1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Italy welcomes foreign direct investment (FDI). As a European Union (EU) member state, Italy is bound by the EU’s treaties and laws. Under EU treaties with the United States, as well as OECD commitments, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state.
EU and Italian antitrust laws provide Italian authorities with the right to review mergers and acquisitions for market dominance. In addition, the Italian government may block mergers and acquisitions involving foreign firms under its investment screening authority (known as “Golden Power”) if the proposed transactions raise national security concerns. Enacted in 2012 and further implemented through decrees or follow-on legislation in 2015, 2017, 2019 and 2020, the Golden Power law allows the Government of Italy (GOI) to block foreign acquisition of companies operating in strategic sectors: defense/national security, energy, transportation, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology. In March 2019, the GOI expanded the Golden Power authority to cover the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. Under the April 6, 2020 Liquidity Decree the Prime Minister’s Office issued, the government strengthened Italy’s investment screening authority to cover all sectors outlined in the EU’s March 2019 foreign direct investment screening directive. The decree also extends (at least until June 30, 2021) Golden Power review to certain transactions by EU-based investors and gives the government new authorities to investigate non-notified transactions.
The Italian Trade Agency (ITA) is responsible for foreign investment attraction as well as promoting foreign trade and Italian exports. According to the latest figures available from the ITA, foreign investors own significant shares of 12,768 Italian companies. As of 2019, these companies had overall sales of €573.6 billion and employed 1,211,872 workers. ITA operates under the coordination of the Italian Ministry of Economic Development and the Ministry of Foreign Affairs. As of April 2021, ITA operates through a network of 79 offices in 65 countries. ITA promotes foreign investment in Italy through Invest in Italy program: http://www.investinitaly.com/en/. The Foreign Direct Investment Unit is the dedicated unit of ITA for facilitating the establishment and development of foreign companies in Italy.
While not directly responsible for investment attraction, SACE, Italy’s export credit agency, has additional responsibility for guaranteeing certain domestic investments. Foreign investors – particularly in energy and infrastructure projects – may see SACE’s project guarantees and insurance as further incentive to invest in Italy.
Additionally, Invitalia is the national agency for inward investment and economic development operating under the Italian Ministry of Economy and Finance. The agency focuses on strategic sectors for development and employment. Invitalia finances projects both large and small, targeting entrepreneurs with concrete development plans, especially in innovative and high-value-added sectors. For more information, see https://www.invitalia.it/eng. The Ministry of Economic Development (https://www.mise.gov.it/index.php/en/) within its Directorate for Incentives to Businesses also has an office with some responsibilities relating to attraction of foreign investment.
Italy’s main business association (Confindustria) also helps companies in Italy: https://www.confindustria.it/en.
Limits on Foreign Control and Right to Private Ownership and Establishment
Under EU treaties and OECD obligations, Italy is generally obliged to provide national treatment to U.S. investors established in Italy or in another EU member state. EU and Italian antitrust laws provide national authorities with the right to review mergers and acquisitions over a certain financial threshold. The Italian government may block mergers and acquisitions involving foreign firms to protect the national strategic interest or in retaliation if the government of the country where the foreign firm is from applies discriminatory measures against Italian firms. Foreign investors in the defense and aircraft manufacturing sectors are more likely to encounter resistance from the many ministries involved in reviewing foreign acquisitions than are foreign investors in other sectors.
Italy maintains a formal national security screening process for inbound foreign investment in the sectors of defense/national security, transportation, energy, telecommunications, critical infrastructure, sensitive technology, and nuclear and space technology through its “Golden Power” legislation. Italy expanded its Golden Power authority in March 2019 to include the purchase of goods and services related to the planning, realization, maintenance, and management of broadband communications networks using 5G technology. On April 6, 2020 the GOI passed a Liquidity Decree in which the Prime Minister’s office made three main changes to its Golden Power authority to prevent the hostile takeover of Italian firms as they weather the financial impact of the COVID-19 crisis. First, under the decree Golden Power authority now encompasses the financial sector (including insurance and credit) and all the sectors listed under the EU’s March 19, 2019 regulations establishing a framework for the screening of foreign direct investment. The Italian government previously had adopted only some of the sectors in the EU regulations when it passed its National Cybersecurity Perimeter legislation in November 2019. The EU regulations cover: (1) critical infrastructure, physical or virtual, including energy, transport, water, health, communications, media, data processing or storage, aerospace, defense, electoral or financial infrastructure, and sensitive facilities, as well as land and real estate; (2) critical technologies and dual use items, including artificial intelligence, robotics, semiconductors, cybersecurity, aerospace, defense, energy storage, quantum and nuclear technologies, and nanotechnologies and biotechnologies; (3) supply of critical inputs, including food security, energy, and raw materials; (4) access to sensitive information; and (5) freedom of the media.
Second, until the end of the COVID-19 pandemic, EU-based investors must notify Italy’s investment screening authority if they seek to acquire, purchase significant shares in, or change the core activities of an Italian company in one of the covered sectors. Previously EU-based investors had to notify the government only of transactions deemed strategic to national interests, such as in the defense sector. Third, the government now has the power to investigate non-notified transactions and require that both public and private entities cooperate with the investigation. In addition to being able to fine companies for non-notified transactions, the government can impose risk mitigation measures for non-notified transactions. An interagency group led by the Prime Minister’s office reviews acquisition applications and makes recommendations for Council of Ministers’ decisions.
Other Investment Policy Reviews
The OECD published its Economic Survey for Italy in April 2019. See https://www.oecd.org/economy/surveys/Italy-2019-OECD-economic-survey-overview.pdf.
Italy has a business registration website, available in Italian and English, administered through the Union of Italian Chambers of Commerce: http://www.registroimprese.it. The online business registration process is clear and complete, and available to foreign companies. Before registering a company online, applicants must obtain a certified e-mail address and digital signature, a process that may take up to five days. A notary is required to certify the documentation. The precise steps required for the registration process depend on the type of business being registered. The minimum capital requirement also varies by type of business. Generally, companies must obtain a value-added tax account number (partita IVA) from the Italian Revenue Agency; register with the social security agency (Istituto Nazionale della Previdenza Sociale– INPS); verify adequate capital and insurance coverage with the Italian workers’ compensation agency (Istituto Nazionale per L’Assicurazione contro gli Infortuni sul Lavoro – INAIL); and notify the regional office of the Ministry of Labor. According to the World Bank Doing Business Index 2020, Italy’s ranking decreased from 67 to 98 out of 190 countries in terms of the ease of starting a business: it takes seven procedures and 11 days to start a business in Italy. Additional licenses may be required, depending on the type of business to be conducted.
Invitalia and the Italian Trade Agency’s Foreign Direct Investment Unit assist those wanting to set up a new business in Italy. Many Italian localities also have one-stop shops to serve as a single point of contact for, and provide advice to, potential investors on applying for necessary licenses and authorizations at both the local and national level. These services are available to all investors.
Italy neither promotes, restricts, nor incentivizes outward investment, nor restricts domestic investors from investing abroad.
7. State-Owned Enterprises
The Italian government formerly owned and operated several monopoly or dominant companies in certain strategic sectors. However, beginning in the 1990s and through the early 2000s, the government began to privatize most of these state-owned enterprises (SOEs). Notwithstanding this privatization effort, the GOI retains 100 percent ownership of the national railroad company (Ferrovie dello Stato) and road network company (ANAS), which merged in January 2018. The GOI holds a 99.56 percent share of RAI, the national radio and television broadcasting network; and retains a controlling interest, either directly or through CDP in companies such as, but not limited to, shipbuilder Fincantieri (71.6 percent), postal and financial services provider Poste Italiane (65 percent), electricity provider ENEL (23.6 percent), oil and gas major Eni (30 percent), defense conglomerate Leonardo-Finmeccanica (30.2 percent), natural gas transmission company Snam (30.1 percent), as well as electricity transmission provider Terna (29.85 percent). The role and influence of CDP in the economy is increasing steadily with the number of deals it completed in 2020.
The COVID crisis has stimulated greater GOI intervention in the economy with the GOI shoring up companies such as airline Alitalia. The GOI also has taken a shareholding position in AMInvestco, an Italian subsidiary of Luxembourg-based steel producer Arcelor Mittal, which is operating a steel plant in Taranto in southern Italy. Despite the Italian government’s shareholding position, most of these companies are operating in a competitive environment (domestically and internationally) and are increasingly responsive to market-driven decision-making rather than GOI demands. In addition, many of the state-controlled entities are publicly traded, which provides additional transparency and corporate governance obligations, including equitable treatment for non-governmental minority shareholders. SOEs are subject to the same tax treatment and budget constraints as fully private firms. Additionally, industries with SOEs remain open to private competition.
As an EU member, Italy is covered by EU government procurement rules. As an OECD member, Italy adheres to the Guidelines on Corporate Governance of State-owned Enterprises.
The COVID-19 triggered economic crisis caused the GOI to halt and reverse its privatization program. Notably, it embarked on rescuing troubled institutions like Alitalia, Autostrade, and the Arcelor Mittal steel plant in Taranto (formerly known as ILVA). Through its national development bank, CDP, the previous Italian government (led by Giuseppe Conte) also took large stakes in Italian companies it considered essential for economic security and prosperity. CDP took investment positions in Borsa Italiana, NexiSPA, and WeBuild, and likely will invest in other COVID-hit companies. On March 11, the new government of Mario Draghi published regulations for a fund to assist certain pandemic-affected companies to strengthen their balance sheets. The so-called “Patrimonio Destinato,” worth up to €40 billion, will be financed by specially issued sovereign bonds and managed by CDP. CDP will then use the sovereign bonds as collateral to raise liquidity on the market. Taking advantage of the EU’s more flexible approach to state aid, the fund will invest – via capital injections, convertible bonds, or subordinated debt – in non-financial Italian companies with revenues above €50 million with the aim of helping “strategic” companies weather severe financial difficulty because of the current economic crisis. CDP may also use the fund to support healthier companies on ordinary market terms and buy stakes in listed companies deemed of strategic importance, but only on the condition that CDP partners with market investors. The government approved the “Patrimonio Destinato” fund in the May 2020 Relaunch Degree. The 170-year-old CDP, of which the Ministry of Economy and Finance (MEF) now owns 83%, has played an active role in ensuring strategic assets remain in national hands and in mitigating the economic damage caused by the pandemic.
The MEF owns 64% of Banca Monte dei Paschi di Siena (MPS) after a 2017 bailout that cost taxpayers €5.4 billion; however, the government must sell its stake by the beginning of 2022. The MEF reportedly is ready to take two steps to guarantee re-privatization of the distressed institution: 1) increase MPS’ capital by injecting €2.5 billion in capital from the Italian Treasury, and 2) allow conversion of approximately €3.7 billion of MPS’ tax assets into tax credits. Finally, the MEF is said to be considering a divestment of €10 billion of legal risk from the bank.