Italy: an attractive market for international franchise brands
The Italian Environment
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 world market, with nearly 60 million people, most of whom have a high standard of living compared to many other countries.
According to the 2020 survey made by Assofranchising (the main Italian franchising association), franchising is one of the main sectors of Italian economy, with an average yearly increase of 5%.
According to the 2020 Assofranchising survey, all the main franchising performance indicators in Italy are in sharp growth:
- 56,441 stores (2,555 stores opened in 2019);
- 217,150 workers employed in the networks (10,359 new jobs created);
- 980 brands active of which 71 master franchisee of foreign franchisors and 29 foreign franchise operating directly with franchisees;
- 26 billion euros of total turnover (up by + 4.4% compared to 2018).
Food&beverage and fashion are currently the leading franchising sectors in Italy, but many others are emerging and constantly growing, such as health, education, fitness, entertainment, financial services, etc.
Italian business indexes are favorable for foreign franchise investors.
Italian market is increasingly attracting foreign franchises, as it is perceived to represent huge, untapped potential. In fact, in Italy franchising has grown relatively later than in other countries, including EU countries. Being relatively new, there are wide market possibilities and, therefore, huge investment opportunities for foreign franchieses.
The main indexes considered by international decision makers confirm that Italy is a very attractive and reliable country for foreign investments and particularly for franchise expansion projects:
- according to the 2019 International Franchise Attractiveness Index Country Ranking by the Rosenberg International Franchise Center, Italy is placed n. 21 in the world, being the 5th European country in terms of attractiveness.
- according to the Ease of doing business index 2019, Italy is ranked 58 among 190 world economies in the ease of doing business.
- Corruption, although it is present in Italy – especially in some areas of the country – is considerably less than many other countries, and has been decreasing in recent years, as it is shown by the Transparency International Corruption Perception Index .
Planning to expand a franchise in Italy: key general cultural and legal aspects
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 main features 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 and 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
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 foreign franchisors to register their 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 confusing for consumers. It is 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, GDPR). 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). 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.
Franchise Agreement’s changes
In general, the way contracts are regulated and drafted in Italy is considerably different from common other countries. Moreover, Italian regulations on franchise agreements can be different from those of the franchisor’s country. The franchisor’s standard franchise agreement, ancillary agreements and franchise documents should be carefully adapted to Italian regulations and business practice, to be used in Italy.
Any foreign franchise concept needs be adapted to suit Italian customs and culture, in the given industry sector. Italian market and customs can be quite different from those of other countries, especially outside EU. 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 country. In many sectors (such as food& beverage, hospitality, health, etc.) many licenses and permits are needed, and a considerable amount of time to achieve them is required.