Doing Businessin Italy

CONTENTS

Italy: general overview and business environment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Main forms of company in Italy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Società a responsabilità limitata (Srl) Società per Azioni (SpA)

Branches and representative offices of non-resident companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4 Branch of a foreign company Representative office

Taxation of resident companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Network of tax treaties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5

Dividends, interests, royalties paid to non-residents and transfer pricing regulations. . . . . . . .6 Dividends Interests Royalties Transfer pricing regulations

Contributions for employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Value Added Tax (VAT). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Personal Income Tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Real estate taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Main tax relieves for companies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 Group taxation Patent box regime R&D tax credit Mini IRES (CIT) regime “Super depreciation” and “hyper depreciation” allowances Inbound dividend regime Benefits for innovative startup companies

Tax incentives for individuals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Partial exemption regime for inbound workers Fixed tax for high-net-worth individuals (“Res Non-Dom Regime”)

Capital and quota-holders: minimum capital is Euro 10,000. Srl can be incorporated by a sole quota-holder (company or individual). In this case, the capital shall be entirely paid in, and specific publicity requirements apply. Under certain conditions, individuals can set up a Simplified Srl (“Societa a Responsabilità Limitata Semplificata”), with a minimum capital of Euro 1 and standardized bylaws.Management: quota-holders appoint a Board of Directors or a Sole Director. It is normally allowed to have a Board entirely made up of non-Italian residents (exception apply in case of absence of reciprocity agreements).Sole Statutory Auditor: a Sole Statutory Auditor (“Sindaco Unico”) must be appointed if, for two subsequent financial years, the company has passed at least one of the following limits:

⏐ total assets higher than Euro 4 Million;

⏐ earnings from sales and provisions of services higher than Euro 4Million;

⏐ average number of employees higher than 20 units.

The Sole Statutory Auditor shall be appointed also for companies which must submit the consolidated financial statements, or which control a company for which the audit of accounts is compulsory.The Bylaws of the company can establish the presence of a Board of Statutory Auditors (“Collegio Sindacale”).Audit of accounts: an independent Auditor of accounts shall be appointed in some cases. The audit of accounts can be carried out by the Sole Statutory Auditor. Accounting and Balance Sheet: the company has to submit an annual Financial Statement, normally within 120 days from the end of the financial year. Incorporation: the incorporation of a Srl normally requires a few days, or even less under certain conditions.

Italy: general overview and business environment

Italy is a parliamentary democracy. It is a member of the European Union (EU) and a member of the OECD. The currency is Euro ( ), issued by the European Central Bank, which is in charge of the monetary policy of the Eurozone. The National Central Bank (“Banca d’Italia”) oversees the banking and credit system.

Main forms of company in Italy

In Italy, the main forms of company with limited liability are the “Societa a Responsabilità Limitata” (Srl) – Limited liability Company – and the “Societa per Azioni” (SpA) – Joint- stock company.

Societa a responsabilità limitata (Srl)The Srl form is commonly used for small and medium enterprises. The main characteristics of this form are as follows:

per Societa Azioni (SpA) The SpA form is used for medium and large enterprises. The main characteristics of this form are as follows:

Capital and shareholders: minimum capital is Euro 50,000. A sole shareholder may incorporate a SpA. Governance and Management: in the ordinary governance system, shareholders appoint a Board of Directors or a Sole Director on one hand, and a Board of statutory auditors and a registered accounts auditor, for the supervision of Administrators, on the other hand.Alternatively, a “Dual system” and a “Single system” are also possible according to the law, although they are quite unusual in practice. It is normally allowed to have a Board entirely made up of non-Italian residents (exception apply in case of absence of reciprocity agreements).

Board of Statutory Auditors: a Board of Statutory Auditors (“Collegio Sindacale”), comprising of three or five members, must be appointed. Audit of accounts: an independent Auditor of accounts must be appointed. The audit of accounts can be carried out by the Board of Statutory Auditors, at certain conditions. Accounting and Balance Sheet: the company has to submit an annual Financial Statement, normally within 120 days from the end of the financial year.

Branches and representative o ces of non-resident companies

Branch of a foreign company A foreign company may set up a branch (i.e. a “permanent establishment”) in Italy. In this case, the head o ce is responsible for the obligations of the branch. A branch must be registered in Italy with a specific procedure. There is no minimum statutory capital requirement, and the branch will be subject to Italian bookkeeping and tax rules in the same way as a limited liability company.

The domestic definition of “permanent establishment” is in line with OECD guidelines.

Representative office A representative o ce that carries out only preparatory or auxiliary activities, such as promotional activities, public relations, collection of information, is not considered a permanent establishment of the foreign company for direct tax purposes. In order to set up a representative o ce in Italy, a foreign company is required to submit a request to the local chamber of commerce and to enroll the local o ce in the economic and administrative register (REA).

Taxation of resident companies Italian resident companies are subject to the following corporate taxes:

Corporate Income Tax (IRES - Imposta sul Reddito delle Societa), set at a 24% rate; such rate is applied to the statutory income statement result, adjusted according to tax law. Corporate income tax is levied on worldwide net income of resident companies;

Regional Tax on Production (IRAP - Imposta Regionale sulle Attività Produttive) with an average rate of 3,9%, although the rate varies depending on the Region, which can increase or decrease it by up to 0,92%, and on the business activity.

Albania Ethiopia Malta Africa

Algeria Finland Mauritius Hungary

Argentina France Mexico Korea

Armenia Georgia Moldova Republic Vietnam

Australia Germany Morocco Soviet Union (ex)

Austria Ghana Mozambique Spain

Azerbaijan Greece Netherlands Sri Lanka

Bangladesh Hong Kong Norway Sweden

Barbados Iceland Oman Switzerland

Belarus India Pakistan Syria

Belgium Indonesia Philippines Tanzania

Brazil Ireland Poland Thailand

Bulgaria Israel Portugal Trinidad and Tobago

Canada Ivory Coast Qatar Tunisia

Chile Japan Romania Turkey

China Jordan Russian Federation Ucrania

Ciprus Kazakhstan San Marino Uganda

Congo Kuwait Saudi Arabia UK

Croatia Latvia Senegal United Arab Emirates

Czech Lithuania Singapore United States of America

Denmark Luxembourg Slovak Uzbekistan

Ecuador Macedonia Slovenia Venezuela

Egypt Malaysia South Yugoslavia (ex)

Estonia Republic Lebanon South Zambia

Network of tax treaties

Italy has formalized a wide range of tax treaties, with the following countries:

Non-resident companies and entities are subject to IRES on income derived from Italy. Permanent establishment in Italy of foreign companies or entities are also subject to IRAP.

Dividends, interests, royalties paid to non- residents and transfer pricing regulations

DividendsDividends paid to a non-resident corporation are in principle subject to a 26% withholding

tax (with a potential refund to the foreign taxpayer of up to 11/26ths of the Italian

withholding tax), unless the rate is reduced under a tax treaty or the dividends qualify for the exemption under the EU parent subsidiary

directive. Under the parent subsidiary directive, the domestic withholding tax is

reduced to zero if dividends are distributed to a qualifying EU corporate shareholder that

has held directly at least 10% of the subsidiary for at least 12 months.

However, a domestic final withholding tax of 1.2% applies to dividends paid from profits distributed to shareholders resident in the EU and to qualified shareholders resident in EEA countries that allow an adequate exchange of

information. This regime can be applied to to corporate shareholders that do not meet the minimum participation requirement or holding

period for the parent-subsidiary directive.

InterestsItalian-source interest paid to a non-resident is

generally subject to a 26% final withholding tax, unless the rate is reduced under a tax

treaty. Under Italy’s implementation of the EU interest and royalties directive, qualifying interest payments to an associated entity resident in another EU member state are

exempt from withholding tax. Interest derived from a direct/indirect

investment in government bonds and similar securities is subject to a 12.5% substitute tax

(domestic exemptions apply).

RoyaltiesRoyalties paid to a non-resident company are subject to a 30% withholding tax, which is generally applied to 75% of the gross amount of the payment, resulting in an e ective 22,5%withholding tax. The withholding tax rate may be reduced under a tax treaty or the payment may qualify for exemption under the EU interest and royalties directive.

Transfer pricing regulationsItaly’s domestic regulations on transfer pricing are substantially in line with OECD guidelines. In Italy, transfer pricing documentation is not compulsory. However, national documentation (so-called “Country file”) can be prepared in order to avoid penalties in case of tax assessment by tax authorities on transfer pricing. The availability of the Country file must be declared in advance by the company to tax authorities in the annual tax return.

Contributions for employees

In Italy the following contributions in favor of the employees are mandatory by law:

contributions for pension schemes;contributions for social security covering life insurance, health, maternity, disability, unemployment and family allowances.

The above contributions must be paid by the employer to the National Social Insurance Institute (INPS). The amount of social security and pension scheme contributions depends on the type and size of the business and on the rank of the employee. The aggregate contributions range fromapproximately 40% to 45% of the aggregate remuneration accrued in the relevant year.

The aggregate contributions are normally borne by the employer for 80% to 85% of their amount. The remaining part is borne by the employee and must be withheld by the employer. Social security contributions are deductible for Corporate income tax purposes. For Regional tax purposes, social security contributions are deductible only if relative to permanent employees.

Value Added Tax (VAT)

The Value Added Tax (VAT, or “IVA” in Italian) is a general tax on consumption. It is applied in Italy and in all other EU countries. VAT is usually not a cost for companies, since it is borne by final consumers, as explained below.

A transaction is subject to VAT in Italy only if it is deemed to take place in Italian territory. A VAT invoice must be issued for all taxable transactions, at the time the transaction takes place. Buyers pay VAT to suppliers in addition to the cost of goods or services acquired. In case of imports, VAT is paid to customs. For certain supplies of goods and services the reverse charge mechanism applies. In this case the supplier does not charge any VAT, and the purchaser accounts for it.

VAT is applied on an accrual basis. The supplier owes to Tax authorities an amount equal to the VAT on sales booked in, net of VAT on purchases. This VAT mechanism implies that the actual tax burden is borne by the private end users, which have no right to recover the VAT paid. VAT is chargeable at the standard rate unless goods and services are zero rated, subject to a reduced rate, exempt or outside the scope of Italian VAT. The general VAT rate in Italy is 22%, although a 10% rate and a 4% rate may apply to some transactions identified by the law. Exports and intra-EU transactions are zero- rated.

Non-resident companies may apply for VAT registration in Italy. In this case, only VAT compliance is required.

Personal Income Tax

The income taxes applicable to individuals are:

IRPEF, a State tax; and IRAP, a Regional tax.

IRPEF is a progressive individual income tax that applies to the aggregate annual income of the taxpayer. IRAP applies to adjusted income from professional and business activities. IRPEF applies to both resident and non-resident individuals. Resident individuals are subject to tax on their worldwide income and a tax credit is provided for taxes paid abroad. For income tax purposes, an Italian resident is a person who is registered in the Civil Registry, or who is resident or domiciled in Italy (as defined by the Civil Code) for the greater part of the tax period (i.e. more than 183 days). This definition applies both to Italian citizens and foreigners.

According to the Civil Code, the domicile of a person is the place where they have established the principal center of their business and interests (center of vital interests), while their residence is the place where of their habitual abode.

Non-resident individuals are only subject to IRPEF on income earned in Italy. They are obliged to file a tax return regarding the income that is considered to arise in Italy, unless such income is subject to a substitute tax or to a final withholding tax deducted by the payer of the income.

Under domestic law, compensation for independent work carried out in Italy by non- residents is subject to a final 30% withholding tax. This includes directors' fees paid by an Italian company. However, specific tax treaties may change such taxation.

The current IRPEF rate structure is as follows:

The above rates must be increased by a regional surtax, ranging from 0.9% to 1.4%. The rate may be further increased by the municipal surtax, determined by each municipality and province at an aggregate rate of up to 0.8%. Real estate taxes

The municipalities levy a tax on immovable property (IMU), applying both to companies and individuals, generally at a rate of 0.76%. The taxable base is determined by multiplying the value of the land as recorded in the immovable property registry by certain coe cients. The IMU is generally nondeductible for corporate income tax purposes. However, corporate taxpayers are able to deduct from the taxable base for IRES purposes a 20% of the IMU paid on immovable property used exclusively for business activities. The IMU is the primary element of the imposta unica comunale (IUC), which also includes two other municipal service taxes known as TASI (tax for services) and TARI (tax on trash).

Main tax relieves for companies

Group taxation Companies belonging to the same group can elect for the domestic tax consolidation regime, which allows the determination of a single IRES taxable base, i.e. inclusive of taxable income/loss of each of the participating entities.

up to euro 15,000: 23%; from euro 15,001 to euro 28,000: 27%; from euro 28,001 to euro 55,000: 38%;

from euro 55,001 to euro 75,000: 41%; over euro 75,000: 43%.

The tax consolidation option can be exercised under the following conditions: the consolidating entity must be an Italian tax resident company, and it must hold, directly or indirectly, more than 50% of the share capital of each consolidated entity; consolidated entities must be owned from the beginning of the relevant tax period; all of the companies participating in the group must have the same year-end.

The tax consolidation regime does not operate for Regional tax (IRAP) purposes.

Patent box regime An optional patent box regime for intellectual property applies as from 1 January 2015. Under the patent box regime a company can partially exempt certain qualifying income derived from licensing or direct exploitation of intangibles from its tax base for IRES and IRAP purposes. The exemption is 50%.

The patent box regime is available to Italian companies as well as to Italian permanent establishments (PEs) of entities resident in “white-listed” countries with an e ective exchange of information with Italy.

If qualifying IP is used directly, the amount of income benefiting from the IP box regime is determined by applying for a specific agreement with the Italian tax authorities.

The election to apply the patent box regime is irrevocable for five years and can be renewed.Capital gains arising from the sale of qualifying IP will not be included in taxable income if at least 90% of the proceeds is reinvested in the maintenance or development of other qualifying IP within the following two tax years.

R&D tax credit Under some conditions, entities investing in R&D activities (e.g. human resources, equipment used, research contracts and technical skills) within year 2020 are entitled to benefit from a tax credit equal to 50% of the annual R&D incremental expenses exceeding the average expenses of fiscal years 2012, 2013 and 2014.

For new incorporated entities (after 2014), the average to be considered is zero (i.e. all R&D expenses are considered eligible for the tax credit).

The tax credit annual cap is equal to Euro 20 million.

The benefit applies also to resident companies (including Italian permanent establishments of nonresident companies) that carry out R&D activities through contracts with group entities that are resident for tax purposes in EU/European Economic Area countries, or in other countries and territories that allow an exchange of information with Italy.

Mini IRES (CIT) regime Italian companies and Italian branches of nonresident companies are entitled to apply a reduced income corporate tax rate (“mini IRES”) applicable starting from fiscal year 2019, as follows:

22.5% for 2019; 21.5% for 2020;21% for 2021;20.5% from 2022 onwards.

The reduced IRES tax rate will be calculated on 2019 onwards profit carry forwards accounted in the net equity, with the exclusion of non-disposable and valuation reserves. The amount cannot exceed the accounting net equity increase from 2018. Any excess can be carried forward to the following fiscal years. The benefit of the reduced rate may be transferred to the fiscal unit in the case of tax consolidation.

“Super depreciation” and “hyper depreciation” allowances Provided that some conditions are satisfied, a 30% extra depreciation deduction (i.e. total tax depreciation of up to 130% of the cost, so called “super depreciation”) for purchases of new tangible fixed assets, excluding cars, applies. In practice, the tax basis can be increased by 30%, so that tax depreciation may exceed book depreciation by 30%.

Up to170% extra depreciation deduction (i.e. total tax depreciation of up to 270% of the cost, so called “hyper depreciation”) for new assets acquired for the technological transformation of enterprises. The law contains a list of qualifying assets, which are related to plant, equipment and machinery whose operations are digitally controlled or operated by smart sensors and drivers interconnected with a factory’s computer systems.

Inbound dividend regime Domestic and foreign-source dividends received by an Italian resident corporate taxpayer areexcluded from corporate income tax base for 95% of the amount. The exemption is not available, however, if the subsidiary paying dividends is resident in a “black list” country, and also, undercertain conditions, if dividends are distributed by an entity resident in a black-list country through an interposed nonblack-list country. Qualifying capital gains may also be eligible fora 95% exemption.

Benefits for innovative startup companies Tax benefits apply to innovative startup companies, meeting specific requirements:

from the second financial year, total value of production must not exceed Euro 5 million; the company shall not distribute profits; the company shall not be listed on a regulated market.

Moreover, the company must meet at least one of the following three requirements: R&D costs must be at least equal to 15% of the highest between total cost and total value of production; overall workforce must be constituted for at least 1/3 by PhD students, PhDs or researchers, or for at least 2/3 by members or collaborators with a master's degree; the company must be the owner or custodian or licensee of at least one software or industrial property registered with SIAE (Italian public entity for the control/authorization of IP).

Under the above conditions, benefits are applicable for the first five years of activity, and include: Corporate Income Tax deduction of 40% of the capital invested in the innovative startup (up to Euro 1.8 million for each year); or Personal Income Tax deduction of 40% up to (up to Euro 1 million for each year). 12. Tax incentives for individuals

to have been tax resident outside of Italy for at least five years prior to the transfer to Italy; to remain tax resident in Italy for at least two tax years; to be hired by an Italian tax resident employer, or by a branch in Italy of a foreign company, or by a company of the same multinational group; to work in the Italian territory for at least 183 days in each year; to cover an executive role and/or be regarded as highly specialized employee (under the conditions provided by the Decree).

The preferential tax regime applies also to the "inbound workers" (EU Citizens or citizens of a Country with whom Italy has a Double Tax Treaty or alternatively, a Tax Exchange of Information Agreement), who meet all the following requirements:

hold a university degree of at least three years duration and perform an employment or self-employment activity in Italy; have performed a work activity, or alternatively must have spent a study period outside Italy for at least 24 months before the transfer to Italy.

Starting from 2020, the scope of application the preferential tax regime has been extended: increases the tax exemption from 50% to 70%; increases the tax exemption from 50% to 90% in case of transfer of tax residence in one of the following regions: Abruzzo, Molise, Campania, Puglia, Basilicata, Calabria Sardinia and Sicily; extends the tax exemption to (individual) business income; reduces from 5 to 2 years the period for which the individual must not have been a tax resident in Italy prior to the transfer; eliminates the condition that the individual must cover a managerial role or be highly specialized; includes the possibility, in some cases, to extend the duration of the regime by 5 additional years under specific requirements (e.g. dependent children or a home property investment in Italy). The exemption for the additional five years period is limited to 50% of the employment income.

Tax incentives for individuals

Partial exemption regime for inbound workersThe preferential tax regime for "inbound workers" (a tax regime aimed at attracting to Italy non-resident employees / self-employed workers), provides for a 50% exemption of Italian-sourced employment (and assimilated) and self-¬employment income.The preferential tax regime applies for the tax year when the transfer of tax residence takes place and the following 4 tax years (i.e. 5 years).

Requirements for eligibility:

Fixed tax for high-net-worth individuals (“Res Non-Dom Regime”)The Res Non-Dom Regime is a special tax regime for foreign individuals transferring their tax residence to Italy. The optional regime for new Italian tax residents provides for a yearly Euro 100.000 lump-sum tax on personal foreign-sourced income.

According to the Res Non-Dom Regime, eligible taxpayers can choose which country or countries income will be taxed with the lump-sum tax (so called “cherry picking” principle). Any income sourced in the “non-chosen countries” (if any) is excluded from the Res Non-Dom Regime (as well as the Italian sourced income) and, therefore, is subject to ordinary Italian taxation and will benefit from tax credit on taxes paid abroad (under ordinary limitations) and from relevant tax treaty protection (if any).

a)b)c)

d)e)

a)b)

c)d)

e)f )

a)

b)

The Res Non-Dom Regime is e ective up to a maximum period of 15 years. The option can be revoked by the individual, but, if revoked, it can no longer be reactivated.

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Disclaimer This Memorandum contains general information and does not constitute any kind of professional advice. Before making any decision or taking any action which may affect your finances or business, you should consult a qualified professional advisor. CT&P Capone | Ticozzi | Partners shall not be responsible for any loss whatsoever sustained by any subject who relies on the information hereinbefore contained.

The conditions for the application of the Res Non-Dom Regime are as follows:

the individual must have been non-resident of Italy for Italian tax purposes in at least 9 of the 10 years prior to the first year of e ect of the option;a specific option must be elected in the annual tax return;taxpayers can obtain the approval by the Italian tax authorities following an advanced ruling procedure which confirms that the individual qualifies for the Res Non-Dom Regime (the ruling is aimed to have the confirmation from Italian Tax Authorities that the tax payer has been e ectively non-Italian resident in least 9 of the 10 years, therefore for foreign citizens that have never had any link with Italy it is not strictly necessary). Tax Authorities have 120 days to reply to the tax ruling request (silence implies consent).

The Res Non-Dom Regime implies that:eligible taxpayers who opt for the Res Non-Dom Regime are subject to a yearly lump- sum tax on foreign-sourced income of Euro 100.000 (with the possibility to extend the Res Non-Dom Regime to each family member with an additional yearly lump-sum tax of Euro 25.000 each);notably, capital gain from the disposal of qualifying shareholding (>20%) is excluded from the Res Non-Dom Regime and, therefore, ordinary taxation applies, if the capital gain is realized in the first 5 years following the exercise of the option;foreign assets are not subject to Italian reporting obligations (only qualified participations must be reported) and are exempted from Italian wealth taxes;donations and inheritance concerning foreign assets are exempted from Italian taxation.

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