Italy’s economy, the eighth largest in the world, is fully diversified, and distinctively dominated by small and medium-sized firms (SMEs), which comprise 99.9 percent of Italian businesses. Italy continues to lag behind many industrialized nations as a recipient of foreign direct investment; Germany, France, the United States, Spain, Switzerland, and the United Kingdom are Italy’s most important investment partners, with China gaining 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, and textiles/fashion. Italy is an original member of the 19-nation Eurozone.
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 have been undermined in part by Italy’s ongoing economic weakness and lack of consistent progress on structural reforms to repair a range of shortcomings, including 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 the current government is making progress on improving Italy’s investment climate.
Italy has had very few investment disputes involving a U.S. person in the last 10 years. Post has identified less than five such active disputes; none of these have been terminated or resolved, but remain pending.
The GOI committed to privatize €16 billion in state-owned assets in 2016 and 2017, with plans to privatize a minority share of the national rail network (Ferrovie dello Stato - FS) and to sell another 30 percent of the national postal provider (Poste Italiane) in 2017. The GOI solicits and encourages foreign investors to participate in its privatizations. The privatizations are straight-forward, non-discriminatory, and transparent.
The 2015 Jobs Act is a package of structural reforms to Italy’s labor market, removing a key obstacle to hiring new employees in the form of employees’ unqualified right to seek reinstatement (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. 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. As of January 2017, 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.
Table 1
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Italy welcomes foreign direct investment (FDI). According to UNCTAD, in 2015, total FDI stock in Italy was 18.5 percent of GDP. 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 the domestic firm involved is determined to be essential to the national economy. This law was enacted in 2012 and further implemented with a 2015 decree. 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, and telecommunications). The GOI’s Golden Power authority always applies in cases in which the potential purchaser is a non- 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 Shares" 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, 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 (72.5 percent), postal and financial services provider Poste Italiane (64.7 percent), electricity provider ENEL (25.5 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). Moreover, as noted above, while it does not own any shares in former monopoly Telecom Italia (TI), the GOI retains the right to review any possible acquisition under the Golden Power law. Government policy in these key economic sectors may take into account the interests of these specific firms.
According to the latest available figures from the Italian Trade Commission (ICE) from December 2014, 6,119 foreign companies operate in Italy and foreign investors own significant shares of 11,102 Italian companies. These companies employed 954,582 workers with overall sales of €498.6 billion.
Italy has an investment promotion agency to facilitate foreign investment. The Italian Trade Agency (ITA) is administered by the Ministry of Economic Development ). 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 January 2017, ITA maintained 81 branches in 67 countries to attract and assist foreign investors. Contact information for the individual branches can be found here: http://www.investinitaly.com/en/fdi-desks/.
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 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.
Limits on Foreign Control and Right to Private Ownership and Establishment
Italy generally provides 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. Italy maintains a formal screening process for inbound foreign investment only in the sectors of defense/national security, transportation, energy, and telecommunications, under its “Golden Power" legislation and where there may market concentration (antitrust) issues.
Business Facilitation
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 2017, it takes approximately six procedures and 6.5 days to start a business in Italy. Additional licenses may be required, depending on the type of business to be conducted.
The GOI has an investment promotion agency to promote inward investment, Invitalia. In addition, the Italian Trade Agency (ICE) has set up a “Foreign Investment Department" to 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.
The GOI defines SMEs in line with the EU definition ). Italy provides incentives to certain SMEs (e.g., “innovative SMEs"), which would also be available to qualifying foreign-owned companies.
Outward Investment
Italy does not promote, restrict, or incentivize outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
Italy has no bilateral investment treaty (BIT) with the United States. Italy has not concluded any new BITs since 2014, or signed a BIT since 2009, when the European Union assumed exclusive competence for negotiating investment treaties on behalf of all member states (which it may choose to derogate, on a case-by-case basis, at a member state’s request). For more information, see http://ec.europa.eu/trade/policy/accessing-markets/investment/. As an EU member, Italy’s FTA negotiations are likewise handled at the EU level: http://ec.europa.eu/trade/policy/.
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, Azerbaijan, 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, Cyprus (signed, not in force), 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, India,, Iran, Islamic Republic of, Jamaica, Jordan, Kazakhstan, Kenya, Korea, DPR of (signed, not in force), Korea, Republic of, Kuwait, Lebanon, Libya, Macedonia FYR, Malawi, Malaysia,, 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), Uganda, United Arab Emirates, Uruguay, Uzbekistan, Venezuela (signed, not in force), Vietnam, Yemen, Zambia, Zimbabwe (signed, not in force).
Bilateral Taxation Treaties
Italy has a bilateral taxation treaty with the United States, which is available at https://www.irs.gov/businesses/international-businesses/italy-tax-treaty-documents.
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 has targeted large foreign 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.
3. Legal Regime
Transparency of the Regulatory System
Italy is subject to single market directives mandated by the EU, which are intended to harmonize regulatory regimes among EU countries.
Italy is slowly tackling some of the red tape and other obstacles that have hampered business in the past. The World Bank’s 2017 “Doing Business" Index ranks Italy 50th out of 189 countries. A “liberalization" decree in 2012 provided limited incentives for entrepreneurs under age 35 starting a new businesses, including cutting the registration fee to one euro and reducing filing requirements. The government issued a broader simplification decree in 2012 that eliminated 15 obsolete laws to reduce the amount of red tape and fees required for those seeking to open a business. In 2012, the government passed a decree providing tax credits for startups and incubators, as well as for private infrastructure investment.
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 2016. Aggrieved parties may challenge regulations in court.
Italy is an EU Member State. It has regulatory competency in those fields which are not deemed to be EU regulatory competencies. Italy is subject to single market directives mandated by the EU, which are intended to harmonize regulatory regimes among EU countries. As a member of the WTO, Italy regularly refers cases of regulations to the WTO Technical Barriers to Trade Committee.
Legal System and Judicial Independence
Italian law is based on Roman law and on the French Napoleonic Code. The Italian judicial system consists of a series of courts and a body of judges employed as civil servants. The system is unified, 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 commercial arbitration.
In January 2012, the government introduced new “business tribunals" in each of Italy’s 20 Regions intended to expedite the resolution of shareholder disputes, intellectual property disputes, and other corporate matters, but not to adjudicate business disputes such as contract disputes. These courts are resolving the majority of their cases within one year, much more quickly than general civil courts. The government also introduced measures designed to streamline the legal system, and to promote alternative dispute resolution techniques, such as mediation and the decriminalization of minor offenses. The World Justice Project’s 2016 Rule of Law Index scored Italy as 20th out of the 24 countries in the Western Europe and North America Region.
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 domestic court system.
Laws and Regulations on Foreign Direct Investment
Italy is bound by EU laws on FDI.
Invitalia, a company wholly owned by the Ministry of Economy and Finance, was created as the central point of reference for businesses wishing to establish themselves in Italy. Its stated mission is “to offer a single and reliable point of reference to current and new investors seeking to set up or expand their business in Italy. The Agency offers a wide range of tailor-made, free of charge, and confidential services to foreign investors." See https://www.invitalia.it/eng for more information.
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. In such instances, prompt, adequate, and effective compensation must be paid to the property holders.
Dispute Settlement
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). 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 (ICSID) 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. Post identified less than five such active disputes; none of these have been terminated or resolved, but remain pending.
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.
Bankruptcy Regulations
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 restructure debts. Implementing regulations had been expected by the end of 2016, but have not yet been issued. In the World Bank’s Doing Business Report 2017, Italy ranks 25th out of 189 economies in the category of Ease of Resolving Insolvency.
4. Industrial Policies
Investment Incentives
The GOI offers modest incentives to encourage private sector investment in targeted sectors (e.g., innovative companies) and economically depressed regions, particularly 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.
The Italian tax system does not discriminate between foreign and domestic investors. Corporate income tax (IRES) rates are 27.5 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 at 62 percent of commercial profits in 2016, the highest rate in the EU, but down slightly from 64.8 percent in 2015. 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 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. A “tax free zone" has also been approved and financed for the Province of Caltanissetta in central Sicily with €50 million in European structural funds. The project was to have been launched in 2013, but has not moved out of the planning and discussion phase.
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 aims to assist the recovery of these areas through tax exemptions amounting to €39,600,000 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 the hiring of local employees, nor does it employ forced localization policies in which foreign investors must use domestic content in goods or technology.
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 http://www.esteri.it/mae/en/ministero/servizi/stranieri/condizreciprocita. For a list of countries with reciprocal arrangements, please see: http://www.esteri.it/mae/en/ministero/servizi/stranieri/elenco_paesi.html
http://www.esteri.it/mae/en/ministero/servizi/stranieri/condizreciprocita/
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.
5. Protection of Property Rights
Real Property
According to the World Bank, Italy ranks 24th worldwide for the ease of registering property, the same as last year. 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, 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 250 blocking orders, while at the same time there has been an increase in sites voluntarily cooperating with rights holders to remove copyrighted material.
Authorities also continue to pursue trademark violations. In 2015, the last year for which statistics are available, customs and the tax police jointly seized over 54 million counterfeit items (excluding foods and beverages, tobacco and medical products), worth over €332 million ($354 million).
Italy is a member of the Paris Union International Convention for the Protection of Industrial Property (patents and trademarks). U.S. citizens generally receive national treatment in acquiring and maintaining patent and trademark protection in Italy. After filing a patent application in the United States, a U.S. citizen is entitled to a 12-month period within which to file a corresponding application in Italy and receive rights of priority. Patents are granted for 20 years from the effective filing date of application and are transferable. U.S. authors can also obtain copyright protection in Italy for their work first copyrighted in the United States.
There have been no major new IP laws or regulations adopted since 2014.
Italy does not appear 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/.
Resources for Rights Holders
Embassy point of contact: RomeECON@state.gov
Local lawyers list: https://it.usembassy.gov/u-s-citizen-services/attorneys/
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 ). 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). Liquidity measures, turnover and trading information for the Milan Stock market can be found here: http://www.borsaitaliana.it/borsaitaliana/statistiche/statistiche.en.htm.
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. A full list of countries subject to tax treaties can be found on the Revenue Agency website:
https://www.agenziaentrate.gov.it/wps/portal/english/revenue_agency.
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.
In January 2014 Italy and the United States 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. FATCA officially entered into force in Italy on July 8, 2015.
In 2016, the GOI also signed a tax information exchange agreement (TIEA) with Costa Rica.
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, with fees ranging from €0.025 to €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 €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 very 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 dampens banks’ profitability. The ratio of non-performing loans (NPLs) on total outstanding loans increased significantly, especially for lending to non-financial firms. NPLs have more than doubled since the crisis to reach €200 billion, accounting for 10.5 percent of all loans as of January 2017. The BOI expects NPLs to peak in 2017. 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 €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.
Italy’s central bank, the Bank of Italy (BOI), is a member of the Eurosystem 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. Bank loans to households returned to growth at the end of 2015, while Italian bank lending to businesses returned to growth in 2016.
The banking system in Italy has consolidated significantly since the financial crisis, but there is still an overabundance of Italian banks. The GOI is taking steps to encourage further consolidation and to facilitate acquisitions by outside investors. As of September 2016, there were 641 banks in Italy, five fewer than a year earlier. 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 Jan. 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: 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).
Foreign Exchange and Remittances
Foreign Exchange
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 €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 €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.
Remittance Policies
There are no limitations on remittances, though transactions above €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, standalone money laundering, and foreign predicate offences, 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 €3.5 billion in capital, with €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 ). 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). The GOI holds a 99.56 percent share of RAI, the national radio and television broadcasting network. In addition, the GOI holds a controlling interest, either directly or through the state-controlled sovereign wealth fund Cassa Depositi e Prestiti (CDP), in shipbuilder Fincantieri (72.5 percent), postal and financial services provider Poste Italiane (64.7 percent), the national air traffic controller ENAV(57.5 percent), electricity provider ENEL (25.5 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).
As noted above, the GOI owns a controlling interest in the national development bank and sovereign-wealth fund Cassa Depositi e Prestiti, which invests in public sector projects and in companies of public interest such as electricity transmission operator Terna and gas distributor Snam. However, the companies are operating in a competitive environment (domestically and internationally) and are increasingly responsive to market-driven decision-making rather than GOI political 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 entities 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/index.html.
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 (€52 billion), ENEL (€39 billion in assets), Snam (€12 billion) and Leonardo-Finmeccanica (€7 billion). See above for the GOI’s share in each.
As an EU member, Italy is covered by EU government procurement rules.
Privatization Program
The GOI committed to privatize €16 billion in state-owned assets in 2016 and 2017, planning for €8 billion in each year although 2016 privatizations did not reach this target. 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 delay of the planned privatization of a minority share of the national rail network (Ferrovie dello Stato - FS) until at least 2017. GOI plans to sell another 30 percent of the national postal provider (Poste Italiane) by year-end 2017.
The GOI solicits and encourages foreign investors to participate in its privatizations. The privatizations are straight-forward, 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, though 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/web/consob-and-its-activities/publications.
Italy supports and promotes the OECD’s Guidelines for Multinational Enterprises (“Guidelines"), which are recommendations addressed by governments to multinational enterprises, providing a due diligence approach to voluntary 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. (See: OECD Guidelines: http://www.oecd.org/dataoecd/12/21/1903291.pdf. For the full text in English, see: http://www.oecd.org/dataoecd/56/36/1922428.pdf.)
The Italian National Contact Point (NCP) for the Guidelines, located in the Ministry of Economic Development, ensures that the Guidelines are well known and understood by the national business community, promotes collaboration among national and international institutions, and offers its good offices to facilitate the resolution of disputes in specific instances where a business is perceived as deviating from the Guidelines. Italy’s National Action Plan on Corporate Social Responsibility is available online. 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. Independent NGOs are able to operate freely in Italy. Italy’s three largest trade union confederations actively promote and monitor RBCs. They serve on the advisory body to the NCP. Unions are able to work freely in Italy.
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.
9. Corruption
Corruption, including bribery, raises the costs and risks of doing business. Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. It also deters international investment, stifles economic growth and development, distorts prices, and undermines the rule of law. 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 €60 billion annually in wasted public resources. Successive Italian governments have been engaged in the fight against corruption.
Legislative Approaches to Corruption
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 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 Jan. 1, 2015, giving the Italian authorities increased ability to prosecute individuals for money-laundering as a standalone crime. While anti-corruption laws and trials garner headlines, they have been only somewhat effective in stopping corruption. Though Italy’s rank has improved in Transparency International’s Corruption Perceptions Index every year since 2014, its current 60th placement is still the lowest-ranking country in the EU aside from Greece.
Recent Corruption Cases in Italy
In 2014 and 2015 a number of public and private officials were arrested on corruption charges related to public works contracts for the Milan Expo. In 2015, a major public sub-contracting scandal emerged in Rome known as “Mafia Capitale," which exposed not only public corruption but also ties between organized crime groups and government officials. In November 2015, 46 individuals were placed on trial in connection with Mafia Capitale, the second-largest corruption trial in Italy’s history. The services affected by the Mafia Capitale corruption scandal ranged from recycling to providing food and shelter for refugees. As of January 2016, four individuals had been convicted of corruption with sentences ranging from one year and ten months to two years and four months.
Raffaele Marra, close aide to Rome Mayor Virginia Raggi, was arrested in December 2016 as part of an investigation into alleged corrupt dealings between Marra and a local real estate developer while Marra was Rome Housing Commissioner in 2013. In 2016, an ANAC review of the Italian government’s public procurement agency Consip revealed that between Consip’s two major public facility management contracts, FM3 and FM4, just two companies received almost two-thirds of the contracts. In February 2017, prominent Italian businessman Alfredo Romeo, who owns one of the two companies in question, was arrested for allegedly attempting to corrupt Consip executives. Two public officials, Minister of Sport Luca Lotti and Carabinieri commander Tullio Del Sette, were placed under investigation for the alleged unauthorized disclosure of information during the same Consip probe. As of March 2017, neither has been formally charged. In March 2017, Italian Senator Denis Verdini was sentenced in a Florence court to nine years’ imprisonment for bankruptcy fraud pertaining to his leadership of the failed credit union Credito Cooperativo Fiorentino (CCF).
Impact on Private Companies
It is important for U.S. companies, irrespective of their size, to assess the business climate in the market in which they will be operating or investing, and to have effective compliance programs or measures to prevent and detect corruption, including foreign bribery. 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. According to Italian law, a private party who is unlawfully induced to give or promise money or other advantage to a public officer or person charged with a public service commits an offence. It is likewise an offence for a person to take advantage of his or her relationship with a public officer for the purpose of receiving or promising money or other kind of economic advantage.
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 (such as the corruption allegations linked to Milan Expo, as previously described). 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).
It is U.S. government policy to promote good governance, including host country implementation and enforcement of anti-corruption laws and policies pursuant to their obligations under international agreements. Since enactment of the FCPA, the United States has been instrumental to the expansion of the international framework to fight corruption. Several significant components of this framework are the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Antibribery Convention), the United Nations Convention against Corruption (UN Convention), the Inter-American Convention against Corruption (OAS Convention), the Council of Europe Criminal and Civil Law Conventions, and a growing list of U.S. free trade agreements. Italy is party to the OECD Antibribery Convention and the UN Convention, and has signed and ratified both the Civil and Criminal Law Conventions on Corruption within the Council of Europe (COE). However, Italy has not yet ratified the COE’s additional protocol on corruption. Italy also works to counter corruption through various international bodies such as the International Chambers of Commerce, International Business Leaders Forum, International Association of Anti-Corruption Authorities, and the G20 Anti-Corruption Working Group. In addition, Italy has local branches/networks of the Global Organization of Parliamentarians Against Corruption, Transparency International, and UN Global Compact. Generally all countries prohibit the bribery and solicitation of their public officials.
OECD Antibribery Convention
Italy has signed and ratified the OECD Convention on Combatting Bribery, which entered into force in February 1999. As of January 2017, there are 41 parties to the Convention including the United States (see http://www.oecd.org/daf/anti-bribery/WGBRatificationStatus.pdf ). Major economies China and India are not parties, although the U.S. government strongly endorses their eventual accession to the Convention. The Convention obligates the Parties to criminalize bribery of foreign public officials in the conduct of international business. The United States meets its international obligations under the OECD Antibribery Convention through the U.S. FCPA.
UN Convention
Italy has signed and ratified the UN Anticorruption Convention, which entered into force on Dec. 14, 2005; it has 181 signatories as of December 2016 (see http://www.unodc.org/unodc/en/treaties/CAC/signatories.html ). The UN Convention is the first global comprehensive international anticorruption agreement. The UN Convention requires countries to establish criminal and other offences to cover a wide range of acts of corruption. The UN Convention goes beyond previous anticorruption instruments, covering a broad range of issues ranging from basic forms of corruption such as bribery and solicitation, embezzlement, trading in influence to the concealment and laundering of the proceeds of corruption. The Convention contains transnational business bribery provisions that are functionally similar to those in the OECD Antibribery Convention and contains provisions on private sector auditing and books and records requirements. Other provisions address matters such as prevention, international cooperation, and asset recovery.
Council of Europe Criminal Law and Civil Law Conventions
Many European countries are parties to either the Council of Europe (CoE) Criminal Law Convention on Corruption, the Civil Law Convention, or both. The Criminal Law Convention requires criminalization of a wide range of national and transnational conduct, including bribery, money-laundering, and account offenses. It also incorporates provisions on liability of legal persons and witness protection. The Civil Law Convention includes provisions on compensation for damage relating to corrupt acts, whistleblower protection, and validity of contracts, inter alia. The Group of States against Corruption (GRECO) was established in 1999 by the CoE to monitor compliance with these and related anti-corruption standards. Currently, GRECO comprises 49 member States (48 European countries and the United States). As of January 2017, the Criminal Law Convention has 50 parties and the Civil Law Convention has 42. Italy is a party to both. (See http://www.coe.int/t/dghl/monitoring/greco/default_en.asp.)
Local Laws
U.S. firms should familiarize themselves with local anticorruption laws. While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel. Exporters and investors should be aware that generally all countries prohibit the bribery of their public officials, and prohibit their officials from soliciting bribes under domestic laws. Most countries are required to criminalize such bribery and other acts of corruption by virtue of being parties to various international conventions discussed above.
Corruption is punishable under Italian law. Italian criminal law provides sentencing guidelines and grants the presiding judge discretion to impose the sentence consistent with the guidelines. Most corruption in recent years has involved government procurement or bribes to tax authorities. Bribes are not considered deductible business expenses under Italian tax law.
Transparency International (TI) publishes an annual Corruption Perceptions Index (CPI). The CPI measures the perceived level of public-sector corruption in 176 countries and territories around the world. The most recent CPI is available at: http://www.transparency.org/news/feature/corruption_perceptions_index_2016. In the 2016 CPI report, TI placed Italy in 60th position (an improvement of one place), tied with Cuba and alongside Sao Tome and Principe, Saudi Arabia, and Montenegro. While highly publicized anti-corruption enforcement activities have been underway for years, there is general agreement that a high level of corruption limits Italy’s economic growth and ability to attract foreign investment. TI also publishes an annual Global Corruption Report (GCR) which provides a systematic evaluation of the state of corruption around the world. It includes an in-depth analysis of a focal theme, a series of country reports that document major corruption related events and developments from all continents, and an overview of the latest research findings on anti-corruption diagnostics and tools. See http://www.transparency.org/research/gcr.
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
Email: protocollo@pec.anticorruzione.it
Whistleblower hotline phone: +39 02 49520512
Giorgio Fraschini
Whistleblowing.it
Via Vigano 4
21045 Gazzada Schianno (VA)
giorgiofraschini@whistleblowing.it
Transparency International Italia
Via Zamagna 19
20148 Milano - Italy
Phone: +39 02 40093560
Fax: +39 02 406829
Email: info@transparency.it
Report corruption at: https://alac.transparency.it/#/
10. Political and Security Environment
Political violence is not currently a threat to foreign investments in Italy, but corruption, especially associated with organized crime, can be a major hindrance, particularly in the south.
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 12.0 percent in December 2016 and above the Eurozone average of 9.6 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 (40 percent in December 2016) and one of the highest among EU members. In 2015, 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, many Italians have 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 GOI aims to alleviate youth unemployment through the EU Youth Guarantee Fund as well as vocational programs.
However, the downward labor-force-participation trend changed in 2016, when 478,000 more working-age Italians reentered the labor pool. December 2016 marked the highest labor force participation rate in Italy since the data series began in 2004 (65.2 percent of working-age Italians). This may partially reflect increased optimism in their ability to find work, as reflected in the most recent confidence indicators.
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 Renzi government 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.
As of January 2017, the Jobs Act hiring incentives appear to have contributed to the Act’s stated goal of encouraging indefinite employment in 2015, mostly through a conversion of temporary contracts into open-ended contracts. Likely due to the reduction of the hiring incentives in 2016, the number of new workers hired on indefinite (open-ended) labor contracts declined 37.6 percent from 2015 to 2016, 1.26 million (756,206 fewer than in 2015 ), according to monthly data from INPS (Italy’s social security agency). Similarly, conversions of temporary or apprenticeship contracts into open-ended contracts declined 31.5 percent from 2015 to 2016 (460,110 fewer than in 2015). INPS reported 5.8 million new labor contracts (of all kinds) in 2016, down 7.4 percent from 2015.
Though Jobs Act labor reforms aimed to encourage indefinite labor contracts, employers are increasing taking advantage of temporary labor contracts. 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 for 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 €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.
According to official GOI statistics, overall employment in Italy increased by 242,000 (i.e., 1.1 percentage points) from 2015 to 2016, primarily related to increased employment among 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.
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 (ASDI) 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 must still implement remaining Jobs Act measures, expected in 2017, 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 was established in 2016, which will coordinate with the Italian regions (who remain in charge of implementation of many labor policies).
Italy does not waive existing labor laws in order to attract or retain investments. All the benefits including the hiring incentives in the 2015 and 2016 budgets were 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) in 2014, 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 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
The Overseas Private Investment Corporation (OPIC) does not operate in Italy.
Italy’s Export Credit Agency, SACE, is a member of the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Table 3: Sources and Destination of FDI
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 4: Sources of Portfolio Investment
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.
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
U.S. Embassy Rome
Unit 9500
Attn: Economic Section
DPO AE 09624
Tel: +39 06 4674 2107
Email: RomeECON@state.gov
Tags
Bureau of Economic and Business Affairs Bureau of European and Eurasian Affairs Italy
Source: U.S Department of State, Bureau of European and Eurasian Affairs
