Company Acquisition in Italy
Applicable taxation, prohibitions, possibilities
Rules and formalities governing the sale of companies in Italy
The owner of a company can sell to third parties the:
- individual assets of the company; or the
- company as a whole.
This last type of transfer can be set up by different kinds of agreement, such as the:
- sale (Article 2558 of Italian Civil Code);
- usufruct (Article 2561) or
- rent (Article 2562);
- also by inheritance, which is not an agreement.
About the rules governing the company acquisition: as per Article 2556, it is necessary the written form for the:
- acquisition of companies subject to registration to the Italian company register;
- transfer of single goods that make up the company (eg: for property);
- donation which is made in front of a notary (by public deed) with witnesses.
So that, the transfer of company in Italy depends by the assets that compose it.
As per Article 2577 there is also the prohibition of competition between seller and buyer, it implies that the seller of a company mustn’t start, for a maximum period of 5 years after the transfer, a new business whose object, location and under other circumstances could mislead customers from the sold company.
The Article 2557 of civil code aims to protect the buyer in order to keep the customers of the purchased company (so called “avviamento soggettivo”). The prohibition pursuant to art. 2557, however, is not mandatory, it is avoidable by agreement of the parties. A term longer than 5 years is reduced to the legal one. In the case of usufruct or rent of the company, the prohibition of competition rests on the owner or on the landlord for the entire duration of the usufruct or rental.
As a consequence of the company acquisition, there is also the succession in the contracts of the sold company: as per Article 2558, in the event of a transfer, unless otherwise agreed, the buyer of the company takes over also the contracts stipulated for the exercise of the company, excluded those that concern individuals.
In the case of company acquisition there is no need of the consent of the transferred contractor; in the case of transfer of contract stipulated by the sold company, the transferred contractor has the faculty, only in the presence of one just cause, to withdraw from the contract within three months from the news of the transfer.
As per Article 2112 the employment contracts cannot be excluded from the succession, which continue with the buyer and the employee retains all the rights deriving from it; seller and buyer are jointly liable for all the claims relating to the employment relationship and claimed by the employees at the time of the transfer, unless the latter has stated to free the transferor.
About the transfer of credits: the Article 2559 provides that the transfer of business credits is enforceable and fit against third parties, even in the absence of notification or acceptance of the assigned debtor, from the moment of registration in the company register of the transfer of the company; however, the debtor is released if he pays (in good faith) the seller; this rule also applies in case of usufruct but not in case of rent.
About the transfer of debts: pursuant to Article 2560, the seller is not released from corporate debts if the creditors didn’t agree; in the case of transfer of commercial companies, the buyer is also liable for the debts resulting from the mandatory accounting books.
The price of the company to be transferred will be stated by a surveyor by means of a specific survey, and highlighted in an extraordinary transfer balance sheet pursuant to art. 2343 of the Italian Civil Code: so that the transferee will have:
- to adjust the pre-sale balance sheet items;
- proceed with carrying out the year-end entries and
- calculate the capital gain on the sale, or the difference between the price of sale and the carrying amount of assets and liabilities; for the seller, this difference will represent the sale profit, for the buyer it is the commercial goodwill to be indicated in the starting balance sheet.
About taxation applicable on the sale, the tax law provides rules if the seller is a natural person or a legal person and if the transferor is a natural person, he can opt for a separate tax regime.
The capital gain will be determined by the difference between the price realized net of ancillary charges (they include all those items that are closely related to the sale, such as registration tax or notary fees) and the value of the assets / liabilities appropriately adjusted in proportion to time.
If the seller is a joint stock company that owned for at least 3 years the company that has been sold, it can act in two different ways for the purposes of payment of corporate taxation:
- to fully calculate the capital gain for the formation of the income for the accrual year, or
- opt for taxation of the capital gain on a straight-line basis over 5 years (provided that the company has a business income in which the shares of the capital gain can legitimately be placed).
The capital gain:
- is not taxable for IRAP purposes (IRAP is the second rate of corporate taxation to be paid in Italy on regional basis (the first rate is called IRES));
- is excluded from VAT;
- is subject to registration tax.
The natural persons who sell companies owned for more than 5 years and realize a capital gain can evaluate the possibility of taxing it separately, applying the rate corresponding to half of the total net income of the taxpayer in the two-year period preceding the year of realization of the capital gain.
Read also: Auditing & Company Assessment.