Italy’s economy, the eighth largest in the world, is fully diversified, but dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses. Italy is an original member of the 19-nation Eurozone. Germany, France, the United States, the United Kingdom, Spain, and Switzerland are Italy’s most important trading partners, with China continuing to gain ground. Tourism is an important source of external revenue, 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. Italy continues to lag behind many industrialized nations as a recipient of foreign direct investment, and Italy does not have a bilateral investment treaty with the United States.
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. The government remains open to foreign investments in shares of Italian companies and continues to make information available online to prospective investors. The Italian government’s efforts to implement new investment promotion policies to position Italy as a desirable investment destination were undermined in part by Italy’s ongoing economic recovery and lack of consistent progress on structural reforms that could repair the lengthy and often inconsistent legal and regulatory systems, unpredictable tax structure, and layered bureaucracy. However, Italy’s economy has emerged from its longest recession in recent memory and recent government initiatives have made progress to improve Italy’s investment climate.
|TI Corruption Perceptions Index||2017||54 of 175||http://www.transparency.org/
|World Bank’s Doing Business Report “Ease of Doing Business”||2018||46 of 190||http://www.doingbusiness.org/rankings|
|Global Innovation Index||2017||29 of 128||https://www.globalinnovationindex.org/
|U.S. FDI in partner country (M USD, stock positions)||2016||USD 24,686||http://www.bea.gov/
|World Bank GNI per capita||2016||31,720||http://data.worldbank.org/
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 Union’s treaties and laws. Under the EU treaties with the United States, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state. Exceptions include access to government subsidies for the film industry (limited to EU member states); capital requirements for banks domiciled in non-EU member countries; and restrictions on non-EU-based airlines operating domestic routes. Italy also has investment restrictions in the shipping sector.
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 the “Golden Power” law if they are determined to be essential to the national economy. This law was enacted in 2012 and further implemented with decrees in 2015 and 2017. The Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors (identified as defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology). The GOI’s Golden Power authority always applies in cases in which the potential purchaser is a non-EU company and is extended to EU companies if the target of the acquisition is involved in defense/national security activities. In this respect, the GOI has a say regarding the ownership of private companies as well as ones in which the government has a stake. This law replaced the “Golden Share” which the GOI previously held in former state-owned firms that were partially privatized in the 1990s and 2000s. Thus, for example, under the Golden Power legislation the GOI still has some authority over foreign investment in leading telecommunications firm Telecom Italia (TIM), even though it no longer holds any direct share in the firm. The law also allows the State to maintain oversight over entire strategic sectors as opposed to individual companies, and by replacing the Golden Share legislation, enabled Italy to address accusations that the Golden Shares violated European treaties. An inter-agency group led by the Prime Minister’s office reviews acquisition applications and prepares the dossiers/recommendations for the Council of Ministers’ decision.
Although many former monopoly operators have been partially or fully privatized, the GOI retains a controlling interest, either directly or through the state-controlled sovereign wealth fund Cassa Depositi e Prestiti (CDP), in shipbuilder Fincantieri (71.6 percent), postal and financial services provider Poste Italiane (65 percent), electricity provider ENEL (23.6 percent), oil and gas major Eni (30 percent), defense conglomerate Leonardo-Finmeccanica (30.2 percent), and natural gas infrastructure firm Snam (30.1 percent), as well as electricity transmission provider Terna (29.85 percent). Moreover, as noted above, while it does not own any shares in former monopoly TIM, under the Golden Power law, in October 2017 the GOI exercised its authority to review a foreign investor’s partial acquisition of the company citing national security concerns. Government policy in these sensitive economic sectors may take into account the interests of these specific firms.
According to the latest figures available from the Italian Trade Agency (ITA, also known by its Italian acronym ICE), 6,119 foreign companies operate in Italy and foreign investors own significant shares of 12,768 Italian companies. These companies employed 1,211,872 workers with overall sales of EUR 573.6 billion. ICE operates under the umbrella of the Italian Ministry of Economic Development.
Italy has an investment promotion agency to facilitate foreign investment. The Italian Trade Agency (ITA) operates Invest in Italy and is administered by the Ministry of Economic Development: http://www.investinitaly.com/en/. The Foreign Direct Investment Unit of ITA facilitates the establishment and the development of foreign companies in Italy by promoting business opportunities, helping foreign investors to establish or expand their operations, supporting investors, and offering tutoring services for existing investors. As of March 2018, ITA maintained a presence in 70 countries to assist foreign investors.
Invitalia is the national agency for inward investment and economic development, owned by the Italian Ministry of Economy and Finance. The agency focuses on strategic sectors for development and employment. It places an emphasis on southern Italy, where investment and development lag in comparison to the rest of the country. It manages all national incentives that encourage the creation of new companies and innovative startups. Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-added-value sectors. For more information, see http://www.invitalia.it/site/eng/home/who-we-are/the-agency.html .
The Ministry of Economic Development also has a program to attract innovative investments: http://www.sviluppoeconomico.gov.it/index.php/en/.
Italy’s main business association (Confindustria) also provides assistance to retain existing companies in Italy: http://www.confindustria.it/wps/portal/EN/ .
Limits on Foreign Control and Right to Private Ownership and Establishment
Under the EU treaties with the United States, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state. Exceptions include access to government subsidies for the film industry (limited to EU member states); capital requirements for banks domiciled in non-EU member countries; and restrictions on non-EU-based airlines operating domestic routes. Italy also has investment restrictions in the shipping sector.
EU and Italian antitrust laws provide Italian national local 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 if it is determined to be essential to the national strategic interest or if the government of the foreign firm applies discriminatory measures against Italian firms. Foreign investors in the defense or aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions.
Italy maintains a formal screening process for inbound foreign investment only in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology under its “Golden Power” legislation, and where there may be market concentration (antitrust) issues. U.S. investors have not been disadvantaged relative to other foreign investors under the mechanisms described above.
Other Investment Policy Reviews
In the past three years Italy has not undergone any third-party investment reviews through multilateral organizations such as the OECD, WTO, or UNCTAD.
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. Foreign companies may use the online process. 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 2018, Italy is ranked 66 out of 190 countries in terms of the ease in starting a business: it takes six procedures and 6.5 days to start a business in Italy regardless of gender. 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 do assist those wanting to set up a new business in Italy. Many Italian localities also have introduced one-stop shops to serve as a single point of contact for potential investors and provide advice in obtaining necessary licenses and authorizations. These services are available to all investors.
Italy does not promote, restrict, or incentivize outward investment nor restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
BITs or FTAs:
Italy has not signed a bilateral investment treaty (BIT) with the United States.
Italy has bilateral investment agreements with the following countries (for more information and text of the agreements, see http://investmentpolicyhub.unctad.org/IIA/CountryBits/103 ):
Albania, Algeria, Angola, Argentina, Armenia, Bahrain, Bangladesh, Barbados, Belarus, Belize (signed, not in force), Bolivia, Bosnia and Herzegovina, 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, Ecuador, Egypt, Eritrea, Ethiopia, Gabon, Georgia, Ghana (signed, not in force), Guatemala, Guinea, Hong Kong, Iran, Jamaica, Jordan, Kazakhstan, Kenya, DPR of Korea (signed, not in force), Republic of Kuwait, Lebanon, Libya, Macedonia FYR, Malawi, Malaysia, Malta (signed, not in force), Mauritania, Mexico, Moldova, 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), South Africa, Sri Lanka, Sudan (signed, not in force), Syrian Arab Republic, Tanzania, United Republic of Tunisia, Turkey, Turkmenistan (signed, not in force), United Arab Emirates, Uruguay, Uzbekistan, Venezuela (signed, not in force), Vietnam, Yemen, Zambia, Zimbabwe (signed, not in force).
Italy has not signed a BIT since 2009 and has not concluded a BIT since 2014. Since 2009, investment treaty negotiation falls within the exclusive competence of the EU: http://ec.europa.eu/trade/policy/accessing-markets/investment/ .
As an EU member, Italy’s FTA negotiations are handled at the EU level: http://ec.europa.eu/trade/policy/ .
Bilateral Taxation Treaties:
Italy has 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 .
Italy ranked 46 out of 190 countries in the World Bank’s 2018 Ease of Doing Business Report. Several U.S. multinationals have sought U.S. Embassy assistance in dealing with Italy’s tax enforcement, with some expressing concerns that the Italian Revenue Agency unfairly targeted large companies. According to the companies, Italian tax investigations may focus on corporate accounting practices deemed legitimate in other EU Member States, creating inconsistencies and uncertainty. Recently, Italy has made paying taxes less costly by temporarily exempting employers from some social security contributions and by improving the electronic system for preparing and paying labor taxes.
As an EU member, Italy’s FTA negotiations are handled at the EU level: http://ec.europa.eu/trade/policy/ .
3. Legal Regime
Transparency of the Regulatory System
Regulatory authority exists at the national, regional, and municipal level. All applicable regulations could potentially be relevant for foreign investors. Regulations are developed at the national level by the GOI and individual Ministries, as well as independent regulatory authorities. Regional and municipal authorities issue regulations at the sub-national level. Draft regulations may be posted for public comment, but there is generally no requirement to do so. Final national-level regulations are in general published in the Gazzetta Ufficiale (and only become effective upon publication). Parliament can request pre-implementation review of certain regulations; these regulations would be published on the parliamentary website in the same manner as pending legislation. Regulatory agencies may publish summaries of received comments. No regulatory reform was undertaken in 2017. Aggrieved parties may challenge regulations in court.
International Regulatory Considerations
Italy is a Member State of the EU. Directives approved at the EU level generally are brought into force in Italy through implementing legislation. In some areas, EU procedures require Member States to notify the European Commission (EC) before implementing national-level regulations. Italy has on notable occasions failed to notify the EC and/or WTO of draft regulations in a timely way. In 2017, Italy adopted Country of Origin Labelling requirements for a range of products including rice, wheat used to make pasta, and certain tomato-based products. Italy’s Economic Development Minister and Agriculture Minister publicly stated these measures would support the “Made in Italy” brand and make Italian products more competitive. Though the requirements were widely regarded as a Technical Barrier to Trade (TBT), Italy failed to notify the WTO in advance of implementing these regulations. Italy is a signatory to the TFA and has implemented all developed-country obligations.
Legal System and Judicial Independence
Italian law is based on Roman law and on French Napoleonic code law. The Italian judicial system consists of a series of courts and a body of judges employed as civil servants. The system is unified, with every court being part of the national network. Though notoriously slow, the Italian civil legal system meets the generally recognized principles of international law, with provisions for enforcing property and contractual rights. Italy has a written and consistently applied commercial and bankruptcy law. Foreign investors in Italy can choose among different means of dispute resolution, including legally binding arbitration.
In 2014, the government introduced a package of justice reforms intended to reduce the backlog of civil cases and speed newly filed cases to conclusion. These reforms included a new emphasis on alternative dispute resolution and methods to make collecting judgments easier. In a positive sign, a civil court in Torino halved the average duration of its civil cases by implementing new internal practices: assigning one judge to the case, thus increasing accountability, and requiring judges to transfer incomplete cases to a colleague if going on an extended leave. Some, but far from all, courts in Italy have adopted these reforms. In 2016, the government approved and began implementing a new package of justice reforms intended to build on the 2014 efforts. The 2016 reforms expanded the jurisdiction of the business tribunals to hear commercial contract disputes; tribunals now exist in each region of Italy. A second reform in 2016 encouraged the use of mediation in national and international disputes between professionals (attorneys, accountants, etc.) and their customers.
Italy is a member state to the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID convention). Italy has signed and ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Italian law recognizes and enforces foreign court judgments.
Regulations can be appealed in the court system.
Laws and Regulations on Foreign Direct Investment
Italy is bound by EU laws on FDI.
Competition and Anti-Trust Laws
The Italian Competition Authority (AGCM) is responsible for reviewing transactions for competition-related concerns. AGCM may examine transactions that restrict competition in Italy as well as in the broader EU market. As a member of the EU, Italy is also subject to interventions by the European Commission Competition Directorate (DG COMP).
Expropriation and Compensation
The Italian constitution permits expropriation of private property for “public purposes,” defined as essential services or measures indispensable for the national economy, with fair and timely compensation. Expropriations have been minimal.
ICSID Convention and New York Convention
Italy is a member state of the World Bank’s International Centre for the Settlement of Investment Disputes (ICSID convention). Italy has signed and ratified the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention). Italian civil law (Section 839) provides for and governs the enforcement of foreign arbitration awards in Italy
Investor-State Dispute Settlement
Italy is a contracting state to the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States (entered into force on 28 April 1971).
Italy has had very few investment disputes involving a U.S. person in the last 10 years. The US Embassy identified less than five such active disputes at the time of the drafting of this report. No cases have been terminated or resolved; all remain pending. Italy does not have a history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Italy is a party to the following international treaties relating to arbitration:
- The 1927 Geneva Convention on The Execution of Foreign Arbitral Awards (entered into force on 12 February 1931);
- The 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (entered into force on 1 May 1969); and
- The 1961 European Convention on International Commercial Arbitration (entered into force on 1 November 1970).
Italy’s Code of Civil Procedure (Book IV, Title VIII, Sections 806-840) governs arbitration in Italy, including the recognition of foreign arbitration awards. Italian law is not based on the UNCITRAL Model Law; however, many of the principles of the Model Law are present in Italian law.
Parties are free to choose from a variety of Alternative Dispute Resolution methods, including mediation, arbitration, and lawyer-assisted negotiation.
Italy’s bankruptcy regulations are somewhat analogous to U.S. Chapter 11 restructuring, and allow firms and their creditors to reach a solution without declaring bankruptcy. In recent years, the judiciary’s role in bankruptcy proceedings has been reduced in an attempt to simplify and expedite proceedings. In 2015, the Italian parliament passed a package of changes to the bankruptcy law, including measures to ease access to interim credit for bankrupt companies and to restructure debts. Additional changes were approved in 2017 (juridical liquidation, early warning, simplified process, arrangement with creditors, insolvency of affiliated companies as a group, and reorganization of indebtedness rules). The measures aim to reduce the number of bankruptcies, limit the impact on the local economy, and facilitate the settlement of corporate disputes outside of the court system. The reform follows on the 2015 reform of insolvency procedures. The legislative “implementation decree” for the 2017 bankruptcy reform has not yet been issued.
In the World Bank’s Doing Business Report 2017, Italy ranks 24 out of 190 economies in the category of Ease of Resolving Insolvency.
4. Industrial Policies
The GOI offers modest incentives to encourage private sector investment in targeted sectors (e.g., innovative companies) and economically depressed regions, particularly in southern Italy. The incentives are available to eligible foreign investors as well. Incentives include grants, low-interest loans, deductions and tax credits. Some incentive programs have a cost cap, which may prevent otherwise eligible companies from receiving the incentive benefits once the cap is reached. The GOI applies cost caps on a non-discriminatory basis, typically based on the order that applications were filed.
Italy provides an incentive for investments by SMEs in new machinery and capital equipment (“New Sabatini Law”), available to eligible companies regardless of nationality. This investment incentive provides financing, subject to an annual cost cap. Sector-specific investment incentives are also available in targeted sectors.
In January 2018, the GOI also provided “super amortization” and “hyper amortization” (essentially, generous tax deductions) on investments in special areas of the economy. In 2017, the GOI launched the “Industry 4.0” initiative aimed at improving the Italian industrial sector’s competitiveness through a combination of policy measures and research and infrastructure funding.
The Italian tax system does not discriminate between foreign and domestic investors. The corporate income tax (IRES) rate is 24 percent. In addition, companies may be subject to a regional tax on productive activities (IRAP) at a 3.9 percent rate. The World Bank estimates Italy’s total tax rate as a percent of commercial profits at 48 percent in 2018, higher than the OECD high-income average of 40.1 percent. The World Bank’s total tax rate measures the amount of taxes and mandatory contributions payable by businesses after accounting for allowable deductions and exemptions as a share of commercial profits. Taxes withheld (such as personal income tax) or collected and remitted to tax authorities (such as value added taxes, sales taxes or goods and service taxes) are excluded. As of March 2015, employers may also claim an IRAP deduction for each permanent new hire.
Several U.S. multinationals have sought U.S. Embassy assistance in dealing with Italy’s tax enforcement, with some expressing concerns that the Italian Revenue Agency unfairly targeted large companies. According to the companies, Italian tax investigations may focus on corporate accounting practices deemed legitimate in other EU Member States, creating inconsistencies and uncertainty.
Foreign Trade Zones/Free Ports/Trade Facilitation
The main free trade zone in Italy is located in Trieste, in the northeast. At the Trieste FTZ, customs duties are deferred for 180 days from the time the goods leave the FTZ and enter another EU country. The goods may undergo transformation free of any customs restraints. An absolute exemption is granted from any duties on products coming from a third country and re-exported to a non-EU country. Legislation to create other FTZs in Genoa and Naples exists, but has yet to be implemented. A free trade zone operated in Venice for a period but is being restructured.
Italy’s “Decree for the South” law (Law 91 of 2017) foresees “Special Economic Zone (ZES – Zone Economica Speciale) managed by port authorities in Italy’s lesser-developed south and islands (the regions of Abruzzo, Basilicata, Calabria, Campania, Molise, Puglia, Sardinia and Sicily). Investors will be able to access up to EUR 50 million in tax breaks, hiring incentives, reduced bureaucracy, and reimbursement of the IRAP regional business tax, covered by national allotments of EUR 25 million for 2018, EUR 31.5 million for 2019, and EUR 150.2 million for 2020. The Region of Campania approved the strategic plan for implementing the law in Campania on March 28, 2018. It will become operational once the national government gives final approval. The Naples ZES will encompass over 54 million square meters of land in the ports of Naples, Salerno and Castellamare di Stabia, as well as industrial areas and transport hubs in 37 cities and towns in Campania. Incentives are not automatic, as investments will be approved by local government bodies in a procedure governed by the Port Authority of the Central Tyrrhenian Sea. The Campania Region forecasts that the ZES will create and/or save between 15 and 30 thousand jobs. A proposed ZES encompassing the port cities of Bari and Brindisi on the Adriatic is expected to be the next one launched, followed by a ZES planned around the transshipment port of Gioia Tauro in Calabria.
A special free trade zone was established in late 2015 in the areas within the Emilia-Romagna region that were hit by a May 2012 earthquake and by a January 2014 flood. The measure aimed to assist the recovery of these areas through tax exemptions amounting to EUR 39.6 million for the years 2015 and 2016 for small enterprises headquartered in these areas.
Currently, goods of foreign origin may be brought into Italy without payment of taxes or duties, as long as the material is to be used in the production or assembly of a product that will be exported. The free-trade zone law also allows a company of any nationality to employ workers of the same nationality under that country’s labor laws and social security systems.
Performance and Data Localization Requirements
Italy does not mandate local employment. Non-EU nationals who would like to establish a business in Italy must have a valid residency permit or be nationals of a country with reciprocal arrangements, such as a bilateral investment agreement, as described at: https://www.esteri.it/mae/en/servizi/stranieri/ .
Work permits and visas are readily available and do not inhibit the mobility of foreign investors. As a member of the Schengen Area, Italy typically allows short-term visits (up to 90 days) without a visa. The Italian Ministry of Foreign Affairs has specific information about visa requirements: http://vistoperitalia.esteri.it/home/en.
As a member of the EU, Italy does not follow forced localization policies in which foreign investors must use domestic content in goods or technology. Italy does not have any enforcement procedures for investment performance requirements. Italy does not require local data storage. Companies transmitting customer or other business-related data within or outside of the EU must comply with relevant EU privacy regulations.
5. Protection of Property Rights
According to the World Bank, Italy ranks 23 worldwide out of 190 economies for the ease of registering property. Real property registration takes an average of 16 days, requires four procedures, and costs an average of 4.4 percent of the value of the property. Real property rights are enforced in Italian courts. Mortgages and judgment liens against property exist in Italy and the recording system is reliable. Although Italy does not publish official statistics on property with titling issues, Post estimates that less than 10 percent of the land in Italy does not have clear title.
Italian law includes provisions whereby peaceful and uninterrupted possession of real property for a period of 20 years can, under certain circumstances, allow the occupying party to take title to a property.
Intellectual Property Rights
Italy was removed from the USTR’s Special 301 Watch List in 2014 after the Italian Communications Authority’s (AGCOM’s) issuance of a new regulation to combat digital copyright theft. The regulation created a process by which rights holders can report online infringements to AGCOM, which can then block access to domestic and international sites hosting infringing content. This negated the need for lengthy litigation, which had been required previously. In the three years since the regulations entered into force, AGCOM has issued over 440 blocking orders, while at the same time there has been an increase in sites voluntarily cooperating with rights holders to remove copyrighted material. AGCOM is now reportedly considering strengthening the application of these existing regulations.
Authorities also continue to pursue trademark violations. In 2016, the last year for which statistics are available, customs and the tax police jointly seized over 26 million counterfeit items (excluding food and beverages, tobacco, and medical products), worth over EUR 286 million.
There have been no major new IP laws or regulations adopted since 2014. The “Mercato dei Venerdì” in northern Italy is listed on USTR’s notorious market report.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .
6. Financial Sector
Capital Markets and Portfolio Investment
The GOI welcomes foreign portfolio investments, which are generally subject to the same reporting and disclosure requirements as domestic transactions. Financial resources flow relatively freely in Italian financial markets and capital is allocated mostly on market terms. Foreign participation in Italian capital markets is not restricted. In practice, many of Italy’s largest publicly-traded companies have foreign owners among their primary shareholders. While foreign investors may obtain capital in local markets and have access to a variety of credit instruments, access to equity capital is difficult. Italy has a relatively underdeveloped capital market and businesses have a long-standing preference for credit financing. The limited venture capital available is usually provided by established commercial banks and a handful of venture capital funds.
Italy’s regulatory system adequately encourages and facilitates portfolio investment. Italy’s financial markets are regulated by the Italian securities regulator (CONSOB), Italy’s central bank (the Bank of Italy) and the Institute for the Supervision of Insurance (IVASS). CONSOB supervises and regulates Italy’s securities markets (e.g., the Milan Stock Exchange). The European Central Bank (ECB) assumed direct supervisory responsibilities for the 15 largest Italian banks in 2015 and indirect supervision for less significant Italian banks through the Bank of Italy (https://www.bankingsupervision.europa.eu/home/html/index.en.html ). IVASS supervises and regulates insurance companies. Liquidity in the primary markets (e.g., the Milan exchanges) is sufficient to enter and exit sizeable positions, though Italian capital markets are small by international standards. Liquidity may be limited for certain less-frequently traded investments (e.g., bonds traded on the secondary and OTC markets).
Italian policies generally facilitate the flow of financial resources to markets. Dividends and royalties paid to non-Italians may be subject to a withholding tax, unless covered by a tax treaty. Dividends paid to permanent establishments of non-resident corporations in Italy are not subject to the withholding tax.
In 2009, the United States and Italy enacted an income tax agreement to prevent double-taxation of each other’s nationals and firms, and to improve information sharing between tax authorities.
On January 10, 2014 representatives of the governments of Italy and the United States in Rome signed an intergovernmental agreement to implement provisions of the U.S. law known as FATCA (Foreign Account Tax Compliance Act). The FATCA intergovernmental agreement (IGA) allows for the automatic exchange of information between tax authorities and reflects an agreement negotiated between the United States and five European Union countries (France, Germany, Italy, Spain, and the United Kingdom). The automatic exchange of information takes place on the basis of reciprocity, and includes accounts held in the United States by persons resident in Italy and those held in Italy by U.S. citizens and residents. The FATCA agreement officially entered into force in Italy on July 8, 2015.
Italy imposed a financial transactions tax (FTT, a.k.a. Tobin Tax) beginning in 2013. Financial trading is taxed at 0.1 percent in regulated markets and 0.2 percent in unregulated markets. The FTT applies to daily balances rather than to each transaction. The FTT applies to trade in derivatives as well, with fees ranging from EUR 0.025 to EUR 200. Also, high-frequency trading is subject to a 0.02 percent tax on trades occurring every 0.5 seconds or faster (e.g., automated trading). The FTT does not apply to “market makers,” pension and small-cap funds, transactions involving donations or inheritances, purchases of derivatives to cover exchange/interest-rate/raw-materials (commodity market) risks, and financial instruments for companies with a capitalization of less than EUR 500 million.
The GOI has sought to curb widespread tax evasion by improving enforcement and changing popular attitudes. GOI actions include a public communications effort to reduce tolerance of tax evasion; increased and visible financial police controls on businesses (e.g., raids on businesses in vacation spots at peak holiday periods); and audits requiring individuals to document their income. The GOI is also engaged in limiting tax avoidance. In 2014, Italy’s Parliament approved the enabling legislation for a package of tax reforms, many of which entered into force in 2015. The tax reforms aim to institutionalize OECD best practices to encourage taxpayer compliance, including by reducing the administrative burden for taxpayers through the increased use of technology such as e-filing, pre-completed tax returns, and automated screenings of tax returns for errors and omissions prior to a formal audit. The reforms also offer additional certainty for taxpayers through programs such as cooperative compliance and advance tax rulings (i.e., binding opinions on tax treatment of transactions in advance) for prospective investors.
The GOI and the Bank of Italy have accepted and respect IMF obligations, including Article VIII.
Credit is allocated on market terms, with foreign investors eligible to receive credit in Italy. In general, credit in Italy remains largely bank-driven. In practice, foreigners may encounter limited access to finance, as Italian banks may be reluctant to lend to prospective borrowers (even Italians) absent a preexisting relationship. Although a wide array of credit instruments are available, bank credit remains constrained following the financial crisis. Credit conditions have begun to loosen in 2016.
Money and Banking System
Despite isolated problems at individual Italian banks, the banking system remains sound and capital ratios exceed regulatory thresholds. However, Italian banks’ profit margins have suffered since 2011 as a result of tightening European supervisory standards and requirements to increase banks’ capital. The recession brought a pronounced worsening of the quality of banks’ assets, which further dampened banks’ profitability. The ratio of non-performing loans (NPLs) to total outstanding loans decreased significantly since its height in 2017. Currently net NPLs stand at just under EUR 55 billion. The GOI is also taking steps to facilitate acquisitions of NPLs by outside investors, including soliciting investment from foreign investors. In December 2016, the GOI created a EUR 20 billion bank rescue fund to assist struggling Italian banks in need of liquidity or capital support. Italy’s fourth-largest bank, Monte dei Paschi di Siena (MPS), became the first bank to avail itself of this fund in January. The GOI also facilitated the sale of two struggling “Veneto Banks” (Banca Popolare di Vicenza and Veneto Banca) to Intesa San Paolo in mid-2017.
Italy’s central bank, the Bank of Italy (BOI), is a member of the euro system and the European Central Bank (ECB). In addition to ECB supervision of larger Italian banks, BOI maintains strict supervisory standards. The Italian banking system weathered the 2007-2013 financial crisis without resorting to government intervention.
Weak demand and risk aversion by banks continue to constrain lending, with banks tightening lending criteria. The latest business surveys show that credit conditions are easing, but availability of credit remains constrained, especially for smaller firms.
The banking system in Italy has consolidated significantly since the financial crisis. In 2017, the Italian banking landscape included 70 banking groups (comprising 129 banks), 393 banks not belonging to a banking group, and 82 branches of foreign banks. The GOI is taking further steps to encourage consolidation and facilitate acquisitions by outside investors. The Italian banking sector remains overly concentrated on physical bank branches for delivering services, further contributing to sector-wide inefficiency and low profitability. Electronic banking is available in Italy, but adoption remains below eurozone averages and non-cash transactions are relatively uncommon.
The London Stock Exchange owns Italy’s only stock exchange: the Milan Stock Exchange (Borsa Italiana). The exchange is relatively small — 387 listed companies and a market capitalization of only 31.8 percent of GDP as of January 1, 2017. Although the exchange remains primarily a source of capital for larger Italian firms, Borsa Italiana created “AIM Italia” in 2012 as an alternative exchange with streamlined filing and reporting requirements to encourage SMEs to seek equity financing. Additionally, the GOI recognizes that Italian firms remain overly reliant on bank financing, and has initiated some programs to encourage alternative forms of financing, including venture capital and corporate bonds.
The Italian Companies and Stock Exchange Commission (CONSOB), is the Italian securities regulatory body: http://www.consob.it .
Most non-insurance investment products are marketed by banks, and tend to be debt instruments. Italian retail investors are conservative, valuing the safety of government bonds over most other investment vehicles. Less than ten percent of Italian households own Italian company stocks directly. Several banks have established private banking divisions to cater to high-net-worth individuals with a broad array of investment choices, including equities and mutual funds.
There are no restrictions on foreigners engaging in portfolio investment in Italy. Financial services companies incorporated in another EU member state may offer investment services and products in Italy without establishing a local presence.
Any investor (Italian or foreign) acquiring a stake in excess of two percent of a publicly traded Italian corporation must inform CONSOB, but does not need its approval. Any Italian or foreign investor seeking to acquire or increase its stake in an Italian bank equal to or greater than ten percent must receive prior authorization from the Bank of Italy (BOI). Acquisitions of holdings that would change the controlling interest of a banking group must be communicated to the BOI at least 30 days in advance of the closing of the transactions. Approval and advance authorization by the Italian Insurance Supervisory Authority IVASS are required for any significant acquisition in ownership, portfolio transfer, or merger of insurers or reinsurers. Regulators retain the discretion to reject proposed acquisitions on prudential grounds (e.g., insufficient capital in the merged entity).
The Ministry of Economy and Finance has indicated its interest in blockchain technologies, but this discussion remains in the formative stages. Blockchain technologies are not currently being used in banking transactions, nor have any banks announced their intention to start using them.
Foreign Exchange and Remittances
Foreign Exchange Policies
In accordance with EU directives, Italy has no foreign exchange controls. There are no restrictions on currency transfers; there are only reporting requirements. Banks are required to report any transaction over EUR 1,000 due to money laundering and terrorism financing concerns. Profits, payments, and currency transfers may be freely repatriated. Residents and non-residents may hold foreign exchange accounts. In 2016, the GOI raised the limit on cash payments for goods or services to EUR 3,000. Payments above this amount must be made electronically. Enforcement remains uneven. The rule exempts e-money services, banks, and other financial institutions, but not payment services companies.
Italy is a member of the European Monetary Union (EMU), with the euro as its official currency. Exchange rates are floating.
There are no limitations on remittances, though transactions above EUR 1,000 must be reported.
According to the Financial Action Task Force, Italy has a strong legal and institutional framework to fight money laundering and terrorist financing and authorities have a good understanding of the risks the country faces. There are areas where improvements are needed, such as its money-laundering investigative and prosecutorial action on risks associated with self-laundering, stand-alone money laundering, and foreign predicate offenses, and the abuse of legal persons.
Sovereign Wealth Funds
The state-owned national development bank Cassa Depositi e Prestiti (CDP) launched a strategic wealth fund in 2011, now called CDP Equity (formerly Fondo Strategico Italiano – FSI). As of 2016, CDP Equity had EUR 3.5 billion in capital, with EUR 2.3 billion of this invested in nine portfolio companies. CDP Equity generally adopts a passive role by purchasing minority interests as a non-managerial investor. It does not hold a majority stake in any of its portfolio companies. CDP Equity invests solely in Italian companies with the goal of furthering the expansion of companies in growth sectors. CDP Equity provides information on its funding, investment policies, criteria, and procedures on its website (http://en.cdpequity.it/ ). CDP Equity is open to capital investments from outside institutional investors, including foreign investors. As of 2016, CDP Equity has signed co-investment agreements with Qatar Holding, the Kuwait Investment Authority (KIA), China Investment Corporation (CIC), RDIF (a Russian fund), and the Korea Investment Corporation. CDP Equity is a member of the International Working Group of Sovereign Wealth Funds and follows the Santiago Principles.
7. State-Owned Enterprises
The Italian government has in the past owned and operated a number of monopoly or dominant companies in certain strategic sectors. However, beginning in the 1990s and through the early 2000s, the government began to privatize most of these state-owned enterprises.
Notwithstanding this privatization effort, the Government of Italy (GOI) retains 100 percent ownership of the national railroad company (Ferrovie dello Stato) and road network company (ANAS), which merged in January 2018. The GOI holds a 99.56 percent share of RAI, the national radio and television broadcasting network. Although many former monopoly operators have been partially or fully privatized, the GOI retains a controlling interest, either directly or through the state-controlled sovereign wealth fund Cassa Depositi e Prestiti (CDP), in shipbuilder Fincantieri (71.6 percent), postal and financial services provider Poste Italiane (65 percent), electricity provider ENEL (23.6 percent), oil and gas major Eni (30 percent), defense conglomerate Leonardo-Finmeccanica (30.2 percent), natural gas infrastructure firm Snam (30.1 percent), as well as electricity transmission provider Terna (29.85 percent).
However, the companies are operating in a competitive environment (domestically and internationally) and are increasingly responsive to market-driven decision-making rather than GOI demands. In addition, many of the state-controlled entities are publicly traded, which provides additional transparency and corporate governance obligations, including equitable treatment for non-governmental minority shareholders.
State-controlled companies are subject to the same tax treatment and budget constraints as fully private firms. Additionally, industries with state-controlled entities remain open to private competition.
A full list of GOI shareholdings is available at: http://www.dt.mef.gov.it/en/attivita_istituzionali/partecipazioni/elenco_partecipazioni/
In terms of employment, Poste Italiane is Italy’s largest State-Controlled Enterprise, with 142,000 employees nationwide as of December 2016. Italy’s largest state-controlled enterprises ranked by market capitalization in January 2017 were Eni, ENEL, Snam and Leonardo-Finmeccanica. See above for the GOI’s share in each.
As an EU member, Italy is covered by EU government procurement rules.
The Italian government committed to privatize EUR 16 billion in state-owned assets in 2016 and 2017, planning for EUR 8 billion in each year, although privatizations did not reach this target in either year. The privatizations fall into two categories: minority stakes in state-owned companies and underutilized real estate holdings. In 2016, the GOI sold a minority stake in the air traffic controller (ENAV). Revenues in 2016 were well below expectations due to the unfavorable markets that discouraged other privatizations and resulted in the postponement of the planned privatization of a minority share of the national rail network (Ferrovie dello Stato) as well as the national postal provider (Poste Italiane). The latest government strategy more realistically reduced the target for privatization in 2017 from 0.3 to 0.2 percent of GDP and estimated privatization equal to EUR 5 billion per year in the period 2018-2020.
The GOI solicits and encourages foreign investors to participate in its privatizations. The privatizations are easy to understand, non-discriminatory, and transparent. The GOI sells shares of state-owned companies through the Milan Stock Exchange (Borsa Italiana), while real estate sales are conducted through public bidding processes (typically online). The Italian Public Property Agency (Agenzia del Demanio) administers real estate sales: https://venditaimmobili.agenziademanio.it/AsteDemanio/sito.php . The Agency has created a centralized registry with information on individual parcels for sale or long-term lease: http://www.investinitalyrealestate.com/en/ .
8. Responsible Business Conduct
There is a general awareness of expectations and standards for responsible business conduct. Enforcement is generally fair, through the slow pace of civil justice may delay individuals’ ability to seek effective redress for adverse business impacts. In addition, EU laws and standards on RBC apply in Italy. In the event that Italian courts fail to protect an individual’s rights under EU law, it is possible to seek redress to the European Court of Justice (ECJ).
CONSOB has enacted corporate governance, accounting, and executive compensation standards to protect shareholders. Information on corporate governance standards is available at: http://www.consob.it/mainen/consob/publications/rcg/index.html .
Independent NGOs are able to do their work freely in Italy. Additionally, Italy’s three largest trade union confederations actively promote and monitor RBCs. They serve on the advisory body to Italy’s National Contact Point (NCP) for the OECD Guidelines for Multinational Enterprises. Unions are able to work freely in Italy.
Since 2000, when it signed the Declaration on International Investment and Multinational Enterprises, Italy has supported and encouraged compliance with the OECD’s Guidelines for Multinational Enterprises (“Guidelines”), which are recommendations addressed by governments to multinational enterprises operating in or from adhering countries (the OECD members plus Argentina, Brazil and Chile). The Guidelines provide voluntary principles and standards for corporate social responsibility, in a variety of areas including employment and industrial relations, human rights, environment, information disclosure, competition, taxation, and science and technology. (For the key links, see: OECD Guidelines: http://www.oecd.org/dataoecd/12/21/1903291.pdf )
The Italian National Contact Point (NCP) for encouraging observance of the Guidelines in Italy and for ensuring that the Guidelines are well known and understood by the national business community and by other interested parties is located in the Ministry of Economic Development. The NCP spreads and enforces the Guidelines; disseminates related information; and promotes collaboration among national and international institutions, the economic world, and civil society. Italy’s National Action Plan on Corporate Social Responsibility is available online. Internationally, the NCP works with the OECD Investment Committee and international stakeholders. For the key link, see: Italian NCP: http://pcnitalia.sviluppoeconomico.gov.it/en/.
The NCP also maintains a list of partners and stakeholders that are involved in CSR. The list can be found here: http://pcnitalia.sviluppoeconomico.gov.it/en/partners .
Italy encourages responsible supply chains and has provided operational guidelines for Italian businesses to assist them in supply chain due diligence.
Italy is a member of the Extractive Industries Transparency Initiative (EITI). The Italian Ministry of Foreign Affairs works internationally to promote the adoption of best practices.
Corruption and organized crime, and their perception, are significant impediments to investment and economic growth in parts of Italy and cost the country an estimated EUR 60 billion annually in wasted public resources. Successive Italian governments have been engaged in the fight against corruption. Italian law provides criminal penalties for corruption by officials. The government has usually implemented these laws effectively, but officials sometimes have engaged in corrupt practices with impunity.
According to the National Anticorruption Authority, in 2016 citizens reported approximately 4,000 cases of corruption to the authority. Authorities registered 2,028 violations of codes of conduct of public offices and 1,241 cases of crimes or other felonies of public employees; they issued 935 sanctions, including 212 layoffs. In 2015, the Financial Police arrested 241 persons and investigated approximately another 3,700 for abuse of power, corruption, and fraud.
In October 2012, the Italian parliament passed an anti-corruption law promoting transparency in public administration and requiring each public administration entity to execute three basic anti-corruption provisions: the adoption of an anti-corruption plan; the appointment of a compliance officer; and the adoption of a code of conduct for employees. The legislation included stiffer penalties for those convicted of bribery-related offenses, protective measures for whistleblowers, and requirements for greater transparency in public contracts. It also prohibited anyone convicted of a serious crime from holding certain public administration positions. The law further provided for the appointment of an Anti-Corruption High Commissioner to head the new National Anti-Corruption Authority (ANAC – previously known as CiVIT), which is responsible for adopting a national public administration anti-corruption plan; monitoring its implementation; recommending measures to be taken by other agencies; and conducting inspections and investigations in conjunction with the financial police. In March 2014, former Prime Minister Renzi nominated respected prosecutor Raffaele Cantone, already a national figure for his courageous anti-mafia work, to head ANAC. The 2012 anti-corruption law has subsequently been strengthened by two laws enacted in August 2014 and June 2015, which further outline steps to enhance transparency in the public sector, extend the scope of application of certain crimes of corruption and increase their sanctions and statute of limitations, renew false accounting as a punishable crime, and extend the powers of the ANAC. In January 2016, the Italian Senate gave final approval to a law reforming public contracts. The law strengthens ANAC’s powers to police public contracting and attempts to address some of the inefficiencies that may lead to delays and corruption in public works projects (limiting appeals, making it harder to change a project once it is already underway, and facilitating direct payment of smaller companies by the public administration). In November 2017, Italy approved legislation to protect both public and private sector employees that report illicit conduct in the workplace. An employee that denounces illicit conduct that s/he has become aware of through his/her work to the National Anti-Corruption Authority or to enforcement agencies may not be sanctioned, fired, transferred or be subject to other negative action.
In 2014, Italy’s anti-money-laundering laws specifically enhanced due-diligence procedures for politically exposed persons, defined as any person who has been entrusted with important political functions, as well as the immediate family members of these individuals. (This encompasses anyone from the head of state to members of the executive body in State-owned companies). The law does not apply to members of political parties who are not serving in a public role. Law no. 186, criminalizing self-laundering, was added to the Italian Penal Code and became effective on January 1, 2015, giving the Italian authorities increased ability to prosecute individuals for money-laundering as a stand-alone crime. While anti-corruption laws and trials garner headlines, they have been only somewhat effective in stopping corruption. Though Italy has improved in Transparency International’s Corruption Perceptions Index in overall rank and score every year since 2014, Italy ranked 54 in the 2017 index.
U.S. individuals and firms operating or investing in foreign markets should take the time to become familiar with the anticorruption laws of both the foreign country and the United States in order to comply with them and, where appropriate, they should seek the advice of legal counsel. Relevant Italian laws include Italian legislative decree No. 231 of 08/06/2001, No. 146 of 16/03/2006, No. 81 of 09/04/2008, No. 190 of 06/11/2012, No. 114 of 11/08/2014, and No. 69 of 27/05/2015.
In order to avoid liability, Italian companies and foreign companies operating in Italy must demonstrate that they have put into place adequate organizational, management, and control structures to detect and prevent corruption. These structures are described as the organizational model in Articles 6 and 7 of legislative decree 231/2001. Business associations also encourage such measures. For example, the by-laws of Italy’s main business association (Confindustria) require it to expel members found to be paying protection money and to assist members in reporting extortion attempts to authorities.
While the U.S. Embassy has not received specific complaints of corruption from U.S. companies operating in Italy, commercial and economic officers are familiar with high-profile cases that may impact U.S. companies. The Embassy has received requests for assistance by companies facing a lack of transparency and complicated bureaucracy, particularly in the sphere of government procurement and specifically in the aerospace industry. There have not been any reports of government failure to protect NGOs that investigate corruption (such as Transparency International Italy).
Italy has signed and ratified the UN Anticorruption Convention and the OECD Convention on Combatting Bribery.
Resources to Report Corruption:
Autorita Nazionale Anticorruzione (ANAC)
c/o Galleria Sciarra
Via M. Minghetti, 10 – 00187 Roma
Phone: +39 06 367231
Fax: +39 06 36723274
Whistleblower hotline phone: +39 02 49520512
Via Vigano 4
21045 Gazzada Schianno (VA)
Transparency International Italia
Via Zamagna 19
20148 Milano – Italy
Phone: +39 02 40093560
Fax: +39 02 406829
Report corruption at: https://www.transparency.it/alac/
10. Political and Security Environment
Politically motivated violence in Italy is most often connected to Italian internal developments or social issues. Italian authorities and foreign diplomatic facilities have found bombs outside public buildings, have received bomb threats, and have been targets of letter bombs, fire bombs and Molotov cocktails in the past several years. These attacks have generally occurred at night, and they have not targeted or injured U.S. citizens. Political violence is not a threat to foreign investments in Italy, but corruption, especially associated with organized crime, can be a major hindrance, particularly in the south – see notes on corruption in Section 10.
Italy-specific travel information and advisories can be found at: www.travel.state.gov .
11. Labor Policies and Practices
As a result of its longest and deepest recession since World War II, Italy’s unemployment rate peaked at 13.1 percent in November 2014. Italy emerged from recession in 2015 and unemployment has since ebbed, but remained high, at 11.1 percent in January 2018 and above the eurozone average of 8.6 percent. The youth unemployment rate more than doubled during the financial crisis, exceeding 43 percent in 2014. Though youth unemployment has since declined, it remains elevated (31.5 percent in January 2018) and one of the highest among EU members. In 2017, there were an estimated 2.2 million young Italians not in education, employment or training (NEETs), more than 22 percent of all young Italians, which is one of the highest ratios in the EU. Long-term unemployment is also elevated, leading to a permanent reduction in human capital and earnings potential. Official unemployment data do not account for temporarily laid-off employees who receive benefits from Italy’s “wage guarantee fund” (for struggling or restructuring companies).
Additionally, in the past many Italians dropped out of the unemployment statistics, as they became discouraged and stopped looking for work. Italy’s labor force participation rates are among the lowest in the EU, particularly among women, the young and the elderly. Low labor force participation has been partially attributable to the informal economy, which Italy’s statistics agency estimates as at least 12 percent of Italian GDP. The Italian government aims to alleviate youth unemployment through the EU Youth Guarantee Fund, as well as vocational programs. The downward labor-force-participation trend changed in 2016, during which 478,000 more working-age Italians reentered the labor pool than left it. This positive trend continued in 2017 and in early 2018. January 2018 marked the highest labor force participation rate in Italy since the data series began in 2004 (65.5 percent of working-age Italians). The shrinking pool of inactive Italians reflects increased optimism in their ability to find work, as reflected in the most recent confidence indicators. However, labor market survey results note that some previously inactive Italians also have resumed the job search due to financial need (e.g., a drawdown of savings or a spouse’s loss of employment).
The productivity of Italy’s labor force is below the EU average. Many Italian employers report an inability to find qualified candidates for highly-skilled vacancies, demonstrating significant skills mismatches in the Italian labor market. Many well-educated Italians find more attractive career opportunities outside of Italy, with large numbers of Italians taking advantage of EU agreements on freedom of movement to work in the United Kingdom, Switzerland, or Germany. There is no reliable measure of Italians working overseas, as many expatriate workers do not report their whereabouts to the Italian government. Skilled labor shortages are a particular problem in Italy’s industrialized north.
On paper, companies may bring in a non-EU employee after the government-run employment office has certified that no qualified, unemployed Italian is available to fill the position. In reality, the cumbersome and lengthy process acts as a deterrent to foreign firms seeking to comply with the law; language barriers also prevent outsiders from competing for Italian positions. Work visas are subject to annual quotas, although intra-company transfers are exempt from quota limitations.
With the goal of modernizing Italy’s notoriously inflexible labor market, the 2014-2016 government led by Prime Minister Matteo Renzi enacted the Jobs Act as the centerpiece of its structural reform agenda. Passed by Parliament in December 2014 and implemented through legislative decrees in 2015, the Jobs Act is a package of structural reforms to Italy’s labor market. The Jobs Act removed a key obstacle to hiring new employees by removing employees’ unqualified right to seek reinstatement, almost always via lengthy court cases (known as “Article 18” of the Italian labor code). The new law provides greater legal certainty to employers by permitting employee reinstatement only in discrimination cases. Article 18 also discouraged employers from hiring employees on indefinite contracts, with employers preferring to hire temporary employees. Often, “temporary” employees were essentially permanent employees, as employers renewed the contracts repeatedly. The GOI introduced a hiring incentive in 2015 for employers to hire workers on indefinite contracts, granting them a three-year exemption from employers’ contributions to social security for each new permanent employee. In 2016, the exemption was reduced to two years and 40 percent of employers’ contributions. In December 2017, the GOI introduced new hiring incentives: a three-year 50 percent social security tax break for hiring young people up to the age of 29 (35 in 2018) for the period 2018-2021.
As of January 2018, the Jobs Act hiring incentives appear to have contributed to the Act’s stated goal of encouraging indefinite employment, mostly through a conversion of temporary contracts into open-ended contracts. Recent statistics show an increase in employment, but primarily through flexible or temporary labor contracts rather than indefinite labor contracts. There has also been a positive impact on youth employment, but it is still too early to know if the incentives will have a substantial impact on youth unemployment, which remains disproportionately high. The GOI labor plan seeks to reduce the average youth unemployment rate by four to five percentage points a year over the next three years in order to bring Italy’s youth unemployment rate in line with that of eurozone youth unemployment. The GOI’s latest forecasts estimate a downward trend in the unemployment rate, which is expected to return to single digits in 2020.
Though Jobs Act labor reforms aimed to encourage indefinite labor contracts, employers have also taken advantage of temporary labor contracts—though that trend slowed in 2017. In 2016, 3.74 million temporary contracts were signed, up 0.8 percent from 2015 and up 11.0 percent from 2014, with most taking advantage of the most flexible labor tool available: job vouchers. Employers can buy vouchers to pay for piecemeal, seasonal, or occasional work without a labor contract. Though the tool was created in 2003 to bring agricultural workers into the formal labor market and extended to other sectors of temporary work by the Fornero-Monti labor reform of 2012, employers have expanded the use of vouchers considerably. In 2016, employers bought 133.8 million vouchers at EUR 10 each, up 23.9 percent from 2015. Unions have been highly critical of job vouchers, noting the recipients of the vouchers (1.7 million workers in 2015) do not receive benefits, training, or job security. The use of labor vouchers was more limited in 2017, and this generated an increase in temporary labor contracts, and according to analysts, more underground employment as well.
According to official GOI statistics, overall employment in Italy increased by 156,000 (i.e., 0.7 percentage points) from January 2017 to January 2018, primarily related to increased employment among those in the age cohort 15-24 and those over 50 years of age. Despite the recent improvement, the GOI and the European Commission continue to forecast that Italy’s unemployment rate will remain in double digits until 2020, as employers increasingly seek to improve worker productivity and increase hours for existing workers, rather than hire additional new workers.
Indefinite employment contracts signed before March 2015 are governed by the June 2012 labor regime, which allows firms to conduct layoffs and firings with lump sum payments. Under the 2012 system, according to Article 18 of the workers’ statute of 1970, judges can order reinstatement of dismissed employees (with back pay) if they find the dismissal was a pretext for discriminatory or disciplinary dismissal. In practice, dismissed employees reserved the right to challenge their dismissal indefinitely, often using the threat of prolonged legal proceedings or an adverse court ruling to negotiate additional severance packages with employers.
Open-ended employment contracts signed since March 2015 are governed by the new rules under the labor market reform (Jobs Act), which provides employment contracts with protections increasing with job tenure. During the first 36 months of employment, firms may dismiss employees for bona fide economic reasons. Under the new Jobs Act regime, dismissed employees must appeal their dismissal within 60 days and reinstatements are limited.
Regardless of the reason for termination of employment, all former employees are entitled to receive mandatory severance payments from their employer (TFR – trattamento di fine rapporto), equal to 7.4 percent of the employee’s annual gross compensation for each year worked.
Other Jobs Act measures enacted in 2015 include universal unemployment and maternity benefits, as well as a reduced number of official labor contract templates (from 42 to six). The GOI’s unemployment insurance (NASPI) provides up to six months of coverage for laid-off workers. The GOI also provides worker retraining and job placement assistance, but services vary by region and implementation of national active labor market policies remains in process. Italy also offers other social safety net protections to all residents, designed to tackle poverty. The GOI is implementing an anti-poverty plan (reddito di inclusione) aimed at providing some financial relief and training to homeless individuals and people with income below the poverty level. In late March 2018, INPS reported that in the first three months of 2018, 250,000 Italian households, corresponding to 870,000 people, benefitted from national and regional anti-poverty measures. The amount of the benefits ranged from EUR 177 a month for singles to EUR 429 for a family of six or more.
The GOI must still implement remaining Jobs Act measures, including a statutory minimum wage. (Italy does not currently have a national minimum wage, as wages are set through sector-wide collective bargaining.) An agency for Job Training and Placement (ANPAL) was established in 2016 to coordinate with Italian regions, which after the defeat of the December 2016 constitutional reform referendum, remain in charge of implementation of many labor policies. ANPAL is following the implementation of the Assegno di Riallocazione (the “reallocation check”), an initiative related to the Jobs Act aimed at providing unemployment benefits, such as the special wage guarantee fund (Cassa Integrazione Straordinaria) and retraining to find a new job. The “reallocation check” funds are dispersed to the agency in charge of the retraining and job placement only after the candidate gets a new job.
Italy does not waive existing labor laws in order to attract or retain investments. All the benefits, including the old hiring incentives in the 2015, 2016 and 2018 budgets, were and are available to all eligible companies operating in Italy.
Historical regional labor market disparities remain unchanged, with the southern third of the country posting a significantly higher unemployment rate (e.g., more than 25 percent in Calabria, at the southern end of the peninsula) than northern and central Italy (e.g., approximately 4 percent in Bolzano, a northern region bordering Austria). Despite these differences, internal migration within Italy remains modest, while industry-wide national collective bargaining agreements set equal wages across the entire country. Immigrants from Eastern Europe and North Africa often supplement the shortages in the north of unskilled and semi-skilled labor.
Italy is an International Labor Organization (ILO) member country. Terms and conditions of employment are periodically fixed by collective labor agreements in different professions. Most Italian unions are grouped into four major national confederations: the General Italian Confederation of Labor (CGIL), the Italian Confederation of Workers’ Unions (CISL), the Italian Union of Labor (UIL), and the General Union of Labor (UGL). The first three organizations are affiliated with the International Confederation of Free Trade Unions (ICFTU), while UGL has been associated with the World Confederation of Labor (WCL). The confederations negotiate national-level collective bargaining agreements with employer associations, which are binding on all employers in a sector or industry irrespective of geographical location.
Collective bargaining is widespread in Italy, occurring at the national-level (primarily to reflect inflation and cost-of-living adjustments) and industry-level (to reflect productivity and profitability). Firm-level collective bargaining is limited. The Italian Constitution provides that unions may reach collective agreements that are binding on all workers. There are no official estimates of the percentage of the economy covered by collective bargaining agreements. A 2014 estimate from union officials projected collective bargaining coverage at 80 percent (for national-level bargaining), with less coverage for industry-level agreements and minimal coverage for company-level agreements. Collective agreements may last up to three years, though recent practice is to renew collective agreements annually. Collective bargaining establishes the minimum standards for employment, through employers retain the discretion to apply more favorable treatment to some employees covered by the agreement.
Labor disputes are handled through the civil court system, though they are subject to specific procedures. Before entering the civil court system, parties must first attempt to resolve their disputes through conciliation (administered by the local office of the Ministry of Labor) and/or through specific union-agreed dispute resolution procedures.
In cases of proposed mass layoffs or facility closures, the Ministry of Economic Development may convene a tripartite negotiation (Ministry, company, and union representatives) to attempt to reach a mutually acceptable agreement to avoid the layoff or closure.
There were no strikes during the last year that posed investment risks. The Italian Constitution recognizes an employee’s right to strike. Strikes are permitted in practice, but are typically short-term (e.g., one working day) to draw attention to specific areas of concern. In addition, workers (or former employees) commonly participate in demonstrations to show opposition to proposed job cuts or facility closings, but these demonstrations have not threatened investments. In addition, frequent strikes by employees of local transportation providers may limit citizens’ mobility.
12. OPIC and Other Investment Insurance Programs
Chinese investment has expanded rapidly in Italy in the last five years; however, the source of the financing (i.e. government-backed or private funds) is unclear. U.S. firms have not generally cited Chinese investment as a challenge for doing business in Italy.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|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)||2017||EUR 1,716,000||2016||USD 1,859,000||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)||2016||USD 8,400||2016||USD 24,600||BEA data available at
|Host country’s FDI in the United States (M USD, stock positions)||2016||USD 34,900||2016||USD 30,000||BEA data available at
|Total inbound stock of FDI as % host GDP||2016||20.2%||2016||18.5%||N/A|
* 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.
Table 3: Sources and Destination of FDI
|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||344,749||100%||Total Outward||472,339||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
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.
Table 4: Sources of Portfolio Investment
|Portfolio Investment Assets|
|Top Five Partners (Millions, US Dollars)|
|Total||Equity Securities||Total Debt Securities|
|All Countries||1,555,077||100%||All Countries||954,572||100%||All Countries||600,504||100%|
|United States||114,899||7%||United Kingdom||34,690||4%||Germany||59,541||10%|
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.
14. Contact for More Information
Attn: Economic Section
DPO AE 09624
Tel: +39 06 4674 2107