Italy is a civil law jurisdiction where legislation is codified by parliament or other administrative bodies (eg, for secondary legislation issued by the supervisory authorities). The legislative and judiciary powers are separate, as courts interpret and apply laws, but do not create new ones. Thus, precedents may materially influence, but are not strictly binding as such.

These powers are also distinct from executive power: legislation passed by the government requires a delegation or ratification by parliament.

The judiciary comprises civil, criminal, and administrative courts, all with varying degrees of jurisdiction. The Corte di Cassazione is the supreme court for civil and criminal matters, while the Consiglio di Stato is the supreme court for administrative and public law matters.

The Corte Costituzionale is the main constitutional guarantee body under the Italian constitution. The court is entrusted with important guarantee tasks, exercised through the control of the compliance of any laws with the principles set in the constitution.

Under the Italian foreign investment discipline, set forth in Law Decree No 21 of 15 March 2012, as amended (the “Decree”), the Italian government has the power to impose conditions, or veto, on investments in Italian companies and assets in strategic sectors when such investments may be detrimental to the national security or other public interests (often referred to as the “Golden Power”). In addition, certain actions by companies in strategic sectors require notification before they can be implemented.

To date, the operations under government scrutiny mainly concern:

• acquisition of a stake in Italian companies in the defence and national security sectors of (i) more than 3% for listed companies and (ii) more than 5% for non-listed companies, as well as any increase of the stake already owned in these companies;
• acquisitions of controlling interests in Italian companies operating in strategic sectors (eg, energy, transport, finance, communications, healthcare, data processing, AI, and robotics);
• acquisitions by non-EU entities of a stake of at least 10% in the corporate capital or voting rights in Italian companies operating in the above-mentioned strategic sectors, so long as the investment value is equal to or exceeds EUR1 million, and any increase of the stake in excess of 15%, 20%, 25%, and 50% of the corporate capital or voting rights of the company;
• resolutions, actions and transactions adopted by entities holding strategic assets in the above-mentioned sectors, resulting in change of ownership, control, or availability of such assets; and
• acquisition of:
1. goods and services for the design, realisation, and management of telecommunication networks based on 5G technology;
2. components functional to building or managing 5G networks; or
3. goods, services technologies relevant for cybersecurity, and cloud technology.

In addition, the buyer must submit an annual plan describing the prospects for the development of the 5G network.

Pursuant to the Decree, upon receipt of the filing, the Office of the President of the Council of Ministers (the “Office”) has up to 45 business days (reduced to 30 days but which may be extended up to 70 days for transactions related to 5G technologies) to review the transaction. In case of the need for additional information, the Office may suspend such period until the requested information is collected. The information must be provided within ten business days, or 20 for information requested from third parties. If another EU member state or the European Commission intends to review the transaction, also at the request of the Italian government, the review period is suspended until the relevant EU member state or the European Commission have expressed their opinion.

In case of acquisitions, the buyer is responsible for filing the notification to the Office, although the target company must either (i) co-sign the notification or (ii) receive the notice of the communication in which must be highlighted its opportunity to join the proceedings.

Parties may seek a preliminary assessment of a proposed transaction by the Office staff through a pre-filing system. If the parties fail to notify a transaction, the Office may review the transaction on its own initiative.

The government’s powers of intervention consist of prescribing conditions aimed at eliminating risk factors related to the vulnerability of the proposed solutions. If the company proceeds without having obtained authorisation, the government can proceed to:

• prevent the companies from operating (thus concluding the transaction);
• order the companies to reinstate the pre-existing situation; or
• fine the buying company up to 3% of its turnover.

The Decree does not identify a list of defined commitments that foreign investors must make in order to complete one of the transactions identified within 2. Restrictions on Foreign Investments.

Indeed, it will be the government that will define these commitments on a case-by-case basis, and communicate them to the investor in due course.

Such an approach allows, on the one hand, the maximum expression of the government’s power of imperium, which has no pre-determined limits on the commitments it can request from investors. On the other hand, it allows greater flexibility, and thus easier dialogue, between the Italian government and foreign investors aimed at defining the operational strategy to be followed.

The government’s decision whether or not to exercise the Golden Power, through the imposition of prescriptions, conditions, or by opposing the operation, is characterised by a very wide discretionary power, by reason of the nature of the interests protected, pertaining to national security. In this sense, the evaluations underlying the decision to proceed with the concrete exercise of special powers constitute choices of high administration, reviewable by the administrative court within the narrow limits of the existence of manifest illogicality of the decisions taken.

From this perspective, the correct, and often complicated, identification of the transaction – ie, whether or not it actually falls within the scope of the Golden Power, which is peremptory in nature and provided for in an exhaustive list – is of fundamental importance in order to have the administrative judge recognise the possibility of carrying out the transaction.

It should also be pointed out that, since the procedure for challenging an act of the President of the Council of Ministers is a procedure before the administrative court, it consists of two stages of proceedings:

• the first before the regional administrative court; and
• the second before the Council of State.

Any negative assessment by the court of first instance could be challenged before the court of second instance.

The types of corporate vehicles that are more interesting for foreign investors are capital companies, in particular “limited liability companies” (LLC) and “joint stock companies”.

Their main common characteristics are:

• company with own legal personality;
• different operational bodies, resolving according to the majority system;
• shareholders’ liability limited to the contributions to the company;
• only the company is liable for the corporate obligations;
• shareholders enjoy control systems;
• unless otherwise agreed under the by-laws, the shares are freely transferable; and
• a possible bankruptcy does not involve the shareholders.

Here are the main features of the two most common types of capital companies.

Società a Responsabilità Limitata (SRL):

• Governance – one or more directors or a board of directors (BoD) appointed by the shareholders.
• Controlling body – the appointment of controlling bodies in an SRL (sole statutory auditor or board of statutory auditors) is required only upon the occurrence of specific conditions provided for by law. The members shall be independent professionals appointed by the quotaholders. The board of statutory auditors shall be composed of five members – three effectives and two substitutes. At least one of the effectives and one of the substitutes must be registered with the legal accounting auditors’ register.

Generally, the legal accounting audit is delegated to an external auditor, which can be an independent expert person or a registered auditing firm.

Minimum share capital is corporate capital represented by quotas with a minimum amount for an “ordinary SRL” equal to EUR10,000.00. However, the corporate capital could be lower (ie, between EUR1.00 and EUR9,999).

• Number of quotaholders – minimum of one quotaholder, and no maximum limit.
• Suitable for SMEs, startups, and family-owned businesses.

The SRL is characterised by a greater flexibility of the by-laws which may reflect the actual needs of the quotaholders.

Società per Azioni (SPA):

• Governance – managed by a BoD appointed by the shareholders. The management control of the company must mandatorily be delegated to a board of statutory auditors.
• Controlling body – the management control of the company must mandatorily be delegated to a board of statutory auditors (see SRL).
• Minimum share capital is EUR50,000.
• Number of shareholders – minimum of one shareholder, and no maximum limit.
• The SPA is for bigger companies with widely-spread share capital or that wish to raise funds in the capital markets as well as for public companies.

Other corporate vehicles available in Italy include partnerships, co-operatives, and joint ventures. These vehicles have different governance structures and liability frameworks, catering to specific needs and purposes such as collaborative projects, shared investments, or social enterprises.

Preliminary fulfilments:

• choice of the main data (company name, corporate capital, duration, registered office, governance, end of fiscal year, etc);
• where necessary, obtention of Italian tax codes for directors and shareholders;
• identification of the company’s purpose, including a description of the newco’s core business and of ancillary activities; and
• drawing up of a special power of attorney should the future shareholder(s) not attend, in person, the notarial meeting for the incorporation of the company.

In addition to:

• Drafting of the by-laws – outline of the company’s ownership structure and governance.
• Capital deposit – the entire amount of the corporate capital must be subscribed and at least 25% paid, save the case of a sole quotaholder who must pay the entire corporate capital. The required minimum share capital has to be deposited into a bank account indicated by the public notary. After the incorporation, the money can be transferred to the company’s bank account.
• Incorporation deed before an Italian Notary Public by the future shareholders of the company or by special proxy-holders acting in the name and on behalf of the future shareholders.
• Registration at the Companies’ Register – after the incorporation, the newco must be registered with the Companies’ Register competent over the municipality where the registered office is set; the registration will grant the newco with legal effectiveness. Such formalities require about 5-7 days from the incorporation and are fulfilled by the Notary Public.

Under Italian law, a simplified, entirely digitalised incorporation process with a Notary Public is provided and allows for remote signing of the relevant documents via digital platforms.

Private companies in Italy are subject to reporting and disclosure obligations.

An annual management report has to be prepared yearly by the managing director(s) in order to allow the shareholder(s) to approve the annual financial statements which must be filed with the Companies’ Register.

Further mandatory filings with the Companies’ Register relate to the ownership structure (shareholders are publicly disclosed), management, controlling bodies and auditors, and changes to the by-laws.

Also, the directors of a company subject to the direction and co-ordination activity of another have the obligation to disclose such subjection to third parties by:

• communicating such status in the documents (eg, in a specific section of the integrative note of the annual financial statements of the co-ordinated company and in the directors’ report), as well as in the relevant correspondence; and
• registering the newco within a special section of the Companies’ Register.

Additionally, private companies are required to disclose information about their ultimate beneficial owners.

In Italy, SRLs and SPAs may have different management structures.

SRL

For an SRL, the management structure is typically a one-tier system, where the company is managed by one or more directors appointed by the shareholder(s). The directors have the authority to represent and manage the company’s affairs.

The shareholders exercise their control through the general meeting, where they approve important matters such as financial statements, dividends, and changes to the company’s by-laws.

SPA

An SPA has the flexibility to adopt either a one-tier or a two-tier management structure.

One-tier structure

In this structure, the company is managed by a BoD appointed by the shareholders. The BoD oversees the company’s operations, makes strategic decisions, and appoints the executive officers. The shareholders exercise their control through the general meeting, in which they approve certain matters, including the appointment and removal of directors.

Two-tier structure

In the second kind of management structure for SPAs, which was inspired by the French and German systems, an SPA has both a management board (consiglio di gestione) and a surveillance board (consiglio di sorveglianza).

The management board is responsible for day-to-day management, while the surveillance board’s role is to monitor and supervise the management board’s activities (powers that, in the traditional one-tier system, are reserved for the shareholders’ meeting and the board of auditors).

The two-tier structure is the administration model that most realises the dissociation between ownership (shareholders) and power (corporate bodies) and, although much less widespread in Italy, is the most suitable for companies whose management is entrusted to autonomous managers, with little interference from shareholders.

In Italy, the liability of directors and officers is primarily governed by the Italian Civil Code, the Italian Criminal Code, and specific legislation.

Directors and officers owe fiduciary duties to the company and its shareholders, including the duty of care and the duty of loyalty. They are required to act in the best interests of the company, exercise reasonable care, and avoid conflicts of interest. If directors or officers breach these duties, they can be held personally liable for damages caused to the company or third parties.

D&O policies – also covering the personal and economic liability of the directors – are available in Italy and allow companies to protect the personal assets of directors, managers, and attorneys in cases where they are involved in a claim for damages.

Under Italian law, there is a concept of “piercing the corporate veil” known as “disregard of the legal entity”. This doctrine allows courts to disregard the separate legal personality of a company and hold shareholders or directors personally liable for the company’s debts or wrongful acts if they abuse the corporate form or use it to commit fraud or evade legal obligations. However, Italian courts apply this doctrine cautiously, requiring strong evidence.

It should be noted that specific rules and liability provisions may vary depending on the type of company and the applicable legislation.

In Italy, the employment relationship is mainly regulated by the following sources:

• the constitution;
• the Civil Code;
• other regional and national laws;
• national collective labour agreements (CCNL);
• other provisions, as well as customs and traditions;
• EU Directives and Regulations; and
• international treaties.

In principle, a legal source can only provide for a more favourable standard than the legal source immediately above in the hierarchy.

In Italy, as in the other “civil law” systems, case law precedents are issued by the courts, based upon legal provisions. Case law precedents – in particular those issued by the supreme court (the higher one) – have a significant role in orienting both the interpretation and the application of Italian laws, disciplines, and practices.

Many issues related to employment relationships are governed by the national collective bargaining agreement (CBA) applied by the employer as well as by agreements that are signed with the trade unions at a company level.

The employment contract is usually concluded by signing a written document in the form of a contract or a letter of employment.

Having said that, under Italian law there is no legal requirement to execute employment contracts in writing for these to be considered valid. However, the written form is expressly required by Italian law for the validity of certain contractual patterns or covenants (eg, probation period or fixed-term employment contracts). In such cases, if the parties do not respect the mandatory format then the relevant covenant is null and void.

The individual employment contract is, in any case, subject to the terms and conditions of the applicable CCNL, which therefore take precedence over any agreements that may be made between the employer and the employee (without prejudice to any more favourable treatment of the employee).

The essential elements of the employment contract are:

• type of contract;
• level of employment of the employee;
• duties;
• place of work;
• working hours;
• remuneration;
• trial period, if any;
• any company endowments; and
• any additional covenants.

The employment contract may be fixed-term or open-ended, full-time or part-time. There are also particular types of contracts provided for by Italian law, such as apprenticeship contracts and agency contracts.

According to Italian law, the full-time working hours normally observed are 40 hours per week. A lower duration may be established by CCNL.

Generally speaking, an employee’s working time is subject to the regulation established by the CCNL applied by the employer.

Excess hours worked are considered as overtime and are paid according to special bonuses established by the applicable CCNL.

Managers and executives are not usually entitled to overtime pay, as they are not subject to working-time restrictions.

In accordance with Italian law provisions, weekly working hours – including overtime – cannot exceed a 48-hour threshold over a seven-day period.

Employees are entitled to a daily rest of at least 11 continuous hours for every 24-hour period. The number of hours worked per day may not exceed 13 unless the collective agreement or individual company agreement establishes a different working pattern for the day.

The employees’ rights outlined above cannot lawfully be waived by them.

Under Italian law, dismissals:

• must be notified in writing; and
• require the employer to provide the reasons for the termination.

The reason for the termination may be linked to a “justified objective reason” (eg, removal of a function within the company) or to a “just cause/justified subjective reason” (eg, a serious breach by the employee of certain obligations).

The latter hypothesis is considered a disciplinary dismissal and must be served following a specific procedure:

• the employer must promptly provide the employee with a written warning letter, specifying the misconduct;
• within the subsequent five days (or a longer term that may be set forth by the applicable CBA), the employee is entitled to submit the justifications hereof, either in writing or orally (with the help of the trade unions); and
• at the expiry of the relevant term, if no justification has been provided by the employee or, alternatively, upon receipt of the employee’s justification if this has been submitted, the employer is entitled to serve the dismissal. Dismissals for just cause do not include paying for the notice period.

If the dismissal is deemed null and void by the court (eg, if the dismissal relies on discriminatory reasons or if it is orally served), employees are entitled to be reinstated, as well as to the payment of an indemnity (of a minimum of five months’ salary up to the unworked period).

Otherwise, when a dismissal is found to be unfair (and not null), consequences may vary depending on the employee’s date of hiring, the breach by the employer, and the size of its business, and so on, in particular as follows:

• individual dismissals of employees (not executive levels) hired before 7 March 2015:
1. reinstatement and payment of an indemnity (not exceeding 12 months of total compensation) when the employee’s misconduct turns out not to have occurred or should have entailed a disciplinary sanction other than the employee’s dismissal as in accordance with the applicable CBA;
2. payment of an indemnity in the range of between 12 and 24 months of total compensation, whenever the dismissal is deemed unlawful;
3. payment of an indemnity in the range of between 6 and 12 months of total compensation, if the employer has breached rules governing the formal procedure related to the individual dismissals; and
4. payment of an indemnity in the range of between two-and-a-half and six months of total compensation (to be increased up to 10 or 14 months for employees having accrued a certain seniority) whenever the employer has up to 60 employees throughout Italy and has up to 15 employees at each production unit or within each municipality, regardless of the breach by the employer.
• individual dismissals of employees hired after 7 March 2015:
1. reinstatement and payment of an indemnity not exceeding 12 months of total compensation whenever it is directly demonstrated that the misconduct that the dismissal was based on did not occur;
2. payment of an indemnity in the range of between 6 and 36 months of total compensation, when the dismissal is deemed unlawful; and
3. payment of an indemnity of (depending on the seriousness of the employer’s breach) 3 to 6 months of total compensation when the employer has less than 15 employees, regardless of the breach by the employer.

For individual dismissals of executive-status employees, the applicable CBA establishes – in cases of unfair termination – the payment of the “additional indemnity”, basically based on the executive’s seniority.

A specific procedure, named the “collective dismissal procedure”, applies whenever employers with more than 15 employees – owing to reduction, transformation, or shutdown of activities – intend to dismiss, within a 120 days, at least five employees employed at the same production unit or at different production units within the same province.

The main steps of the procedure are the following:

• the employer must notify the trade unions in advance;
• the relevant notice, a copy of which is to be sent to the labour office, must include details of, among other things, the reasons that the redundancy relies on, the number of both the redundant employees and the other effective employees of the employer as well as the positions covered by them, and the technical, organisational, and production-related grounds owing to which no organisational measures other than the collective dismissal may be adopted;
• upon request by the works councils or trade unions, a meeting between the latter and the employer must be scheduled;
• if no agreement is reached over the meeting, an additional meeting before the competent labour office must be scheduled; and
• after the additional meeting, even if no agreement is reached, the employer is allowed to dismiss (in the subsequent 120 days).

The maximum duration of the collective dismissal procedure is 75 days (to be decreased by half whenever the collective dismissal procedure concerns less than 10 employees). This procedure also applies to executive-status employees.

In case of unfair collective dismissals, the consequences are:

• reinstatement and payment of an indemnity of up to 12 months of total compensation whenever selection criteria (statutory ones or those under the agreement reached with the unions within the collective dismissal procedure) are breached (this only applies to employees hired before 7 March 2015);
• payment of an indemnity in the range of between 12 and 24 months of total compensation in the case of a breach of the statutory procedure that is to be mandatorily complied with when serving collective dismissals (for employees hired before 7 March 2015);
• payment of an indemnity in the range of between 6 and 36 months of total compensation in the case of a breach of either the selection criteria or the statutory procedure, for employees hired after 7 March 2015; and
• payment of a specific additional indemnity against unfair collective dismissals established by the applicable CBA, if any, or, alternatively, payment of an indemnity in the range of between 12 and 24 months of total compensation if either the collective dismissal procedure or the selection criteria is breached (as far as executive-status employees are concerned).

The existence of employee representative bodies in the workplace is a consequence of the freedom to perform trade union activities, which is granted by the Italian constitution. According to Italian law (in particular, Article 30 of the Italian constitution), trade union activity is free and protected. As a consequence, there are various trade unions in any one business sector, which represent employees in the workplace.

Trade unions exercise an important role in the employment relationship through collective bargaining agreements (CCNL), which provide the “minimum standard” economic and legal protections for employees, that cannot be detracted from by employers.

An agreement may be qualified as a collective bargaining agreement upon the condition that at least one party is a trade union (on a national, local, or company level).

Collective bargaining agreements can be classified at the following levels:

• confederation level;
• national level; and
• local level (which includes agreements executed at company level).

Particular rights are granted to a qualified employee representative body formed in accordance with the Italian law (Article 19 of Law 300/1970, the so-called rappresentanza sindacale unitaria (RSA)).

Starting from 1993, the rights granted by law to RSAs have also been granted to another kind of employee representative body: the rappresentanza sindacale unitaria (RSU).

Unlike the RSA, which is a representative of one specific trade union, the RSU is a representative body whose members are elected to represent all the trade unions that have participated in the relevant election. The number of members depends on the size of the employer.

The conditions required by the law for the creation of an RSA and an RSU are different. Therefore, it is possible to have an RSA that represents certain trade unions and an RSU that represents other trade unions within the same employer.

RSAs and RSUs can only be created by employers that employ more than 15 employees (or five employees in the case of an agricultural employer).

Italian law grants certain rights only to RSAs and RSUs, including:

• right of assembly;
• right of referendum;
• limitations on the transfer of an RSA or RSU member;
• trade union leave; and
• right to publish communication on a board in the employer’s premises.

Income produced and owned by individuals is subject to personal income tax (IRPEF) according to different criteria:

• Italian tax residents are taxed on any income wherever produced (worldwide taxation); and
• non-tax residents are taxed only on income produced in Italy.

IRPEF is applied at the following progressive rates:

• 23% tax rate for income up to EUR15,000;
• 25% tax rate for income from EUR15,000 to EUR28,000;
• 35% tax rate for income from EUR28,000 to EUR50,000; and
• 43% tax rate for income exceeding EUR50,000.

The employer applies a withholding tax equal to the annual tax owed by the employee and pay employees’ social security contributions.

Corporate Income Tax

All income derived by companies performing commercial activities is subject to corporate income tax (IRES) at a rate of 24%. The tax base is derived from the result of the income statement, to which the appropriate fiscal adjustments should be applied according to the Income Tax Consolidation Act (TUIR) provisions.

Regional Tax on Productive Activities

The corporate income produced in the territory of each Italian region is subject to the regional tax on productive activities (IRAP) at a general tax rate of 3.9%.

Dividends

Dividends distributed from resident companies to other resident companies:

• are not subject to withholding tax; and
• contribute to the recipient company taxable income only to the extent of 5% of their amount, thus excluding the deductibility of 95% of the dividend received.

A withholding tax of 26% is levied on dividends paid by resident companies to:

• non-entrepreneur individual shareholders; and
• non-resident individual or corporate shareholders.

The withholding tax can be regularly reduced in case of a double tax treaty agreement, or even set to zero if the requirements for applying the European Parent-Subsidiary Directive are fulfilled.

Interest

In general, interest paid to resident and non-resident companies are subject to a 26% withholding tax.

The withholding tax can be regularly reduced in case of a double tax treaty agreement or may not be applied if the conditions for the application of the Interest and Royalties Directive occur.

In any case, no withholding tax is levied on interest for medium-to-long-term financing provided by European institutional investors (eg, UCITS and banks).

Royalties

Royalties paid to a resident company are not subject to withholding tax. However, royalties paid to non-resident companies are subject to a 30% withholding tax that can be reduced following the same provisions applied to interest.

Value Added Tax (VAT)

VAT is levied on transactions involving the supply of goods and the service provisions and charged to the final consumer. The Italian current VAT rate corresponds to 22%, despite the presence of several exceptions allowing a lower or zero rate to be applied.

R&D and Innovation Tax Credit

Italian regulation provides for a tax credit for companies investing in:

• research and development, for an amount equal to 10% of the costs, up to a maximum annual limit of EUR5 million, until 31 December 2031; and
• technological innovation, for an amount of 10% of the costs, up to a maximum annual limit of EUR2 million, until 31 December 2023; and, afterwards, for 5% of the costs, up to a maximum annual limit of EUR2 million, until 31 December 2025 (applicable also to design and aesthetic innovative conception).

Aid for Economic Growth (ACE)

The benefit corresponds to an IRES tax reduction of 0.31% applicable to the company’s annual net equity increase, represented by the difference between the capital increases (eg, waivers of loans or profits from previous years) and the capital reductions (eg, distribution to shareholders). The benefit can be claimed up to the net equity of the year.

Investment in Innovative Startups and Small and Mid-sized Enterprises (SME)

A tax deduction for the amounts invested in innovative start-up companies and SME can be provided for:

• individuals: IRPEF deduction of 30% of the investment, up to a maximum investment of EUR1 million annually; and
• companies: IRES deduction of 30% of the investment, with a maximum annual investment amount of EUR1.8 million.

The incentive provides for a maximum capital investment of EUR15 million per company (ie, a maximum benefit of EUR4.5 million).

Regime for Workers Relocating to Italy

The income produced by workers who transfer their residence to Italy contributes to the total taxable income to the extent of 30% of the amount, or 10% if residence is assumed in a southern Italian region, when:

• the worker has not been resident in Italy during the two tax periods preceding the transfer and undertakes to reside in Italy for at least two years; and
• the work activity is mainly performed in Italy.

A single tax base is identified for all the companies involved in the same consolidated group, which allows the IRES tax base to be calculated as the sum of the single company’s tax results.

The excess interest expenses, tax losses, and excess ACE generated by the single companies during the tax consolidation regime are transferred to the consolidated taxable income.

Interest Deduction Provision

Interest expense is deductible in an amount equal to the interest income of the tax period and those carried forward from previous tax periods. The interest expense amount exceeding the interest income may be deducted to the extent of 30% of the annual fiscal EBITDA and the EBITDA carried forward from previous tax years.

It is permitted to carry forward to subsequent periods for off-setting provisions:

• the interest expenses not deducted in a prior tax period;
• the excess interest income not offset against interest expense; and
• the EBITDA excess quota not used for covering interest expense. The carry-forward is allowed for a maximum of five years.

Costs and revenues arising from transactions with non-resident associated companies and any foreign company, on whose behalf the resident company distributes or processes products in Italy and are taxed at the market value in case of an income increase for the resident company.

Taxpayers who present adequate supporting documentation to the tax authority on how transfer prices were determined, benefit from a penalty protection system. In any case, the transfer pricing rules do not apply to transactions between two resident companies.

Controlled Foreign Companies (CFC) Regime

The income earned by the non-resident-controlled company, subject to privileged taxation, is attributed to the resident company, as a result of tax transparency, even in the absence of an actual distribution of profits.

Shell Companies

The shell companies tax regime applies in specific cases. In this event, if a company’s actual revenues are lower than the minimum income presumed by law, a specific taxable income is computed applying an increased IRES rate of 38%.

According to Article 5 of Law 10 (1990) No 287 (the “Antitrust Law”), an operation of concentration can be achieved:

• through the merger of two or more companies;
• through the assumption by an undertaking of direct or indirect control of another undertaking, either (i) through the purchase of shares in its corporate capital or (ii) by entering into an agreement; and
• through the establishment by two or more undertakings of a joint venture company in order to carry out a certain business activity jointly.

Pursuant to Article 16 of the Antitrust Law, an operation of concentration must be notified in advance to the Autorità Garante per la Concorrenza e il Mercato (also referred to as the “Authority”) if:

• the combined aggregate national turnover of all the undertakings concerned is more than EUR532 million; or
• if the aggregate national turnover of each of at least two of the undertakings concerned is more than EUR32 million.

Moreover, during the year 2022, an important amendment to Article 16 of the Antitrust Law was introduced, providing for further notification criteria; in particular, the Authority may require the undertakings concerned to notify within 30 days about a concentration (that it was completed no more than 6 months earlier) if:

• only one of the two noted turnover thresholds are met; or
• the combined aggregate worldwide turnover of all the undertakings concerned exceeds EUR5 billion.

These two criteria are applicable also taking into account the detrimental effects on the development and spread of small enterprises with innovative strategies.

Generally speaking, a merger transaction is deemed to have been completed when a company has acquired the ability to substantially influence the economic behaviour of the target enterprise.

Therefore, the concentration must be disclosed prior to its implementation but after the parties have reached an agreement on the essential elements of the transaction, so as to enable the Authority to fully assess it.

In particular, in the case of:

• a merger between companies, the transaction must be disclosed before the drafting of the deed of merger;
• taking control of an enterprise, where the acquisition is made through the purchase of shares or stock in a company, the transaction shall nevertheless be deemed to have been communicated in advance when the effectiveness of the acts that determine the acquisition of control is conditioned on the outcome of the evaluation by the Authority; and
• the incorporation of a joint venture through a new company, the transaction must be disclosed before the registration of the Deed of Incorporation in the register of companies.

Within 30 days from the receipt of the notification, the Authority must inform the companies concerned whether or not it intends to open an investigation into the transactions (deadline reduced to 15 days in the case of a takeover bid).

Moreover, within the peremptory deadline of 45 days from the start of the investigation, the Authority must notify the undertakings concerned of its findings.

Article 2 of the Antitrust Law provides for the prohibition of activities restricting competition, namely those agreements and/or practices between directly competing undertakings, as well as resolutions or associations of undertakings, capable, through the co-ordination of the conduct of those participating in them, of procuring market distortions similar to those found in a monopoly situation, insofar as they have the object or the effect of preventing, or restricting or substantially distorting the competition within the national market or a relevant part thereof.

Therefore, if a horizontal agreement does not have a restrictive object in the competition, it must be assessed whether it has relevant restrictive effects on competition.

Both actual and potential effects must be considered. In other words, it must at least be likely that the agreement has anti-competitive effects. For an agreement to have restrictive effects on competition, it must have a non-negligible actual or probable negative impact on at least one of the dimensions of competition on the market, such as price, output, product quality, and/or variety or innovation. Agreements can have such effects where they significantly reduce competition between the parties to the agreement, or between them and third parties.

Article 2 of the Antitrust Law also provides an illustrative list of activities that may be considered prohibited restrictive agreements. In particular, agreements that:

• directly or indirectly fix purchase and sale prices;
• prevent or restrict production, investment, technical development, or innovation;
• are aimed at sharing markets and supply sources; and
• apply in commercial relations with other contracting parties, objectively different conditions for equivalent services.

Article 3 of the Antitrust Law states that the abuse by one or more undertakings of a dominant position is prohibited, without concretely defining either the terms of the abuse or the concept of dominant position.

Nevertheless, by the practice of the Authority:

• conduct that is aimed at obtaining supra-competitive profits or other benefits not achievable in a competitive situation or at preventing the entry or survival of competing operators in the market is generally regarded as abusive; and
• an undertaking can be defined as being in a dominant position when it has market power such that it is able to operate independently from its competitors, customers, and end consumers and, therefore, is able to influence the competition on a lasting basis.

The Authority has the power to set a deadline for the elimination of the infringement when the outcome of the investigation establishes the existence of abusive conduct of a dominant position.

Moreover, in cases of serious violations, also taking into account the seriousness and duration of the infringement, the supervisory authority may order the application of an administrative fine of up to 10% of the turnover achieved by the undertaking in the last financial year, or even order the suspension of business activity for up to 30 days in the event of repeated non-compliance with the law.

The Industrial Property Code (IPC), enacted by Legislative Decree No 30 of 10 February 2005, introduced in the Italian system a comprehensive, organic, and structured discipline on the protection, defence, and exploitation of intellectual property rights.

A patent is an industrial property title relating to a technical invention, which can be either a process or a product, and grants its owner an exclusive exploitation right. Italian law provides for two types of patent, namely (i) invention (ie, a new and original solution to a technical problem) and (ii) utility model (to protect the form of a product with technical functionality), which must meet the following patentability requirements:

• novelty (in relation to prior art);
• originality (ie, there must be an inventive step which may not be obvious to an expert in the field); and
• industrial applicability (ie, the patent must be suitable to be reproduced by way of industrial manufacturing).

Patents must be further licit, ie, not contrary to mandatory legal provisions or to morality, and their object must not be disclosed to third parties prior to the publication.

Article 45 of the CPI set forth an exhaustive list of “inventions” which may not be patented (eg, discoveries, theories, surgical or therapeutic treatments, etc).

The patent validity period is 20 years for industrial inventions (exception made for medicaments and phytosanitary products, for which a supplementary protection period on the basis of an SPC – Supplementary Protection Certificate – of no more than five years may be granted), new plant varieties (30 years for trees and grape plants), and ten years for utility models.

In Italy, the patent application (containing the patent description, claims, and drawings, if any) may be filed either personally or via a patent attorney, via the internet, or before the Italian patent and trademark office (UIBM) division in each Chamber of Commerce.

The patent-granting process consists of, subject to the positive outcome of each examination phase:

• a 90-days check before the Defence Ministry;
• a further 60-days check by UIBM on the existence of the formal patent requirements (sufficient description, patentability pursuant to Article 45 of the CPI, formal requirements of the application form, and attachments); and
• EPO check and drafting of the research report and patentability opinion.

After 21 or 23 months from the filing date of the patent application, the UIBM deals with the applications received in chronological order, and, all pre-requirements being met, issues the patent. In any case, 18 months after the patent filing date, the documentation filed before UIBM for the patent application is made available to the public. Regarding the patent application, the Italian Patent and Trademark Office will publish, after a preliminary administrative and technical examination, the patent 18 months after its filing date or priority date. If the applicant may request advance public accessibility, the documentation shall be made available to the public 90 days after the date of filing of the application.

The law requires that the patent subject matter be implemented within three years from the date the patent is granted and must not be suspended for more than three consecutive years.

The subject lawfully entitled to the patent exploitation may start judicial proceedings for patent infringement and seek civil remedies (also by way of urgency proceedings), specifically provided for by the IP Code. The jurisdiction by matter is exclusively held by Specialised IP Courts. Besides the civil liability, criminal liability can also be claimed subsequently in the form of imprisonment of up to four years and a fine of EUR3,500 to EUR35,000.

Under Article 7 of the IP Code, all signs, in particular words, including names of persons, designs, letters, numerals, sounds, the shape of the product or its packaging, and colour combinations or shades, may be registered as trade marks, provided that they are apt to (i) identify and distinguish the goods or services of one party from those of third parties, and (ii) be represented in the Chamber of Commerce Register in such a way as to enable the competent authorities and the public to determine clearly and precisely the subject matter of the protection granted to its owner. Protection is granted either based on its registration (registered trade mark) or, to a more limited extent, on its actual use (de facto trade mark). In order to be validly registered, a trade mark must:

• be new;
• hold distinctive capacity; and
• be compliant with Article 14 of the IP Code (ie, not contrary to public order and/or morality, not deceptive, and not infringing third-parties’ rights).

At national level, the UIBM or its division in each Chamber of Commerce, respectively (depending on whether the application is filed via the internet or in paper format), is competent for the registration process. The registration application must also specify the class of goods and services for whom the trade mark is intended to be applied (“Nice classification” applies). The validity period of a trade mark is ten years from its filing date, with possible renewal at each expiry date (renewal may be applied for starting from 12 months prior to expiry).

Once registration is granted, opposition by third parties is admitted within five years. After expiry of the five-year deadline, the trade mark may not be challenged any more, except if it was registered in bad faith.

In case of trade mark infringement, normally linked to unfair competition disputes, protection is granted based on the relevant IP Code and Civil Code provisions (specialised IP courts hold exclusive jurisdiction), and of the Italian Criminal Code, under which the liable party may undergo imprisonment and be condemned to payment of a fine up to EUR35,000.

Specific (wider) protection is granted under Italian law for well-reputed and well-known trade marks, since infringement action may be brought directly by the trade mark holder or by the exclusive licensee even if the infringing signs refer to products or services that are not similar. Non-exclusive licensees may only join the procedure initiated by the trade mark holder to recover damages for their own loss. In terms of remedies, the rules applicable to patents also apply for trade marks.

As far as the de facto trade mark is concerned, pursuant to Article 2571 of the Italian Civil Code, the subject exploiting a non-registered trade mark is granted the right of further exploitation, within the territorial ambit and for the goods and services of prior exploitation, and despite a third-party’s registration.

An industrial design, which may be either three-dimensional, based on the shape or surface of the object, or two-dimensional, based on the object’s patterns, lines, or colours, protects the aesthetic or ornamental feature of the entirety or of a part of an object, provided that such feature is not the result of a functional necessity.

To be admitted to registration, an industrial design must (i) be new (to prevent confusion with already existing signs, it must have an individualising function; a design is deemed new if disclosed within 12 months prior to the registration application), (ii) have an individualising function, and (iii) be legal (ie, not contrary to public order and morality).

The application for registration is to be submitted (electronically or on paper) to the Italian Patent and Trademark Office, or before the Chamber of Commerce competent by territory, either via internet, or by post, or in paper format before the Chamber of Commerce. Independently from the filing method, the graphic reproduction of the design, or the graphic reproduction of the products whose manufacture is to be the subject of the exclusive right, must always be attached.

Non-registered designs are protected, too, but to a more limited extent: up to three years from the disclosure to the specialised circles operating in the community, and only if the infringing design is the result of the specific intention of its inventor to copy the non-registered design.

Copyright protection is granted under the combined provisions of Royal Decree 633/1941, Berne Convention 1886, and Directive 2001/29/EC. Copyright is granted to intellectual works having creative nature and protects the right of authorship and the right of economic exploitation of the work. Copyright arises when the intellectual work is created, independently from its publication, and grants to the author the right to (i) be acknowledged as author of the intellectual work (such right is perpetual and not subject to any limitation), and (ii) economically exploit the work by way of sale, reproduction, etc (this right lasts for the entire life of the author until 70 years after the author’s death). No filing is necessary for the sake of the existence of the relevant right, but, in order to gain enforceable evidence as on the date of creation and as of the authorship, filing before the competent Italian office (SIAE) or before a public official (to let the date of creation be certified) is necessary.

The unlawful exploitation of the author’s economic rights alone (ie, independently form the correct indication of the author) amounts to infringement of the copyright. Protection to copyright is granted both from the civil and criminal code.

Software

Software consists of a set of applications and programs designed to perform certain functions within the reference system that can be protected by (i) copyright law (protects software in the form it is written), and (ii) patent law (protects the functionality of the software and must provide a technical solution to a technical problem), provided the patentability requirements for inventions are met. Registration can be obtained (if the copyright is applied for) by filing the reading of the software with the Special Public Register for Computer Programs kept by the SIAE.

Databases

Databases, understood as collections of works, data, or other independent elements systematically or methodically arranged and individually accessible by electronic means or otherwise (Directive 96/9/EC) can be protected by copyright law (which protects the structure, if it is an original creation, and lasts for 70 years after the author’s death), and as all other rights (thereby protecting its content, if it is not an original creation) when the database producer can demonstrate substantial investment. In this case it is automatically granted for 15 years, starting from the date of creation or the moment the database was made available to the public.

Trade Secrets

Trade secrets are increasingly important in today’s business, and are defined by the IP Code as business information and technical and industrial experience, including commercial information, subject to the legitimate control of the holder, where such information:

• is secret;
• has economic value as being secret; and
• is subjected to measures which are reasonably appropriate to maintain its secrecy.

Trade secrets are protected under the provisions set forth for unfair competition, as well as under the IP Code. In this respect, the injunction and the discovery (specific urgency proceedings set forth by the IP Code) are the most used judicial measures which are applied for. The protection of trade secrets is not subject to time limits.

The main pieces of legislation governing the protection of personal data in Italy are:

• Regulation (EU) 2016/679 of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (GDPR);
• Legislative Decree No 196 of 30 June 2003 (“Data Protection Code”), as amended by Legislative Decree No 101 of 10 August 2018 aimed at harmonising the national rules with the GDPR; and
• Legislative Decree No 51 of 18 May 2018 implementing EU Directive 2016/680 on the protection of natural persons with regard to the processing of personal data by competent authorities for the purposes of the prevention, investigation, detection or prosecution of criminal offences or the execution of criminal penalties, and on the free movement of such data.

The provisions of Directive 2002/58/EC on the protection of privacy and the processing of personal data in the electronic communications sector (“ePrivacy Directive”) have also been transposed into national law. As a result, rules on topics such as cookies, traffic, and location data as well as unsolicited direct marketing communications can all be found in the Data Protection Code.

Subject Matter and Scope of the Data Protection Framework

As the successor to the Data Protection Directive 95/46/EC (implemented in Italy by L. 675/97), which to a large extent reflected the data protection principles already contained in national laws, the GDPR preserves and develops the core principles and rights of data subjects already established in the EU Directive and national laws. Being a Regulation, the GDPR is directly applicable in all member states. The GDPR thus creates uniform and consistent data protection rules throughout all EU member states.

The GDPR has comprehensive rules on its territorial scope. In fact, pursuant to Article 3, the Regulation applies:

• to businesses (controllers and processors) established in the EU (so called “establishment criterion”); as well as
• to businesses not established in the EU that target data subjects in the EU by (i) offering goods or services or (ii) monitoring their behaviour (so called “targeting criterion”).

Understanding whether a controller or processor is established in Europe requires a case-by-case analysis. However, as a general rule, if a non-EU company operates a branch or office in Europe for the purpose of overseeing its regional business activities, it will generally be considered as having an establishment in the EU. As for Italy, businesses are considered to be established in its territory, when they exercise a real and effective activity through a stable arrangement on Italian soil – no matter the establishment’s legal form (branch, subsidiary, representative office, etc). Consequently, the company would be subject to the GDPR as well as any additional Italian data protection laws.

It is important to note that the same principle applies for EU companies carrying out processing activities outside of the EU. For example, a company established in Italy offering car-sharing services over the internet exclusively to customers based in Morocco (therefore to non-EU residents) would still fall under the remit of EU and Italian data protection laws, since the processing is taking place in the context of the controller’s Italian establishment.

Not having an establishment in the EU does not automatically put a non-EU data controller or processor outside the scope of the GDPR. Whenever a business not established in the EU targets individuals in the EU, in an apparent manner, either by offering goods or services to them or by monitoring their behaviour, EU data protection rules will apply. For example, if a US company not established in the EU offers a tour-guide app to tourists visiting Rome and uses the personal data it collects to show targeted ads based on the places they visited, the company would have to follow EU and Italian data protection laws as it would be processing EU-located data subjects’ personal data.

Pursuant to Article 27 of the GDPR, non-EU data controllers and processors must designate in writing a representative that is established in one of the places where the targeting of EU residents is taking place and must be mentioned in any relevant legal documents.

Crucially, several provisions of the GDPR allow member states to introduce additional conditions or define specific processing situations. Businesses operating in Italy should therefore be aware of restrictions and limitations set by Italian law, such as concerns over the processing of personal data of minors, the monitoring of employees, gambling, as well as journalistic freedom and freedom of expression.

Role and Functions of the Italian Supervisory Authority

The Italian Garante per la Protezione dei Dati Personali (“Garante”) is vested by law with broad:

• Investigative powers – initiating investigations following a complaint (Article 77 of the GDPR) or in response to a data breach notification (Article 33 of the GDPR) or of its own initiative;
• Corrective powers – issuing warnings and reprimands, imposing corrective measures and administering fines;
• Advisory powers – giving opinions and publishing guidelines, issuing codes of conduct and standard contractual clauses, approving binding corporate rules; and
• Legal procedures – commencing legal proceedings against data controllers and processors.

In particular, the Garante, through its Office and in co-operation with law enforcement and other state agencies (eg, financial police and state police) can request or gain direct access to databases, filing systems, as well as the premises of any data controller or processor in the context of their investigative activities. Any information gathered during these investigations can then be used as a basis for taking remedial actions or imposing sanctions.

Any measure issued by the Garante can be appealed within 30 days of receiving notice by petitioning the ordinary court through a simplified procedure.

The Garante is a fairly active supervisory authority. For example, the Garante regularly:

• reports data breaches to the judicial authorities and has done so in the past, in particular for remote surveillance of workers, unlawful access to IT systems, unlawful processing of data, and making untrue statements to the Garante;
• carries out inspections, most recently with respect to issues concerning e-invoicing, deployment of whistle-blowing software, marketing, and food delivery;
• enforces fines; according to the latest available statistics in 2020 and 2021, the Garante collected over EUR51 million in fines; and
• issues opinions and official statements relating to regulatory and administrative acts.

Notably, in spring 2023 the Garante was the first European data protection watchdog to question the data processing activities performed through the AI application ChatGPT and ordered a temporary ban of its services in Italy. This has prompted the European Data Protection Board (EDPB) to launch a ChatGPT task force.

Among the main legislative innovations expected in the coming months are the decrees implementing Ministerial Decree No 55 of 11 March 2022, which provides for the establishment of a national register of beneficial owners.

The obligation to file the beneficial owner of the company in a digitally signed electronic file will fall on the directors of the joint stock companies or, in the case of private legal entities (foundations and approved associations), the founder and, for trusts, the trustee.

Enterprises, private legal entities, trusts, and related institutions incorporated after the date of official publication of the economic development’s order of full operation of the communication system, will file the communication of the beneficial owner within 30 days of registration in their respective registers.

Non-compliance with the communication system may result in an administrative fine ranging from EUR103 to EUR1,032.

Employment Law

The following major legislative reforms in the field of employment law are expected in the near future.

Minimum wage

Directive (EU) No 2022/2041 of 19 October 2022, of the European Parliament and of the Council, on adequate minimum wages in the EU, has been published in the Official Journal. Member states will have to take the necessary measures to comply with this Directive by 15 November 2024.

A statutory minimum wage has never been introduced in Italy. In any case, the national collective bargaining agreements applied by companies, set out the minimum wage depending on the contractual level.

Labour judicial procedures/ADR

The Italian legislator adopted a decree, effective for the most part from March 2023, implementing a major reform of the Italian civil procedure system. Also, the labour law procedural system will be affected by some changes; in particular for the abolition of the so-called “Fornero Procedure”. Currently, Italian labour courts have a “dual-track system” to manage dismissals; the first for employees hired before 7 March 2015 and the second for employees hired after 7 March 2015. The reform is aimed at implementing only one procedure to discipline the proceedings related to dismissals.

Moreover, the reform incentivises the use of the so-called ADRs, through a lawyer-assisted negotiation as a method of conciliation, to settle, out-of-court, any disputes pending between employer and employee.