Status of foreign direct investment control law in Italy

After a series of intense reforms implemented since 2011, Italy is now 10th globally and 4th in the EU, in the FDI Index. Even after the national-populist League and the anti-establishment Five Star Movement won the highest share of the vote in the elections, markets did not react strongly, with bond yields continuing to remain low and the equity market rising.

Focusing on the hi-tech start-ups sector, total investments in equity of Italian start-ups was equal to Euro 598 million in 2018, with a component of international funding that increased significantly compared to the previous year: foreign investments reached Euro 229 million, that is + 82% compared to the Euro 126 million recorded in 2017. The investment inflow comes mainly from the USA (72.73%), across Europe (23.36%), China (3.77%) and Brazil (0.06%).

With regard to applicable laws, the Italian Government introduced a variety of reforms aimed directly at increasing FDI.

The 2015 Stability Law and “Investment Compact Decree” provided the following:

  • Patent box – partial tax exemption on income derived from patents, know-how and trademarks if R&D activities are performed by an Italian company;
  • Enhanced R&D tax credit;
  • Full deductibility from local tax of labour costs for employees hired on a permanent basis;
  • Extension of the tax incentives provided to technological start-ups and innovative SMEs;
  • Refinancing of prior tax credits/incentives for the purchase of industrial equipment.

In January 2017 the Government launched a three-year industrial plan, “Industria 4.0”, aimed at boosting private investment in research and development that returned the industrial policy to the top of the government’s agenda. According to the Italian Minister of Economic Development, the plan offers support to improve competitiveness, digitise new processes, boost productivity, promote new skills, and ultimately attract more FDI.

FDI in Italy is subject to two main sets of regulations: (1) the reciprocity principle and (2) the so-called “golden powers” that the Italian Government can exercise on Italian companies operating in certain strategic sectors.

Reciprocity principle

A non-EU national (including both natural persons and legal persons) enjoys the same civil rights granted to Italian citizens provided that an Italian citizen would be entitled to the same rights in the country of the non-EU national. The reciprocity principle, however, does not apply to countries that have a bilateral investment treaty with Italy.

Golden powers

According to Law Decree No. 21/2012 (converted into Law No. 56/2012), certain investment opportunities considered to be strategic importance to the national interest, identified by the legislator, must be notified to the Italian Council of Ministers Presidency. Such Council has the ability to oppose and/or apply a veto and/or require conditions to the performance or not permit the investment. These business sectors are: energy, transport, communications sectors and defence.

Such limitations also apply to Italian investors.

On 8 October 2017, the Italian Government issued Law Decree No. 148/2017 (converted into Law No. 172/2017), which, inter alia, extended the scope of the golden powers to “high-tech” companies, such as those dealing with data storage and processing, artificial intelligence, robotics, semiconductors, dual-use technology, and space/nuclear technology.

Furthermore, on 25 March 2019, the Italian Government issued Law Decree No. 22/2019 (converted into Law No. 41/2019), which extends the perimeter of golden powers by introducing broadband electronic communication services based on 5G technology. The protection mechanism shall operate not only in the event of acquisitions of shareholdings but also in the event of supplies of goods and services related to the design, construction, maintenance and management of the networks of such services where put in place with a non-EU person. Elements indicating the presence of vulnerability factors which could compromise the integrity and security of the networks and data passing through them shall be among the elements subject to evaluation by the Italian government when assessing the transaction proposal.

Hot topics: intended changes / discussions

The Italian Trade Agency (“ITA”), the Government body whose mission is to foster Italian investment and trade relations with foreign countries, set up a dedicated foreign investment department. The department focuses on giving assistance to companies and entrepreneurs wishing to set up a new business in Italy.

Many different grants and incentives (such as assistance to buy buildings, subsidies for job creation, low-interest loans, tax incentives etc.) are available for new businesses, particularly in rural areas and in the south of Italy, including central government grants, regional development grants and grants from provincial authorities and local communities. The Italian Chambers of Commerce and Embassies have information on the various grants and incentives available and that apply to their specific areas.

The government further supports FDI via tax credits, including 25% for private investments in R&D (50% for projects with universities or research institutions) and 15% for investments in machinery and capital goods. Further public support is granted to new investments in manufacturing and R&D, especially in southern regions of Italy.

This article is excerpted from “Accessing Europe and the Middle East: Foreign Direct Investment Control Considerations”.