Reply to PPT

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Political and Economic Factors

Italian politics happen in a parliamentary system and follows civil law.

Tensions between governing parties are growing and there is political instability.

The uncertain political environment can cause uncertainty in doing business such as

taxes and regulations.

Italy ranks among the worst countries in the world for enforcing contracts

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-The government is led by Giuseppe Conte and is part of the 5-Star Movement and has been seeing its popularity grow. There are two chambers in the Italian government The Senate which has 321 members and The Chamber of Deputies which has 630 members

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-The growing crisis can trace its roots all the way back to 2009, with the foundation of the 5-Star Movement. The 5-Star movement its based on 5 principles which are publicly owned water, sustainable (eco-friendly) transport, sustainable development, right to internet access, and environmentalism. This style of politics is seen by some as antiestablishment which interferes with company’s trying build a name for themselves in Italy.

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-It takes Italy 1,210 days to complete contracts compared to the Organization for Economic Co-operation and Development (OECD) average of only 510 days. There are 41 procedures to complete a contract in Italy.

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Political and Economic Factors (Cont’d)

Italy is one of the world’s largest exporters.

In 2019, the GDP was $2.004 trillion but has been experiencing stagnant growth.

Italy’s Debt-to-GDP ratio is between 155%-159%. Up from 134.8% in 2019.

Italy’s top trading partners are Germany, France, and the U.S.

Other economic factors are high taxes, trading across the boarder is time consuming, getting credit is harder than most European countries, and getting electricity takes awhile.

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-Italy’s top 3 exports are:

1 – Machinery including computers: US $101.1 billion

2 - Vehicles: US $41.4 billion

3 - Pharmaceuticals: US $33.6 billion

-The European Commission and International Monetary Fund predict the Italian GDP will grow by just 0.1%. Some experts think Italy could slip back into recession because companies are being hesitant about investing in a country that has a lot of political turmoil.

-Trading across borders takes 19 days to export and 18 to import. Authorities require ten days to process the required documents, and containers can also get held up by customs clearance and technical control. 

-Getting electricity with a utility provider can take almost 100 days to conduct external connection works and getting an estimate after the application has been submitted takes two months on average.

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Legal Implications

The Treaty on the Functioning of the European Union, Article 127 and 219, regulates foreign exchange operations.

The EU’s Anti-Tax Avoidance Directive enables foreign entities to apply for privileged tax regimes.

The US Embassy & Consulates in Italy allows foreigners to apply for a work permit to work in Italy.

The Foreign Corrupt Practice Act makes it unlawful for certain entities to make payment to foreign government officials for business purposes.

The Federal Deposit Insurance Corporation provides protection to foreigners who have a bank account at Central Bank (Banca d’Italia).

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Legal Implications (Cont’d)

Business Laws

Tax Laws

Labor Laws

Banking Requirements/Regulations

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Please see notes for full Annotation

There are some procedures to start business in Italy, and it will take around twenty days. Procedures are

- Depositing the company’s capital contribution in a bank

- Getting the power of attorney from the shareholders

- Getting a public notary to authorize your deed of incorporate and company bylaws

- Registering the company with the tax authorities through to notifying the relevant labor office that you will be an employer

Tax Laws

Tax requirements

- According to the survey, Italy ranks 112th for its tax process in the world.

- 4th most complex out of 94 jurisdictions.

- There are 14 different tax payments required

Contribution rate is 47% of profit. For example (VAT is 22%, Corporate income tax is 24%, and the tax on interest is 26%)

Labor Laws and employment contracts

- Italy do not have minimum wage set and employees are assumed to work 40 hours a week.

- No more than 48 hours including overtime.

Banking requirement/regulations

- Maintain the conditions of liquidity and risk contractually established

- Perform their activity prudently and efficiently

There are some procedures to start business in Italy, and it will take around twenty days. Procedures are

- Depositing the company’s capital contribution in a bank

- Getting the power of attorney from the shareholders

- Getting a public notary to authorize your deed of incorporate and company bylaws

- Registering the company with the tax authorities through to notifying the relevant labour office that you will be an employer

Tax Laws

Tax requirements

- According to the survey, Italy ranks 112th for its tax process in the world.

- 4th most complex out of 94 jurisdictions.

- There are 14 different tax payments required

Contribution rate is 47% of profit. For example (VAT is 22%, Corporate income tax is 24%, and the tax on interest is 26%)

Labor Laws and employment contracts

- Italy do not have minimum wage set and employees are assumed to work 40 hours a week.

- No more than 48 hours including overtime.

Banking requirement/regulations

- Maintain the conditions of liquidity and risk contractually established

- Perform their activity prudently and efficiently

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Foreign Currency

Italy has high exchange rates to US currency 

(1.21 dollar= 1 euro) or (1 dollar= .83 euro)

It takes 1-4 days to wire money from US to Italy

time difference=Italy 6 hours ahead of US

The Foreign Corrupt Practice Act prohibits payments to foreign government officials for obtaining business

Foreign entities must opt-in to Italians Penalty Protection regime to participate in intercompany transactions

The risk of investing in Italy’s securities can be controlled by investing in Foreign Direct Investments

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Taxation

Using the International Accounting Standard Board to keep up with International Accounting Standards will help us to stay in compliance with Italy’s tax laws.

Italy has income tax, corporate tax, sales tax, service tax, and excises tax

Liquidity is the best cash management process for foreign investors

Transfer pricing can lead to savings for corporations with exchanges between a subsidiary and affiliate. 

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Please see notes for full Annotation

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Taxation (Cont’d)

How would we stay in compliance

Taxes that are imposed

What is transfer pricing

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Please see notes for full Annotation

Corporate income tax

Corporate entities are subject to a corporate income tax, known as imposta sul reddito sulle società or IRES, and to a regional production tax, known as imposta regionale sulle attività produttive or IRAP.

24% for IRES

3.9% for IRAP

Taxes are imposed

- Corporate income tax IRES is imposed under presidential decree 917 of December 22, 1986.

Non-residents who carry on business in Italy and generate business income therein are subject to corporate income tax in Italy only on the Italian source income

Transfer Pricing

- It is done to maximize the profit amount of the entire group of companies by the multinational deployment of the company (→multinational corporate problem). Transferring all or part of the profits from one entity to another (mainly the related entity) through price manipulation in international inter-enterprise transactions. The market price of goods from foreign companies by American companies

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References

Accounting and accounting rules in Italy. (2021, February). Retrieved February 25, 2021, from https://www.nordeatrade.com/en/explore-new-market/italy/accounting

Accounting principles: National and international standards. (2018, September 10). Retrieved February 25, 2021, from https://www.ionos.ca/startupguide/grow-your-business/accounting-standards-of-the-ifrs-and-fasb/

 Banca D’ Italia Eurosistema. (2020). Retrieved from https://www.bancaditalia.it/ Business etiquette. (2013, October 22). Retrieved February 11, 2021, from https://businessculture.org/southern-europe/business-culture-in-italy/business-etiquette-in-italy/

Please see notes for full Annotation

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References

Capuano, M. (n.d.). Challenges of doing business in Italy. Retrieved February 23, 2021, from https://www.lagazzettaitaliana.com/region-of-italy/7661-challenges-of-doing-business-in-italy

Consob. (n.d.). Retrieved February 25, 2021, from https://www.consob.it/web/consob-and-its-activities/consob

Corporate - Taxes on corporate income. (2021, February 08). Retrieved February 15, 2021, from https://taxsummaries.pwc.com/italy/corporate/taxes-on-corporate-income

Deloitte. Financial Reporting Framework Italy. Retrieved fromhttps://www.iasplus.com/en/jurisdictions/europe/italy

Please see notes for full Annotation

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References

European Counsel. (2020). Anti-tax Avoidance Package, Retrieved from https://www.consilium.europa.eu/en/policies/anti-tax-avoidance-package/

Fbetkowski. (2012, February 22). IAS plus. Retrieved February 25, 2021, from https://www.iasplus.com/en/jurisdictions/europe/italy

Federal Deposit Insurance Corporation. (2015). International Directory of Deposit Insurers. Retrieved fromhttps://www.fdic.gov/deposit/deposits/international/iddi/15guide.pdf

Fernando, J. (2021, February 22). Generally accepted accounting principles (gaap). Retrieved February 25, 2021, from https://www.investopedia.com/terms/g/gaap.asp#:~:text=Generally%20accepted%20accounting%20principles%20(GAAP)%20refer%20to%20a%20common%20set,accountants%20compile%20their%20financial%20statements.

Please see notes for full Annotation

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References

Global tax guide to doing business in Italy. (n.d.). Retrieved February 16, 2021, from https://www.dentons.com/en/issues-and-opportunities/global-tax-guide-to-doing-businessin/italy#:~:text=Corporate%20income%20tax%20(IRES%2C%20in,on%20the%20Italian%20source%20income.

Group, T. (2018, June 07). Requirements for doing business in italy - corporate/commercial law - italy. Retrieved February 15, 2021, from https://www.mondaq.com/italy/corporate-and-company-law/708574/requirements-for-doing-business-in-italy

International Federation of Accountants. (2020). Overview of Statutory Framework for Accounting and Auditing. Retrieved from https://www.ifac.org/about-ifac/membership/country/italy

Please see notes for full Annotation

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References

International Financial Reporting Standards. (2021). Italy. Retrieved from https://www.ifrs.org/use-around-the-world/use-of-ifrs-standards-by-jurisdiction/italy/#:~:text=All%20domestic%20companies%20whose%20securities,in%20their%20consolidated%20financial%20statements.

International Accounting Standards. (2013). IAS 28; Elimination of Intercompany profits between an investor and its joint venture. Retrieved from ias.com

Legislation. (2020). Consolidated version of the treaty on the functioning of the european union. Retrieved from https://www.legislation.gov.uk/eut/teec/contents

List of ifrs standards. (n.d.). Retrieved February 27, 2021, from https://www.ifrs.org/issued-standards/list-of-standards/

Please see notes for full Annotation

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References

PricewaterhouseCoopers. (2020). Italy reshapes format, contents, and requirements for transfer pricing documentation. Retrieved from https://www.pwc.com/gx/en/tax/newsletters/pricing-knowledge-network/assets/pwc-tp-italy-regs-documentation.pdf

Rumi, G., & Vece, G. (2020, May 05). The banking Regulation Review: Italy. Retrieved February 15, 2021, from https://thelawreviews.co.uk/title/the-banking-regulation-review/italy

The United States Department of Justice. (2017). Foreign Corrupt Practice Act. Retrieved from https://www.justice.gov/criminal-fraud/foreign-corrupt-practices-act

Please see notes for full Annotation

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References

Thelocal.it. (n.d.). Retrieved February 11, 2021, from https://www.thelocal.it/20190829/four-key-economic-challenges-facing-italys-new-government

Top 10 challenges of doing business in Italy. (n.d.). Retrieved February 11, 2021, from https://www.tmf-group.com/en/news-insights/business-culture/top-challenges-italy/

U.S. Department of State. (2020). 2020 Investment climate statements: Italy. Retrieved from https://www.state.gov/reports/2020-investment-climate-statements/italy/

Please see notes for full Annotation

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References

US Embassy Italy. (2020). Temporary Employment. Retrieved from https://it.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/visiting-living/ 

Workman, D. (2020, March 22). Italy's top trading partners. Retrieved February 11, 2021, from http://www.worldstopexports.com/italys-top-import-partners/

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