Italy, the first western country struck by the pandemic, saw its economy shrink by 8.9% in 2020, the sharpest contraction since World War II. As of May 5, 2021, Italy has reported over 122,000 COVID-19 deaths, the six-highest tally in the world. The government has spent more than €130 billion on stimulus measures (though it is able to borrow at a low cost thanks to support from the European Central Bank). Repeated hikes to government spending will probably drive Italy’s budget deficit close to 12% of national output in 2021, up from 9.5% in 2020. However, Italy also is slated to receive the largest share of the European Union’s pandemic recovery fund (Next Generation EU). The over €200 billion in NGEU funds for Italy will represent the largest transfer to Italy since the Marshall Plan. The National Recovery and Resilience Plan (NRRP) is designed to deploy the funds to accelerate the transition to a digital economy by focusing on digitization/innovation, the green energy transition, health, infrastructure, education/research, and equity. Italy on April 30 submitted its NRRP to Brussels for approval and disbursement of its share of NGEU funds.
The government expects Italy’s economy to grow by approximately 4.5% in 2021 and 4.8% in 2022 but faces an uphill battle to push ahead with long-needed structural reform aimed at boosting Italy’s productivity and growth by fixing the country’s tax regime, its byzantine bureaucracy, and its sluggish courts. Italy ranks 58th out of 190 countries in the 2020 World Bank’s “Doing Business” survey. Notably, it ranks 97th on securing building permits, 98th for starting businesses, 122nd at enforcing contracts, and 128th on tax rules. The government’s efforts to implement new investment promotion policies to market Italy as a desirable investment destination have been hampered by Italy’s slow economic growth, unpredictable tax regime, multi-layered bureaucracy, and time-consuming legal and regulatory procedures.
Yet, Italy remains an attractive destination for foreign investment, with one of the largest markets in the EU, a diversified economy, and a skilled workforce. Italy’s economy, the eleventh largest in the world, is dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses. Italy’s relatively affluent domestic market, access to the European Common Market, proximity to emerging economies in North Africa and the Middle East, and assorted centers of excellence in scientific and information technology research, remain attractive to many investors. Tourism is an important source of external revenue, generating approximately €70 billion a year, as are exports of pharmaceutical products, furniture, industrial machinery and machine tools, electrical appliances, automobiles and auto parts, food and wine, as well as textiles/fashion. The sectors that have attracted significant foreign investment include telecommunications, transportation, energy, and pharmaceuticals.
The government remains open to foreign investment in shares of Italian companies and continues to make information available online to prospective investors. There were two significant investment-related policy developments during 2020: implementation of a digital services tax (DST) that primarily affects tech firms and media companies, and the Italian government’s expansion of its Golden Power investment screening authority.
|TI Corruption Perceptions Index||2020||52 of 175||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||58 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2020||28 of 131||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2019||$34,900||https://apps.bea.gov/international/factsheet/|
|World Bank GNI per capita||2019||$34,530||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Italy welcomes foreign direct investment (FDI). As a European Union (EU) member state, Italy is bound by the EU’s treaties and laws. Under EU treaties with the United States, as well as OECD commitments, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.
EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance. In addition, the Italian government may block mergers and acquisitions involving foreign firms under its investment screening authority (known as “Golden Power”) if the proposed transactions raise national security concerns. Enacted in 2012 and further implemented through decrees or follow-on legislation in 2015, 2017, 2019 and 2020, the Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors: defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology. In March 2019, the GOI expanded the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. Under the April 6, 2020 Liquidity Decree the Prime Minister’s Office issued, the government strengthened Italy’s investment screening authority to cover all sectors outlined in the EU’s March 2019 foreign direct investment screening directive. The decree also extends (at least until June 30, 2021) Golden Power review to certain transactions by EU-based investors and gives the government new authorities to investigate non-notified transactions.
The Italian Trade Agency (ITA) is responsible for foreign investment attraction as well as promoting foreign trade and Italian exports. According to the latest figures available from the ITA, foreign investors own significant shares of 12,768 Italian companies. As of 2019, these companies had overall sales of €573.6 billion and employed 1,211,872 workers. ITA operates under the coordination of the Italian Ministry of Economic Development and the Ministry of Foreign Affairs. As of April 2021, ITA operates through a network of 79 offices in 65 countries. ITA promotes foreign investment in Italy through Invest in Italy program: http://www.investinitaly.com/en/. The Foreign Direct Investment Unit is the dedicated unit of ITA for facilitating the establishment and development of foreign companies in Italy.
While not directly responsible for investment attraction, SACE, Italy’s export credit agency, has additional responsibility for guaranteeing certain domestic investments. Foreign investors – particularly in energy and infrastructure projects – may see SACE’s project guarantees and insurance as further incentive to invest in Italy.
Additionally, Invitalia is the national agency for inward investment and economic development operating under the Italian Ministry of Economy and Finance. The agency focuses on strategic sectors for development and employment. Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-value-added sectors. For more information, see https://www.invitalia.it/eng. The Ministry of Economic Development (https://www.mise.gov.it/index.php/en/) within its Directorate for Incentives to Businesses also has an office with some responsibilities relating to attraction of foreign investment.
Italy’s main business association (Confindustria) also helps companies in Italy: https://www.confindustria.it/en.
Limits on Foreign Control and Right to Private Ownership and Establishment
Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state. EU and Italian antitrust laws provide national authorities with the right to review mergers and acquisitions over a certain financial threshold. The Italian government may block mergers and acquisitions involving foreign firms to protect the national strategic interest or in retaliation if the government of the country where the foreign firm is from applies discriminatory measures against Italian firms. Foreign investors in the defense and aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions than are foreign investors in other sectors.
Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology through its “Golden Power” legislation. Italy expanded its Golden Power authority in March 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. On April 6, 2020 the GOI passed a Liquidity Decree in which the Prime Minister’s office made three main changes to its Golden Power authority to prevent the hostile takeover of Italian firms as they weather the financial impact of the COVID-19 crisis. First, under the decree Golden Power authority now encompasses the financial sector (including insurance and credit) and all the sectors listed under the EU’s March 19, 2019 regulations establishing a framework for the screening of foreign direct investment. The Italian government previously had adopted only some of the sectors in the EU regulations when it passed its National Cybersecurity Perimeter legislation in November 2019. The EU regulations cover: (1) critical infrastructure, physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate; (2) critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, and nanotechnologies and biotechnologies; (3) supply of critical inputs, including food security, energy, and raw materials; (4) access to sensitive information; and (5) freedom of the media.
Second, until the end of the COVID-19 pandemic, EU-based investors must notify Italy’s investment screening authority if they seek to acquire, purchase significant shares in, or change the core activities of an Italian company in one of the covered sectors. Previously EU-based investors had to notify the government only of transactions deemed strategic to national interests, such as in the defense sector. Third, the government now has the power to investigate non-notified transactions and require that both public and private entities cooperate with the investigation. In addition to being able to fine companies for non-notified transactions, the government can impose risk mitigation measures for non-notified transactions. An interagency group led by the Prime Minister’s office reviews acquisition applications and makes recommendations for Council of Ministers’ decisions.
Other Investment Policy Reviews
The OECD published its Economic Survey for Italy in April 2019. See https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf.
Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce: http://www.registroimprese.it. The online business registration process is clear and complete, and available to foreign companies. Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days. A notary is required to certify the documentation. The precise steps required for the registration process depend on the type of business being registered. The minimum capital requirement also varies by type of business. Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency; register with the social security agency (Istituto Nazionale della Previdenza Sociale– INPS); verify adequate capital and insurance coverage with the Italian workers’ compensation agency (Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro – INAIL); and notify the regional office of the Ministry of Labor. According to the World Bank Doing Business Index 2020, Italy’s ranking decreased from 67 to 98 out of 190 countries in terms of the ease of starting a business: it takes seven procedures and 11 days to start a business in Italy. Additional licenses may be required, depending on the type of business to be conducted.
Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy. Many Italian localities also have one-stop shops to serve as a single point of contact for, and provide advice to, potential investors on applying for necessary licenses and authorizations at both the local and national level. These services are available to all investors.
Italy neither promotes, restricts, nor incentivizes outward investment, nor restricts domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Italy does not have a bilateral investment treaty (BIT) with the United States.
Italy has bilateral investment agreements with the countries listed below. (Additional information and the text of the agreements are available at the following website: http://investmentpolicyhub.unctad.org/IIA/CountryBits/103.)
Albania, Angola, Argentina, Bahrain, Bangladesh, Barbados, Belize (signed, not in force), Brazil (signed, not in force), Cameroon, Cape Verde (signed, not in force), Chad, Chile, China, Congo, Cote d’Ivoire (signed, not in force), Cuba, Democratic Republic of Congo (signed, not in force), Djibouti, Dominican Republic, Egypt, Eritrea, Ethiopia, Gabon, Ghana (signed, not in force), Guatemala, Guinea, Hong Kong, Iran, Jamaica, Democratic People’s Republic of Korea (signed, not in force), Republic of Korea, Republic of Kuwait, Lebanon, Libya, Malawi, Malaysia, Malta (signed, not in force), Mauritania, Mexico, Republic of Mongolia, Morocco, Mozambique, Namibia, Nicaragua, Nigeria, Oman, Pakistan, Panama, Paraguay, Peru, Philippines, Qatar, Russian Federation, Saudi Arabia, Senegal, Serbia (signed, not in force), Sri Lanka, Sudan (signed, not in force), Tanzania, United Republic of Tunisia, Turkey, Turkmenistan (signed, not in force), United Arab Emirates, Uruguay, Venezuela (signed, not in force), Vietnam, Yemen, Zambia, Zimbabwe (signed, not in force).
Italy has not ratified a BIT since 2009 and has not negotiated a BIT since 2014. Since 2009, investment treaty negotiations fall within the competence of the EU: http://ec.europa.eu/trade/policy/accessing-markets/investment/.
Likewise, Italy’s FTA negotiations are handled at the EU level: http://ec.europa.eu/trade/policy/.
Italy shares a bilateral taxation treaty with the United States. The text of the treaty is available at: https://www.irs.gov/businesses/international-businesses/united-states-income-tax-treaties-a-to-z.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
|Host Country Statistical source*||USG or international statistical source||USG or International
Source of Data: BEA; IMF;
Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2019||$2,041,512 (€1,787,664)**||2019||$2,003,576||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical source*||USG or international statistical source||USG or international
Source of data: BEA; IMF;
Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2019||$11,450
|2019||$34,900||BEA data available at
|Host country’s FDI in the United States ($M USD, stock positions)||2019||$46,617(€39,137)||2019||$43,660||BEA data available at
|Total inbound stock of FDI as % host GDP||2019||22.2%||2019||22.3%||UNCTAD data available at
* Italian GDP data are taken from ISTAT, the official statistics agency. ISTAT publishes preliminary year end GDP data in early February and issues revised data in early March. Italian FDI data are from the Bank of Italy and are the latest available; new data are released in May.
**2020 GDP is $1,967,248 (€1,651,595).
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$445,197||100%||Total Outward||$554,969||100%|
|The Netherlands||$76,012||17%||United States||$43,824||8%|
|“0” reflects amounts rounded to +/- USD 500,000.|
|Portfolio Investment Assets|
|Top Five Partners (Millions, current US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||$1,697,139||100%||All Countries||$1,011,578||100%||All Countries||$685,561||100%|
|United States||$145,829||9%||United States||$48,032||5%||Germany||$54,604||8%|
The statistics above show Italy’s largest investment partners to be within the European Union and the United States. This is consistent with Italy being fully integrated with its EU partners and the United States.