term of the lease contract.


Rental for habitation purposes. The law makes even more sub-partitions when it comes to regulating the rental operations of property to be used and occupied for habitation purposes. Under certain circumstances control on the duration, on the rent and on other aspects of the lease agreement apply. Valid lease agreement must have a written form (and, as indicated earlier on, must be registered at the Agenzia delle Entrate).

Unrestricted lease agreements may be entered into by ordinary landlords and tenants only if the real estate property subject to lease agreement: (a) is rented out exclusively for tourism purposes; (b) is subject to the provisions of the Cultural Heritage Protection Act (Testo Unico sui Beni Culturali – Legislative Decree 42/2004); (c) is classified in the Cadastral Registrar under either the A/1 (gentry class), A/8 (villas and portions thereof), A/9 (castles, historical and artistic buildings).category. The lease agreements referred to these kind of buildings are mainly regulated by the parties consent and the Italian Civil Code.

Lease agreements for habitation purposes other than those that fall into the “unrestricted” categories may be sub-divided as follows: (a) the lease agreements with respect to which the parties are free to agree on whatever rent they want, provided that their lease agreement is subject to a minimum term duration; and (b) the lease agreements the terms and conditions of which (including the rent, the duration and other aspects of the transaction) are regulated in compliance with the directives laid down by a “national collective agreement” (“NCA”) entered into by certain unions representing the landlord and the tenants. The mentioned NCA will dictate the methods to calculate the controlled rent, the obligations on the parties and the duration; they also regulate specific aspects of particular typologies of lease agreements such as those entered into by students, or exceptionally admitted (in the light of “specific needs” of the parties) to have a shorter duration than the minimum provided by law.

The duration of the lease agreements referred to in letter “a” herein above is 4 years (with restrictions placed on the landlord’s right to deny, upon expiry of the first term renewal, for an equal period of time); and of the lease agreement referred to at letter “b” herein above is three years plus a subsequent two year renewal period (unless exceptions to such renewal apply). Both the two types of lease agreement grant the tenant the right of first refusal of the sale of the real estate property.

Sale and purchase of a real estate property

Selling and purchasing a real estate property in Italy is usually a multi-phased process. Hereunder you will find the main steps one must take to complete the relevant transaction. Having already singled out the property that will be subject to negotiation is assumed here.

Getting yourself ready. First of all an Italian Tax Code (codice fiscale) must be acquired by that person or entity who wants a real estate property being vested in its/his/her own name. The tax code is unique to its holder. Acquiring an Italian tax code is quick, relatively simple, inexpensive and…..mandatory. Please take a look to the Feature Article to know more about that.

Contracting a real-estate agent. If the owner entrusted a real estate agent to show the property to prospected purchasers, dealing with this middle-man will be unavoidable. Finding a honest and skilled realtor may save the party a lot of time and bad-blood. The agent will assist the parties not only in showcasing the property for sale, but answering to questions and dissipating doubts, collecting and handing over the necessary documents and helping each party to see and understand the other’s needs and not to loose his/her cool. The real estate is subject to a host of duties obligations towards both the parties. Usually the agent is paid by a commission calculate as a percentage of the sale price; by law the commission is payable “upon the transaction” being closed which is deemed to happen when the first legally binding document is executed by the parties; that may happen even before the final deed of transfer is executed and the property has actually changed ownership. Regardless of that, the interested parties have plenty of room to reach different arrangements on all aspects of their relationship with the realtors.

The negotiation phase and the purchaser’s due diligence. Letters of Intent (“LOI”). It is highly advisable that the prospected purchaser conducts – or appoint one or more professionals to do conduct – an in-depth due diligence search in order to ascertain that the very many aspects of the target property, which are relevant for a safe and sound transaction, are in keeping with the provisions of law and no critical areas are left unchecked. Acquiring a due diligence report to reflect the results of the search and to highlights the criticalities detected. That would reduce the risks of having unpleasant surprises down the road. The scope of the due diligence varies with the complexity and the physical and legal conditions of the target property: a good starting point might be having the owner  to hand over the property title, to produce or having professionals appointed by the owner or by the wannabe purchaser producing sworn certifications of compliance of the technical plants located inside the property (electrical circuits, heating system, water system, TV and phone cables, pool water recycling system, etc.), certifications of compliance of the buildings to applicable building codes (conformità ediliza ed urbanistica), energy saving standard certifications. It goes without saying that having the working and safety status of such systems checked is also a good idea. Regardless of the fact that the Notary Public, who will certify the final deed of transfer, will carry out a title search of his own in limine of the closing, a preliminary title search is highly recommendable.

Third parties’ rights of first refusal. Sometimes the law grants to individuals and entities the right to interfere with the parties’ sought for transaction; that would be most of the times in the form of a right of first refusal. We have encountered these situations already when we discussed about rental operations. There are two main situations that a party to a negotiation must be familiar with: (a) the right of first refusal granted to the central or local governments over the sale of things (movable goods or buildings) that have been declared prominent for the national cultural heritage under the Cultural Heritage Protection Act (Testo Unico sui Beni Culturali – Legislative Decree 42/2004); (b) the right of first refusal that the law grants to certain farmers (i) who farm, under an agricultural lease agreement the land that is the object of the prospected transaction, or (ii) to certain farmers who owns lands that are adjoining to the land that is the object of the prospected transaction. It is highly advisable that both these situations, all but uncommon, are addressed and clarified in full prior to the parties entering into legally binding documents; and have such documents reflecting the parties’ understandings over the possibility that the right of first refusal being actually exercised. The right granted to farmers is indeed very tricky, at times intractable, and should be approached with the help of an expert professional.

The first big step to getting things done. So far, the prospected purchaser has only visited the property, acquired information thereon, schemed and fantasized about it. No legally binding document he/she has likely entered into. Once the due diligence term has expired and the chips are down, the parties of the negotiations are expected to execute a legally binding document to lead them to the sought for transaction. Among many instrumental legal documents the parties may turn to, it is customary – i.e. basically without exceptions – that they enter into a preliminary sale and purchase agreement (contratto preliminare, “compromesso“). This is a major and most sensitive step of the negotiation. Pursuant to this private agreement each party undertakes the obligation to carry out a whole host of actions; certain statements are also made and guarantees are granted from a party to the other. Finally, a certain amount of money – a down-payment called “caparra confirmatoria” – is paid down by the prospective purchaser. If you want to know more on this important topic, please take a look in the easy-to-read Paper that we prepared for you [go to Paper].

The Closing. When the day of the closing finally arrives the parties to the transaction or an appointed attorney of theirs show before the Notary Public chosen by the purchaser. A time consuming and painstaking process is commenced at the presence of all interested parties. The deed of transfer is read aloud, all attachments are collected, the contractual documents are signed and sealed and the payment is finally made. You may want to consider the option of attending in person to the closing or to appoint an attorney to your trust, as this Page and referred to Paper illustrate [go to Paper].

Acquisition by inheritance

As it happens in very many jurisdictions around the world even Italian laws have their say as far as the assets which are existing at the moment of the death of the spouse, a parent or a relative (“asse ereditario“) are concerned.

Two are the ways pursuant to which, in Italy, assets are passed along family lines: (a) by way of a will and testament; (b) by legal regulations.

The laws provides for a complex set of rules pursuant to which one may know in advance “who will inherit what” in case a family member dies without having drafted a will and testament. The rules are quite complicated but the solutions deriving from the application thereof are most of the times accurate and hard to challenge.

In case a persons decide to draft a last will and testament a wholly different set of rules apply. Such rules refer both to the mandatory formalities one must follow to craft a legally binding document; and to the limits that one must submit his/her decision as to who may inherit his/her assets.

In fact the right of an individual to dispose of his/her assets for the time he/she has ceased to live is not unlimited. Certain categories of persons called “legittimari” (namely: children, spouse and – in lack of children – parents), are protected by the law in that the law provides for a favorable mandatory survivorship rule. Pursuant to such rule the protected categories are entitled to receive at least a percentage of the remaining assets.

The part of the assets which is freely disposable by the owner (“quota disponibile“) might be bequeathed to whomever the owner chooses.

Persons that are not Italian nationals may be interested in knowing the rule pursuant to which the law ruling over their inheritance rights is that of the country they are citizens of. Regardless of that, though, should properties which are located in Italy such as, but not limited to, real estate properties, bank accounts, securities held or managed by an Italian financial institution, may not be bequeathed to persons of the owner’s choice in violation of the rights of those protected categories that happen to be Italian nationals.