Italy is the world’s ninth-largest economy, relying mainly on services and manufacturing. The service sector makes up nearly 70% of total GDP with the largest contributors being the wholesale, retail and transport sectors. Industry accounts for around 25% of GDP with the biggest contributor being manufacturing. The remaining share of GDP comes from agriculture.
Italy experienced a welcome increase in trade volumes when it joined the euro zone. In 2014 Italy ranked eighth in the global exporters list and eleventh for imports; this is despite growing competition. Italy’s main exports are mechanised machinery and equipment making up 24%, motor vehicles 7.2% and clothing and footwear with 11%.
Italy’s main trading partners sit inside the euro zone, with Germany accounting for around 12.6% of exports and France 11%. Germany and France are also the two largest sources of Italian imports with 12.4% and 10.8% respectively.
Since 2008 Italy has been working to recover from the financial crisis and its economic policies and reforms reflect this. By 2020 these reforms are expected to contribute €3.4 billion a year to the economy.
Despite the difficulties Italy has experienced since the onset of the financial crisis, it remains one of the world’s most important economies and business-friendly countries.
Among the reforms the government has introduced, the Job Act is possibly the most important. It provides a comprehensive package of reforms that includes:
- relaxed employment protection legislation that links the level of protection with the length of tenure
- simplified regulation of certain contractual and employment relationships to meet the needs of employers, with more flexible regulation of employers’ duties
- a new unemployment benefit scheme with stricter qualification requirements
- renewed active labour market policy with more effective employment incentives and improved employment services, designed to help the matching of the demand and supply of labour
- a revised wage supplement scheme for redundant workers; and
- a new single inspection agency that coordinates activity and avoids multiple controls in the same plant.
The 2015 Stability Law includes further provisions that provide a three-year cut in employers’ social contributions and which remove the cost of the local tax charge for newly hired permanent workers.
Incentives for foreign investors
The Italian government recently introduced several tax changes that help foreign companies, in particular a research and development tax credit and a new patent box regime. There are also incentives to invest in manufacturing, and research and development, notably the Development Contract.
A Development Contract is an agreement between the Ministry of Economic Development, Invitalia – the agency in charge of incentives, and one or more companies investing in:
- food processing and commercialisation of agricultural products
- environmental protection, energy efficiency, and cogeneration projects
Incentives are available to companies looking to: set up a new, or expand an existing, manufacturing plant; diversify existing production by developing new products; or change the production process of an existing production unit.
The planned investment must exceed €20 million (€7.5 million for food processing). Companies may also ask for subsidies to help finance research and development activities that relate to the main development project. These incentives depend on the size of the company and the precise location of the project. For example, investments in the southern regions of Campania, Apulia, Basilicata, Calabria, and Sicily attract subsides of up to 45%, 35% and 25% of the total investment for small, medium and large enterprises respectively. There are subsidies of up to 10% available in some northern regions.
The 2015 budget legislation also introduced a patent box regime. This regime is available to businesses that:
- carry out business activities and produce income in Italy
- carry out research and development activity either directly or through research agreements with universities or other research establishments
- license, use, provide services using, or sell eligible assets in manufacturing.
The new regime is optional but once chosen it is final and effective for the next five fiscal periods, and it is renewable.
Italy for small and medium enterprises
The business system in Italy is very much one of a network of small and medium enterprises, many of them family run. This is particularly true for Bologna (capital of the Emilia Romagna region) and its surrounding area.
Bologna sits in a strategically important position in the heart of Italy, with a population of around 500,000. Alongside its cultural traditions, Bologna is one of the most important business cities in northern Italy and a crossroads for both goods and people.
Bologna’s business composition consists of many small and medium enterprises with these characteristics:
- a capacity for networking, both in the industrial districts and supply chains
- an attachment to the local community, using local labour, contractors, services, and infrastructure
- an effective and widespread international focus managed by the owners
This has turned Bologna into one of the most significant areas in Italy in terms of manufacturing companies – in 2014 the area exported more than €12 billion of goods, nearly twice as much as it imported.
Some industrial districts in Bologna boast world-leading companies in areas such as: manufacturing, the motor industry, electronics, fashion, and food. Add to these the emerging health and medicine, and culture and entertainment industries and the success is set to continue.
But Bologna does not buck the trend; it reflects the trend in Italy. This makes Italy an attractive proposition for enterprises looking to invest. As always though, be sure to seek local legal and taxation advice.
The views expressed in the articles in this website are those of the authors and do not necessarily reflect the opinions or policies of Russell Bedford International or its member firms. The information contained in this website is provided for general purposes only and does not constitute professional accounting, tax, business or legal advice. It may not be applicable to specific circumstances. Laws and regulations change rapidly, so information contained herein may not be complete or up-to-date. Please contact your professional adviser before taking any action based on this information.