The Italian civil law system provides for two business forms: partnerships and capital companies, considered here in turn.

Partnerships

Partnerships are characterised by the unlimited responsibility of the partners and the fact that they do not attract direct taxation on the income earned by them. (see table, below).

Like the UK, the income earned by the business will be imputed directly to the partners, who will be taxed at personal income tax rates (IRPEF) ranging from 23% to 43%.

There are three types of partnership that can be set up in Italy:

Simple partnership, società semplice (SS)

This business form constitutes the prototype for businesses in general and of partnerships in particular. It can only be formed for the performance of non-commercial activities.

It is very much in vogue to create a family holding structure, suitable for generational passages and management of real estate assets. The simple partnership doesn’t require a particular constitutional form, so much so it can be constituted by verbal contract – with the exception of the input of real estate, where a written contract is required. The simple partnership is not obliged to be registered in the Register of Companies if it has not been constituted in the form of a public deed.

The administration of the SS is up to each partner, separately from the others: each partner has the right to oppose the decision taken by the other partner, before the completion of the transaction. The majority of the partners wins over the opposition. Once the statement of account has been approved, each partner is entitled to receive any resulting profit.

Unlimited partnership, società in nome collettivo (SNC)

It is possible to carry out any type of activity in an SNC.

The deed of incorporation must be drawn up in writing, in the form of a public act or a notarised private one, and must indicate the description and the value of the contributions and the share in the profits of the various partners. The responsibility of the administration is up to the partners of the SNC.

In the SNC, all partners have unlimited and joint liability for social obligations. This means the partners will have to draw upon their personal assets if the partnership’s assets are not sufficient to meet its obligations.

The taxation of income earned by the SNC is subject to two types of taxes:

1 The partnership pays IRAP, the regional tax on productive activity on the income produced, which varies from region to region with an ordinary rate of 3.9%;

2 The profit net of IRAP is imputed directly to the partners, discounting the rates provided for the taxation of physical persons (IRPEF).

Limited partnership, società in accomandita semplice (SAS)

As in the case of the SNC, this form of partnership can carry out any type of activity. For the constitution of the partnership, it is compulsory to draw up the constitutive deed in writing in the form of public act or notarised private agreement.

The peculiarity of this partnership is the existence of two types of partners:

1 General partners with unlimited liability, who are responsible for the management and administration of the business;

2 Limited partners with limited liability for the shares they hold in the capital, who cannot participate in the management of the business nor be its directors.

The income earned by the partnership is subject to two types of tax collection:

1 The partnership pays IRAP;

2 The profit net of IRAP is imputed directly to the partners by discounting the rates foreseen for the taxation of physical persons (IRPEF).

The income that is produced by the partnership is added to the income of the individual partners, determining the total income on which to charge tax.

In Italy, like the UK, not all costs are tax deductible. There are a number of constraints on their deductibility for each cost and this leads to variations in the taxable income of the partners.

Companies

There are three types of company that can be formed in Italy:

Joint-stock company, società per azioni (SPA)

For the constitution of the company, it is obligatory to draw up the constitutive act in writing in the form of a public deed that must be deposited within 30 days at the Register of Companies of the registered office of the company.

The capital is represented by shares that give the holders voting rights. There may be different types of shares that may or may not give the holders voting rights in shareholders’ meetings.

The functioning of the company is guaranteed by an administrative body, a control body and a body responsible for the legal audit. This kind of company is the sole company that can be quoted on the stock exchange.

Limited liability company, società a responsabilità limitata (SRL)

Like the SPA, the limited liability company must be established by deed and the act of incorporation must be filed within 30 days with the Register of Companies of the company’s registered office.

Unlike the SPA, the capital of the SRL does not consist of shares but of quotas that do not give their holders different rights.

The company is governed by an administrative body and only when certain asset values, the number of employees and income levels are reached must a controlling and auditing body be appointed (see table, below).

This type of company guarantees the separation between the liability of the company and that of the shareholders. In fact, the latter are liable for the company’s obligations exclusively for the subscribed share capital.

Limited partnership by shares, Società in accomandita per azioni (SAPA)

Not widely used, this type of company, like the limited partnership, provides for two types of partners:

1 Unlimited partners: unlimitedly responsible for the company’s obligations and in charge of the administration of the company;

2 Limited partners: limitedly responsible for the subscribed share capital.

The capital is represented by shares.

Corporate taxation

Unlike partnerships where their operating results are taxed directly on the partners, corporations are subject to two types of taxation:

1 Corporate income tax (IRES) at the rate of 24%;

2 Regional tax on productive activities (IRAP) at the ordinary rate of 3.9%, a percentage that, as mentioned above, can vary from region to region.

The income produced by a corporation is given by the difference between taxable revenues and deductible costs, as is the case for partnerships. Not all costs are deductible, so there are upward and downward variations in the tax return to determine the taxable income.

If the company intends to distribute profits to shareholders, it must also apply a withholding tax of 26% on the dividend paid to its shareholders.

About the author

Andrea Matera, ACA, owner of Studio Andrea Matera in London and Genova and Rapallo, Italy