Italy: A gateway between Europe and the world

The realities of doing business in Italy

But innovation in Italy is not reserved solely for technology and new processes: the often complex and changeable nature of the operating environment for businesses means that firms need to be flexible and adaptable.

“Uncertainty can be a major barrier to growth because of the political climate,” he says. Regular changes of government are a long-term feature of Italian political life – but the current coalition, Gabriele adds, is in the process of creating a more stable business environment in order to promote growth and attract inward investment.

Today, multinational companies represent an important part of the Italian economy: industrial foreign affiliates now employ over 10% of all workers, produce more than 20% of domestic turnover, and are responsible for 26% of national exported goods. According to the FDI Confidence Index, Italy ranks seventh in 2021 (it was 13th in 2017), outstripping countries such as the Netherlands, Sweden and Ireland.

“We are expecting major reforms to the tax system,” says Sonia, which is highly complex at the moment. “Businesses face a high number of formalities and filing requirements – there is a lot of red tape.

“Italy’s robust tax credit schemes help companies improve their competitiveness,” she adds. “These include a 50% tax credit for private investments in R&D (including highly qualified personnel), a 40% deduction for investment in capital goods, which is raised to 150% for investments in digitalization and Industry 4.0 solutions. As a result of 2016’s Industria 4.0 national plan, Italy offers one of the most attractive fiscal environments among developed countries for digital investments.”

But some bureaucratic requirements can have a positive impact: take a recent compulsory electronic invoicing rule, for example. This 2019 piece of legislation was designed to provide the government with more information about private-sector transactions. But it has simultaneously allowed businesses to get a much clearer picture of their cashflows, Gabriele says.

Corporate taxes are a little above the EU average at around 28% in effective terms – this includes a regional tax on production of just under 4%. Meanwhile, labour costs compare favourably to those in Germany and France, which are the only EU economies larger than Italy’s.