Companies based in the north-west are among a growing number of overseas businesses looking to establish a presence in Italy, the world’s eighth largest economy. They are doing this through acquisition and by setting up representative offices, branches, and subsidiaries in an attempt to gain a foothold in a market of 64 million consumers.
HURST hosted a ‘Doing Business in Italy’ workshop as part of its Executive Insight programme which helps entrepreneurs to drive growth in their companies. Among those attending were executives of businesses in sectors including distribution, healthcare, finance, and marketing. The event was held with Barclays at HURST’s offices in King Street, Manchester.
The guest speaker was Alberto De Giorgi, a partner at Milan-based STUDIO DE GIORGI e ASSOCIATI which, like HURST, is a member of the PrimeGlobal international association of independent accountancy firms. Alberto specialises in advising companies on the operational and technical aspects of setting up in Italy. His practice currently has clients from 34 countries who are exploring opportunities or are launching operations in his native country.
Sectors which are seeing major activity include pharmaceuticals, business services, manufacturing, fashion, engineering, tourism and hospitality and healthcare, he said. Explaining some of the benefits of setting up in Italy, Alberto said establishing a representative office is a good first step for many companies.
There are no tax or VAT implications, but staff have to be put on the payroll and this involves significant cost to the employer, as national contracts with the country’s trade unions are in place and social security contributions are required. Alberto said that, once new entrants have gained an understanding of the Italian market, they can move on to the next stage by creating a branch of their home-based entity or a subsidiary.
A branch structure spreads the entrepreneurial risk between the company’s own country and Italy. A branch has to be VAT-registered and have an Italian tax code, but there is no requirement to file separate financial statements for it. Alberto said the rate of corporation tax in Italy is currently 24 percent, and there are regional taxes to pay on top, of between three and five percent. Subsidiaries do have to submit financial statements, including those of the mother country’s entity.
He said business owners should consider different ways of establishing a subsidiary in Italy, including a limited liability company, and pointed out that it can take just one month to be up and running. A major change on the horizon is the requirement for electronic invoicing only from January 2019 for national suppliers. Invoices will have to be sent to the tax authorities first, as part of a government clampdown on fraud.
Alberto said: “It’s a big change, which in some ways is a great leap forward as well as being a challenge.”
Alberto De Giorgi | STUDIO DE GIORGI e ASSOCIATI
He also explained some of the tax advantages of having a presence in Italy, including reliefs on capital investment. The government is also offering incentives to companies which employ unemployed people or young people.
HURST partner Paul Brown, the firm’s head of international tax, said Italy is an attractive option for UK business looking to expand overseas but warned they can face a double tax whammy. He said:
“It’s important to be well-prepared before taking the plunge, and from a UK perspective, it’s vital to carefully consider the type of entity you are looking to establish.
“If you set up a branch, the profits will be taxed in the UK and possibly in Italy too. However, if it is expected to make losses in the first couple of years, these can be offset against UK profits.
“There are tax pitfalls of having a subsidiary. HM Revenue & Customs will often look at these and decide to tax them as, although they are registered in Italy, they are controlled in the UK. This can mean they are taxed here as well as by the Italian authorities.
“It is generally possible to offset Italian taxes paid against UK tax. However, without proper planning, this can still lead to additional, unexpected tax costs.”
Barclays’ Stephen Edwards said the bank was committed to supporting UK businesses as they seek to grow their exports. “We have a strong team working across different industries. We are specialists in giving companies the right advice in the international trade arena,” he said.
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