Dormant Companies In Italy: Advice For Foreign Investors

A “dormant company” is a company that is formally incorporated and commercially registered, however is not engaged in any significant economic activities. In essence, it is a formally registered company in a state of operational inactivity.

There could be various reasons for this state of inactivity , such as a moment of transitory financial difficulty or a management decision to temporarily suspend activities in order to re-evaluate the business model or due to changes in the market. Finally, there are no shortage of cases in which the company decides to terminate its activities, without formally closing it down.

However, it is important to understand that keeping a dormant company open can still present consequences, which may vary depending on the duration of inactivity and the specific circumstances of each individual cases.

A company formally registered is, in fact, still required to comply with certain obligations and deadlines, even when it is temporarily in a state of inactivity.

Generally speaking, when an inactive company is kept open without complying with the taxes and reporting obligations provided for or complying by the regulation prescribed by an individual sector such dormant companies are liable to incur penalties for not complying with these obligations.

In addition, keeping a dormant company open may entail a number of administrative costs despite the economic inactivities, as well as the loss of possible tax advantages.

It is essential to mention that among the possible consequences is the ex officio closure of the VAT number by the competent authorities, specifically by the Internal Revenue Agency.

On this last topic, it is important to remember that all companies are required to have a VAT number. The latter, in fact, consists of a ‘tax code’ that identifies a company and self-employed professionals – vis-à-vis the tax authorities and is a fundamental tool to fulfill tax obligations.

Given the above, it is clear that the ex officio closure of a VAT number is a particularly damaging consequence of a company’s inactivity.

Subsequently it is essential to further mention that in view of the recent Budget Law 2023, a series of instruments have been envisaged to counter the evasion linked to the – increasingly frequent – phenomenon of VAT numbers ‘open and close’. In fact, On one hand, a penalty of Euro €3,000 was introduced following the ex-officio closure of the VAT registration and on the other hand an addition to the intensification of preventive controls by the Revenue Agency; as stated in the Budget Law 2023 (https://www.gazzettaufficiale.it/eli/id/2022/12/29/22G00211/sg) provided that in the event of ex-officio closure of the VAT registration, it will only be possible to request the reopening of the same upon the issuance of a surety policy or bank guarantee for the duration of three years and for an amount not less than Euro 50,000.

Therefore, when conducting business activity and having the intention of setting up a company in Italy, or in the case of a foreign investor wishing to invest in Italy, it is paramount to avoid the company becoming dormant.

In this respect, it is necessary, among other things, to comply with all tax and accounting obligations concerning the payment of taxes and contributions, monitor any deadlines, obtain up-to-date licenses, where applicable, to carry out all necessary legal compliance activities and to update information at the Trade Register.

If, instead, the company is inactive and it is temporarily impossible to resume economic activity, it is important that such circumstances are promptly reported to the Chamber of Commerce.

In conclusion, it can be said that in the event that one decides to set up a company in Italy, it shall be essential to comply with all the necessary formalities in order to avoid the status of operational inactivity and, consequently, avoid possible penalties. Similarly, in the event of unavoidable inactivity, it is necessary to promptly communicate this status to the competent authorities.

If you would like to learn more about the possible consequences of keeping an operationally inactive company open, or would like to stay up-to-date on the relevant legislation, please contact us on: info@dandreapartners.com.

You may also find additional information in our guideline “Invest in Italy”, available also in Chinese language.

D’Andrea & Partners Legal Counsel and PHC Advisory Tax & Accounting (a DP Group company) offer assistance and consultancy services in the legal and tax fields. For any enquiries, please contact us: info@dpgroup.biz.

The above contents are provided for information purposes only. The publication of this article does not create an attorney-client relationship between DP Group and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case.