FDI: foreign direct investment in Italy: what do you need to know
The main investing countries in Italy are France, the US, the UK and Germany. Investments are directed mainly to the manufacturing sector, wholesale and retail trade, professional, and financial and insurance activities.
The Italian government supports Foreign Direct Investment (FDI) with tax credits. Companies investing in strategic intangible assets can benefit from a tax credit of 15%, whereas those investing in machinery and capital goods qualify for a tax credit of 20-40%. Further public support is granted to new investments in manufacturing and R&D, especially in southern regions and in Special Economic Zones.
What are the benefits of foreign investment in Italy?
There are a great deal of benefits. Italy has a strong and still important industrial sector as well as a strong and diversified export ecosystem. Its small and medium sized enterprises are highly competitive with exports. The northern regions have very good infrastructure, but this tends to deteriorate moving south, but this can also be turned into an opportunity.
Foreign investors investing in areas of southern Italy that have a high rate of unemployment can be granted considerable tax exemptions by the Italian government (corporation tax and local tax) for a period of 10 years.
Over the past decade or so Italy has implemented a lot of reforms in the labor market and banking sector which are now starting to bear fruit. The current government is continuing this trend while keeping an eye to innovation with respect to strengthening its export market.
Are there negatives to foreign investment?
In short, yes. Procedural costs are high and administrative processes are very slow. Italy itself is still plagued by corruption and organized crime coupled with political instability which also slows down investment and development. The banking system is in need of an overhaul. Intellectual property rights are only weakly enforced, if at all. There is low investment in sectors focussed on R&D. The disparity between northern and southern regions with respect to infrastructure is high and seems only to be increasing.
Which are the key sectors for investment?
There are three main sectors that draw foreign investment: Real Estate, Tourism and Food.
Real Estate: Italy is one of the few countries in the world where the majority of the population own their own homes. Property values throughout Italy are increasing steadily which means foreign investors can enjoy valuable returns on their investment. Demand for real estate properties, especially in major cities, will continue to rise due to the underlying demand from both local and foreign investors.
Tourism: There is huge potential for foreign investment in tourism. Italy is one of the best tourist destinations in the world and has more UNESCO sites than any other country. Important cities like Rome, Venice and Florence continue to attract tourists from all around the world. This increase in tourism opened up several new paths for foreign investment, namely agritourism and ecotourism which means investing in acquiring property and constructing accommodation for tourists.
Check out our page about airbnb in Italy, or managing your short term rental in Italy for more informations.
Food: Italy’s culinary traditions are greatly appreciated by both locals and the foreign visitors. Food is one of the prime considerations for the tourists visiting the country. This means that the restaurant business provides a good investment opportunity for foreign investors. The best approach here is to buy a restaurant with a good reputation so there is a better chance of earning good returns.
FDI from the United States
U.S. direct investment in Italy totaled $30.70 billion in 2017, ranking Italy 8th in Europe. U.S investment in Italy is concentrated in manufacturing, computer services and software, and energy, with significant industrial relationships in the aerospace and automotive sectors.
A much more detailed description of the foreign investment market is provided yearly by the U.S. Department of State and can be found here.
FDI from the United Kingdom
Longtime trading partners with Italy are not subject to many restrictions since relations with the country are generally governed on the principle of reciprocity.
After moving back to Italy from the United States in 2013, I realized how much an accounting and tax firm was needed to help expats living in Italy to comply with the local tax regulations.