That's my article, if anyone's curious about the details.
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...
David! I met you at Better Software in Florence a few years ago, not long after I had finished scrounging up 2,500 euros to start Balsamiq SRL (I had to give my mother 1% of the company, otherwise I would have to deposit 10,000 euros, which I didn't have at the time).
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. :)
Thanks for the kind words, and thanks also for the inspiration - your talks at Better Software, and MicroConf Europe were very nice in that they show that it's possible to do a cool, successful bootstrapped startup in Europe too.
As an Italian living in the UK I'm not sure anything changed in Italy in this field. I see more and more Italians establishing their companies in the UK or Germany, because it's mostly hassle-free and better in the long run.
Italy has a problem with business, risk is not something that the few investors are willing to consider and startups are just a tiny fragment of an IT market ruled by short-term contracts with 3 levels of outsourcing.
There are exceptions, but you can count them on the fingers of one hand.
Fellow Italian here also in the UK. I've been self employed in both countries, and, boy, how easy it is to open a company in the United Kingdom compared to Italy.
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.
Italy certainly hasn't become the place to create a company, but it is improving, slowly.
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.
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.
Yes, there is ample room for improving things further in Italy, but I think: if I was able to do that, what could be accomplished if more people tried? Especially people with money/power/connections/etc... Heck, my Italian is good, but I'm not even a native speaker!
This is not exactly correct... "At least 10,000 Euros of capital that you were required to invest in the company.". You are required to "pledge" that amount, but you are not required to invest all of it right away. You can invest as little as 2,500 (and the founder will owe in the books the remaining 7,500). It's still a significant amount compared to what's required to open a company in the U.S. however.
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.
> This is not exactly correct... "At least 10,000 Euros of capital that you were required to invest in the company.
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.
That's understandable. By the way, thank you for your efforts. Italy needs more people like you that push for entrepreneurial reforms. Right now a lot of talent is emigrating to other countries because of the difficulties to start a successful business (or even just a career).
> 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.
An Inc is the equivalent of an Italian SPA, which is even more expensive to register and maintain than an SRL. I went for the SRL's because it's low hanging fruit.
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.
Great work! And I could not agree more with the conclusion. It's like people think that they either have to get exactly what they want, str8 away, or the cause is not worth their effort at all. But if everyone chipped in a little, as much as they could, mountains could be moved in a day.
The real questions with the creation of corporate forms are 1) how do taxes work, 2) how does bankruptcy work, and 3) what rights and powers do investors have. Most startups fail, so 2) is an important issue. Policies vary by country. The US is lenient on corporate bankruptcies; Ireland is very tough.
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.)
> There are a number of rackets associated with easy corporate creation.
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.
Hey, what you did is awesome. It is a small step, but it is decidedly in the right direction - and often us Italians are too cynical and resigned to a shitty system to push back against it as much as we should.
As far as I know there is no European country that would have legal structure similar to LLC in the US.
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.
In Italy you can actually avoid double taxation, in small LLC companies (less than 10 partners, only natural persons) you can opt for a "fiscal transparency" mode in which you avoid corporate revenue taxes.
It's not just Italy which has horrible rules around private limited-liability companies (LLC).
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.
> In The Netherlands you need to invest 18k EUR to create a BV
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.
I agree. I'd dare to say it's a common problem in most EU countries. EU is a more regulated environment in comparison to the US. EU is the old school of business (i.e. banks), so politicians are more focused on protecting them instead of helping to create new ones. This involves a cultural change. The economic downturn is the opportunity to do so
A LLC is a burden on the country if you go bankrupt. So obviously you need to show that you have enough money. Are you sure about the rules? I was taught (though ages ago), that you could basically get a short loan for the amount. Further, it was more like 10k IIRC.
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.
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.
You MUST operate in the country you register the company in AND if you are working with mostly another country, you will have to register that company in that country as well. That's not a trivial task. In Italy there's a criminal offence called Esterovestizione (http://it.wikipedia.org/wiki/Esterovestizione) if you open a company in another country and operate mainly in Italy.
I run a small company in Latvia (low tax, low income). I live in Belgium (tax world champion, high income). I am _extremely_ careful to play by the rules. That means things like:
* no company bank account or phone number in Belgium
* no meetings with my staff in Belgium
* no (tax deduction for) office space in Belgium
* fly to my company's country often
* a Latvian phone number for myself
* a _real_ _physical_ office in Latvia
* ...
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.
Company in foreign country does not really mean lower taxes. You still tax your income in country of residence. But it often means lower administration.
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.
* I consulted my accountant in .be (not connected to this project).
* I took advice from a trusted Latvian accountant. Trusted, as in doing the books for the company of a close friend since years.
* I attentively read the double taxation treaties myself.
* Close friends advised me on practical arrangements: where to get an office, ...
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.
You are working in country which as to pay for things like roads, military, firemen, police, health services, schools, pensions using taxes from companies and citizens living there and this country is not seeing a single euro from you (which are taking advantage of the infrastructure paid by those 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.
> How would you expect this to be remotely legal ?
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.
> How would you expect this to be remotely legal ?
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.
Common market but different fiscal regimes. It seems absurd but it makes sense when you think that each country is jealous of its fiscal incomes because they are what keep them running. In no way an Italy would let an Ireland grab its share of taxes only because Italian companies prefer to incorporate in Ireland because of lower taxation. Only a common EU fiscal regime will solve that, but think about the impacts on those countries that are spending too much and will have to change their speding patterns (from no more useless expenses to laying out public workers).
> More than anything, I think that it resoundingly demonstrates that as a person, you can make a difference, even if you are not rich, powerful, or well-connected politically.
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.
If you read the article, you will notice that I never claim to have fixed all of Italy's problems, but rather that I lit a fire that helped improve one small one.
> 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!
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...