Fixing Italy, a little bit at a time
blog.therealitaly.com
blog.therealitaly.com
Edit - I may as well post this here: I finally wrote this up 3 years after the fact as something of a "swan song" for my time in Italy, which is drawing to a close for now (I'm sure we'll be back in the future!). We're moving to Boulder, Colorado, and are actively looking for people to meet, jobs, housing, etc...
I remember thinking "I hope this guys is successful" when I talked to you, and when the new law came into effect, I remember thinking "I wonder if that guy had anything to do with this awesome change". :)
As an Italian entrepreneur, thank you. I meet with lots of wannapreneurs, and I alyways tell them "it's cheaper now!". Now I can tell them "thank David Walton!" too. :)
There are exceptions, but you can count them on the fingers of one hand.
I think with all the good things Italy has, it doesn't have to be run perfectly, or have the best laws: it just has to suck less. If you think about it, California is similar in some ways. It is not the most "business friendly" state in the US - but it does have a lot of other things going for it, so people go there anyway.
The taxation system is much better and fair (although PM Monti's new tax regulations for new small businesses have helped, but they have their share of shortcomings) and the market and average salary for a software engineer is at least 2x compared to the Italian average:
- Good luck earning more than €24000 after taxes in a non-management position.
- Good luck finding full time positions: here in the UK I have the opposite problem, as a consultant I'm often looking for part-time offers and everybody's looking for full-time engineers. You may actually work full time for a company, but more often than not you get a short term contract with much lower benefits that gets renewed until you quit.
- Good luck if you're looking for remote work: nobody likes or trust remote workers here.
- I've quit my job after learning that my salary was filtered through 2 levels of outsourcing agencies, and my take-out pay was 16% (or 1/6th) of what the client was actually paying.
That's my personal 7 year experience in Milan, arguably the best Italian city for service-related work.
with a traditional S.R.L., 10k€ is the minimum capital of the company, but you don't actually need all of it to get started. A S.R.L. only needs 25% of its capital to get started, so you need at a minimum 2500€, which your newborn company will spend anyway in its first month, to pay the notary and the registration fees. Of course if you go bankrupt you still need to pay the remaining 75% of the capital to pay your debts.
Overall, the new form of reduced-capital S.R.L. will make you save around 1500€ for the notary, but it remains quite onerous, especially time-wise, because of all the bureaucracy you need to go through.
The notary fees absurdity is true. A disgusting privileged class problem.
"a lot of people told me it’d never happen, so why bother". Sadly, it's a very typical attitude among Italians.
You are completely correct, as is lultimouomo, but I skipped over the exact details - this article was aimed at a broader audience than those interested in the technical details of Italian company formation.
There are several reasons to prefer a Inc vs a LLC. Without entering into a battle, I refer to Sam Altman lecture [1].
From http://www.srlfacile.org (translated):
> In the UK, the cost of a "Ltd" (Limited) varies from 25 pounds for a basic package, 250 pounds 'all inclusive'. In the United States, create a "LLC" (Limited Liability Company), it costs 50 to $500 depending on the state in question, and you can do everything through the site in many cases.
My fear, in some sense, is that we go towards something which is better than the current Italian Srl, but with the drawbacks of a LLC vs Inc. I'm not criticizing, just asking for clarifications.
If you compare an Inc in the US to an SPA in Italy, it's even more in favor of the US, although unlike an LLC with a single owner and pass through taxation, I think with an Inc, you're going to want to get an accountant and lawyer involved from the get-go.
There are a number of rackets associated with easy corporate creation. Ordering stuff and then going bankrupt with the stuff missing is a classic. (The usual strategy is order a little stuff, pay for it, order more stuff, pay for it, order a lot of stuff, disappear with the stuff. Popular in New Jersey.)
This is an interesting point. Italy tends to optimize for the 'worst case'... "well, this could go wrong, so we'll make everyone do X, Y, and Z". Therefore, all the honest people have to pay extra in terms of time and bureaucracy to the detriment of society as a whole.
My take is to make things easy for honest people, and come down on the dishonest/fraudulent ones fairly hard.
If you want a LLC - you will need 7500€ of capital, however there are no fees and whole process doesn't take more than a week.
Kudos!
If you want to avoid double taxation while maintaining limited liability, you have to get into some complex and obscure legal structures - like a limited partnership where one partner is a limited company (with at least two directors) and the another partner is you.
Even then, the limited liability is very limited and it's easy to make a mistake that will make you fully liable.
http://www.eugo.gov.si/en/starting/business-registration/lim...
In The Netherlands you need to invest 18k EUR to create a BV, which is the Dutch form of a pLLC. Combined with strong worker protections it's amazing that there are so many startups here. I guess the culture, high level of English-speaking and high education level explains it.
I'm surprised you think the rules should be eased. An LLC is pretty often abused for fraud. Putting everything in an LLC, letting it go bankrupt, moving to the next one, etc.
Edit: BV for .nl is 260 EUR at https://www.oprichtenbv.nl/. I just googled for it. No additional costs.
Do you have any stats on "legit" LLCs vs. "fraud" LLCs? I would imagine that the VAST majority of LLCs are started by honest people just looking to create something new. There will always be social hackers in all fields of human endeavor looking to exploit loopholes for personal gain, but my assumption is that they are a small minority.
It seems like the benefits of LLCs to a society would outweigh the negatives.
This used to be the case, but the rule was changed in October 2012. I started a BV with 100EUR initial capital. I think this contributed towards the increase in Dutch startups in the last few years, in addition to the points you mentioned.
Can the author or anyone else explain a bit more about ItaliaCamp and how they manage to successfully lobby for change?
To be more specific, such structure would not be illegal, but you would have to deal with double the amount of bureaucracy and you would pay the same taxes.
How would you expect this to be remotely legal ?
Sure, there are plenty of people doing that, just as there are companies registered in the Cayman or Gibraltar, or people having secret Swiss bank accounts.
If you pay taxes (in Italy, say) on the income from your company, wherever it happens to be.
I get the impression that it's all something of a legal gray area. It'd be a lot simpler if people could easily have companies in their own countries.
I'm all for paying one's fair share of taxes on income in the country you live in. What I intensely dislike about the laws in Italy surrounding companies is that there are all kinds of expenses that have to be paid even if you are losing money.
Its mainly about which country's employment laws apply.
The company is a separate legal entity.
The company pays corporation tax in the country where the company is registered, you pay income tax in the country you live, and then there is also vat.
On top of taking care of this, I also make sure I do not "awaken sleeping dogs": * every single bit of fiscal administration both here and there is perfectly in order * even if 100% legal and in order, I avoid creating visible links between myself and my company (bank accounts, ownership declaration, ...). (I make a small exception here, but I'm usually not very keen on it...)
You will find a lot more information on this subject area in the double taxation treaties between individual EU member states.
The general principle is very simple: the fiscal residence of your company is where your company's main and real activities are, as evidenced by facts. Unless you are a big multinational of course, in which case all these rules go overboard by using the tax avoidance loopholes and custom fiscal rulings.
1) "Company in foreign country does not really mean lower taxes." It does in my case, and in plenty of others. 15% instead of 33.99% corporate income tax for example. Legally.
2) "You still tax your income in country of residence." One's personal income is indeed taxed in one's country of fiscal residence (except for the exotic regime US citizens are subject to). My company's income is taxed in its country of residence.
3) "But it often means lower administration." Not always. Luckily true in my case.
Yes, you just need to be naive enough. The resulting law only allows €1 charges for people under 35 and it does nothing about the other expenses that stifle small businesses:
- the payment of anticipated VAT for the next fiscal year as estimated by the government based on this year's ledger
- the market studies that establish the average income of a similar business in your field and then taxes you according to this hypothetical income if your documented one is bellow average
- certain taxes that have a fixed minimum forcing you to reach a certain income immediately or dig yourself deeper into debt
- an aversion towards bankruptcy - you are usually guilty of fraud until proven otherwise and the legal process is long and costly
- insane fiscal policies like the one forcing retail shops to only have large price reductions 2 months per year, at the season's end, after communicating it to the local authorities and only being allowed to charge bellow the acquisition price in certain conditions, as to maximize the state's return (they reason that reducing the price also reduces the taxes)
While small timers have to deal will all this, big businesses get public money in order to "save the jobs" or protect strategic industries, they get to use the government's resources to secure deals abroad and they get to negotiate with the revenue service when they are caught red handed.
The signs are clear: become an employee or pay the price of your foolishness. You can't fix the system. At most you can provide some PR material for one politician or another and write a self-congratulatory blog post about it.
> The resulting law only allows €1 charges for people under 35
The did end up fixing that one actually, and now it's available for everyone.
Most of the other things you point out are certainly real problems. I hope other people will do their part to help fix them!
> You can't fix the system
That is exactly the kind of problematic attitude that I am talking about. No one ever claimed it was easy, but if you do not try, it's obvious nothing will improve!