Challenges of Doing Business in Italy

Italy is a modern country that may seem similar to other European countries in many ways, although, according to the 2010 Wall Street Journal's "Index of economic freedom" scale, Italy was only the 74th freest economy (out of 179 countries ranked) in the world. Some of the challenges that influenced this rating include ineffective public finance management, corruption and a high tax burden.

Economy

The Italian economy is composed of many small and medium sized family owned and operated businesses. According to the United Kingdom Trade and Investment Service, the country has less than 20 multinational companies, and none of them are included in the top 10 list. In Italy, there is far more government interference in the economy than other Western countries. Access to credit may be difficult to obtain for a foreign business due to the complexity of the Italian banking sector.

Government

One of the biggest challenges of doing business in Italy is the lack of clarity, efficiency and transparency of the government compared to other developed nations. The court systems are very slow, making it difficult to enforce contracts. Italy has high income taxes and moderate corporate taxes (as high as 43 percent and 27.5 percent respectively). Corporations are levied both a national tax as well as a regional tax of 3.9 percent. The regional tax alone was estimated to contribute $53 billion in tax revenue in 2010. In the 2010 Economic Freedom Index, the Wall Street Journal stated that, "Corruption and organized crime are significant impediments to investment and economic growth in southern Italy, and Italians regard investment-related sectors as corrupt." Also, The Italian standards for health, safety and environmental concerns are stricter than those in America, making it difficult to import some items.

Demographics

Italy has two significant issues with their demographics. The first is the disparity between Northern and Southern Italy. Unemployment is higher in the South, Education levels vary and even product preferences and distribution channels vary from the North to South. This is particularly true for the islands of Sicily and Sardinia. The second factor is the low birth rate and much larger aging population compared to other European nations.

Cultural

Italian business deals are largely based on personal relationships which are vital to running a successful business in Italy. Many issues between businesses and even Unions are resolved outside of Court, as this is more efficient and culturally acceptable. There is also a cultural presumption that Italian food products are superior to other countries. While most Northern Italian businesses use the Internet, home Internet access is lagging, with only 54.3 percent of homes reportedly having internet access (this is even more prevalent in Southern Italy). Broadband access is less developed than other European countries, although, mobile phone usage is extremely widespread. One of the key concerns for e-Commerce in Italy is for security.

Sources: U.S. Commercial Service: Doing Business in Italy

Tax News: Italian Regional Corporate Tax Under Attack

The Wall Street Journal: 2010 Index of Economic Freedom

United Kingdom Trade and Investment Service