Franchising has been constantly developing in Italy over the last 30 years, and is increasingly becoming a profitable investment for foreign franchisors. Italy represents an important market, with nearly 60 million people, most of whom have a high standard of living compared to many other countries.
There are currently around 51.000 franchise units, most them located in northern Italy. The foreign franchise network operating in Italy are 60, with an average yearly increase of 5%. Food&beverage and fashion are currently the leading franchising sectors.
Exporting a franchise in Italy successfully requires to understand the peculiarities of this market and to adapt to them. As it happens for any company that decides to go international, commercial , cultural and legal differences have a deep impact on the success of the investment. For this reason, the characteristics of the Italian environment should be carefully analyzed by any foreign franchisor willing to establish its network in Italy, through adequate planning.
Apart from the specific Italian franchise regulations, key general cultural legal aspects that should be carefully considered include the following.
Although considerable degree of liberalization has been introduced in Italy in the recent years, Italian labor law is still highly protective for employees, in comparison to many other foreign countries. Careful attention to labor Law aspects is highly recommended.
Consumer protection regulations
As a part of UE, Italy has adopted regulations to protect consumers, mainly contained in the Consumer Code. There are also Authorities endowed with considerable sanctioning powers in this field, such as the AGCM (Italian Competition and Market Authority).
Italian law grants protection to both registered and unregistered trademarks; the latter are protected however only if used in the territory. Therefore, it is important for franchisors to register its trademark to protect it from unauthorized users. Since the perception of the franchisor’s trademark – both word and figurative – may differ considerably from that in its country of origin, it is important to make sure that it does not evoke negative associations. It also crucial to protect franchisors’ trade secrets, confidential information and software.
Franchise agreements usually contain clauses restricting franchisees’ freedom to compete (such as exclusive purchase requirements) or affecting third parties (such as exclusivity provisions). These restrictions are generally considered in compliance with antitrust rules, but only within certain limits, which must be verified case by case under Italian and EU law.
Franchisors must comply with applicable privacy and data protection Italian laws (in particular, EU Regulation n. 2016/679). Information covered by such laws may include data relating both to franchisees or candidates and to customers. Non compliance with privacy regulations may expose franchisors to heavy sanctions.
Royalties arising from a franchising agreement are relevant for corporate income tax purposes (IRES). They qualify as revenues and are added to the taxable base of the franchisor on an accrual basis. Royalties and entry fees qualify as services and consequently value added tax (VAT) is applicable. In cases of cross-border franchising, according to Italian tax law, royalties due to a non-resident franchisor are relevant for tax purposes in Italy and a withholding tax is applied on the amount of royalties paid by the franchisee; however, a double-taxation treaty between Italy and the country of the franchisor may entitle the franchisor to a lower withholding tax.
Although the English language is commonly used in Italy, franchise agreements and all its annexes (disclosure documents, ancillary agreements, operating manual, etc.) should be drafted in the Italian language, for practical reasons. An appropriate translation into Italian language of all relevant franchise documents, by a local law firm, is highly recommended.
Being Italy a civil law country, the way contracts are drafted in Italy is considerably different from common law countries’ contracts. Moreover, Italian regulations on franchise agreements can be different from those of the franchisor’s country. An Italian counsel should be consulted to adapt the franchisor’s standard franchise agreement, ancillary agreements and franchise documents to be used in Italy.
The franchise concept and trademark might be adapted to suit Italian customs and culture, in the given industry sector. Italian market and customs are quite different from those of other countries (for example, food&beverage customs can be very different). Careful analysis of the characteristics of the Italian market is strongly recommended.
Notwithstanding the liberalization that has been recently introduced., Italy has still a strong degree of bureaucracy compared to other EU countries, which must be taken into consideration by any foreign franchisor willing to expand in this county. In many sectors (such as food& beverage, hospitality, health, etc.) many licenses and permits are needed, and a considerable amount of time to get them is required.