For sole traders, the income tax rate varies depending on income (from 23% to 40%). You can opt for a forfettario regime to pay just 15% tax...
The main decision you will need to make after having decided to set-up a business in Italy is: should you set-up a limited company or as a sole trader?
Both have benefits and drawbacks. Here we will look at the differences between the two so that you can decide on which is the most appropriate for your business in Italy.
Sole Trader v Limited Company
Sole traders in Italy are known as ‘autonomis’ and those who are just starting-out and where the income is likely to be low tend to choose this route.
Mainly because it is less complex and more economical to both set-up and run. Accountants will normally charge 50% to manage compliance and tax returns in comparison to a limited company, given the lower administrative requirements.
As in other countries, whether your business is classed as ‘autonomi’ or as a limited company there are a number of fiscal obligations that the owner of a business in Italy will have.
Most larger businesses will have an obligation to make VAT (in Italy this is called IVA) and Income Tax returns. Of course if you decide to create a limited company then you will also have to make a company tax return (impuesto de sociedades) as well as file the annual accounts with the Company’s Register.
A company will need to retain up to 15% of any invoice presented to it by a professional/autonomo and file a return.
These extra obligations mean that the cost of maintaining the company are higher than where a sole trader is concerned.
For sole traders, the income tax rate varies depending on income (from 23% to 40%). For small entities with revenues up to about 30.000 euros (the limit may vary according to activity) you can opt for a special regime called forfettario which allows you to pay just 15% tax and do not apply VAT (IVA in Italy).
As for limited companies, two different taxes apply, with a different tax base. The first one called Ires is now 24%, the second one called Irap varies between 3,9 to 5%. It is quite a complex system, with a lot of special cases and exceptions.
Social Security Obligations
As an autonomo or sole trader you will need to register with the local social security office and pay contributions each month. These contributions tend to be significantly higher than in other northern European countries with a current minimum of approximately €2800-3000 per year payment for commercial activities (for example shops, agents, manufacturing etc), or a fixed rate on income for consultants/professionals that varies each year and is currently approx. 26%, .
There are some reductions for those under 30 years of age or a temporary discount for example where the person has been unemployed and has decided to become self-employed.
In the case of a limited company there is an obligation to make social security contributions on behalf of an employee of 24% of their income. Where there are no employees of the company i.e. a single director company then that director must register as an autonomo and pay those social security contributions.
Just as elsewhere, one of the major differences between the two forms of business is that creating a limited company ensures limited liability to the owner of the company. If as a result of the operation of the company a financial liability should arise, then often this is limited to the amount of capital in the company.
As a matter of law in Italy the minimum level of capital that any company can have at any time is set at €3000 though this is sometimes disregarded by less scrupulous business owners.
One of the major drawbacks of registering as an autonomo is that you will be personally liable for any debts or losses incurred by your business and any personal assets could be at risk if your business is in financial trouble – either as a result of damages owed to a client or failure to pay due taxes and social security contributions.
Office Locations Across Italy
As well as two private offices in the north of the country (blue markers on side-map), ilaria also provides accounting and associated services to English-speaking clients via the Advocate Abroad network of offices in Italy (red markers on main map below). Each of the lawyers on the map of Italy below are registered and regulated by the Bar Associations of Italy and so we are able to offer a truly nationwide service to English-speakers wherever they wish to set-up their business in Italy.
Assuming you have already decided on the type of business you want to run and where in Italy you wish to locate it, then the main decision you will need to make is whether you should set it up as a limited company or as a sole trader.
This can be extremely important as you can save a considerable amount of money depending on which option you choose. Both have benefits and drawbacks. Here we will look at the differences between the two so that you can decide on which is the most appropriate – and cost effective – for your business in Italy.