Due diligence

In Italy it is market practice to finalize the due diligence process before the execution of the acquisition agreement; the main reason is to ensure that the acquisition agreement can appropriately address any issues that may arise from the due diligence exercise.

There are no statutory requirements that a foreign buyer should be aware of when undertaking a legal due diligence review of an Italian entity or group of assets. The main areas of review in the legal due diligence process, and the relevant scope of work, vary from deal to deal and are generally determined by the buyer based, inter alia, on the target’s business, the buyer’s rationale for the transaction, its risk appetite and the structure of the transaction and of the relevant process (e.g., asset deal as opposed to share deal, bilateral process as opposed to bid-process). The areas of review generally addressed by a foreign buyer include ownership and corporate documentation, extraordinary transactions, material contracts, financing agreements, compliance, real estate, employment and pension, health & safety, IP, IT and personal data processing, regulatory/public law matters, environmental law matters and litigation. Although the analysis around (i) merger control issues, (ii) foreign direct investment regulations, and (iii) foreign subsidy regulations is addressed separately, such areas have also received increased attention in the due diligence process.

Legal due diligence is typically limited to the review of documents uploaded by the seller in a virtual data room, often supplemented by: (a) questions submitted by the buyer and/or its advisors to the seller or to the target's management (“Q&A” or “RFI”) and (b) management interviews to clarify specific issues identified during the due diligence process (“expert/management sessions”). For larger auction sales, it is common for a seller to provide the buyer with a vendor due diligence report as part of the information granted to bidders.

Pricing and payment

There are generally no restrictions on pricing and/or payment of the purchase price from a legal perspective. In a typical private M&A transaction (regardless of the transaction being structured as a share deal or an asset deal), there is no statutory requirement to obtain independent appraisals to support the valuation of the target and the relevant pricing. Such economic considerations are left to the assessment of the parties (usually with the support of the relevant financial advisors) and the negotiations between them.

Without prejudice to the above, the structure of the transaction may entail certain corporate transactions to be completed between signing and closing (e.g., contributions in kind), in respect of which independent appraisals are mandatorily provided for by local law.

The purchase price is usually paid in euro. In any event, a conversion in euro of the purchase price as of the date of transfer is required: (i) for the purpose of paying the tax applicable to the transfer of shares (“Tobin Tax”) in the case of a joint-stock company (Società per Azioni – S.p.A.); or (ii) for the purposes of the notarial deed of transfer of quotas in the case of a limited liability company (Società a Responsabilità Limitata – S.r.l.).

Negotiations and acquisition structures

General negotiation principles

Under Italian law and relevant principles, parties negotiating a transaction are under a general obligation to conduct the negotiations in good faith. This concept is broadly and holistically interpreted, and entails, among other things, that negotiations which are at a reasonably advanced stage (i.e., where a party can reasonably expect that a transaction will occur) cannot be terminated unilaterally without due and reasonable justification. Should either of the parties breach such pre-contractual obligations, the party in breach may be held liable for damages suffered by the other.

Acquisition structures

In Italy it is market practice for an M&A transaction to be by way of a share deal (i.e., the purchase of  shares) or an asset deal (i.e., the purchase of assets or a business as a going concern).

Generally, Italian sellers tend to prefer share deals due to a quicker and leaner process (without, for example, independent valuations or trade union consultations being required). Moreover, Italian sellers may prefer share deals since they entail a clear allocation of liability upon completion of the transaction; in asset deals – without prejudice to certain rules providing for ring-fencing of liabilities and to specific contractual arrangements – the seller and the buyer remain jointly and severally liable for certain liabilities existing on the closing date.

A. Share deals

In a share deal, the buyer purchases from the seller part or all of corporate capital of the target, becoming the new partial or sole shareholder of the same. All the existing liabilities of the acquired company remain with the company and are indirectly transferred to the buyer, although they can be addressed by the parties by means of specific provisions in the acquisition agreement (such as appropriate representations and warranties, specific indemnities, specific undertakings or conditions precedent).

The shares of an “S.p.A.” company and the quota of an “S.r.l.” company are generally freely transferable, unless they are burdened by specific encumbrances or unless it is otherwise provided for by the company’s bylaws or by standing shareholders’ agreements. An S.p.A.'s bylaws may prohibit or limit the transfer of the shares for a maximum of five years from the company's incorporation or from the date of the special shareholders' resolution that resolved to include such restriction in the bylaws. Restrictions may also be included in the shareholders' agreements executed between the seller and the other shareholders of the company prior to the completion of the transaction. Restrictions in the bylaws are binding on, and enforceable against, the shareholders and the company, as well as third parties; restrictions in shareholders' agreements are only binding on, and enforceable against, the shareholders that are parties to such agreements. The bylaws may also subject the transfer of the shares/quota to the discretionary approval of the company's corporate bodies or the shareholders. If approval is not granted, either of the following will apply:

1. The selling shareholder shall be entitled to exercise its right of withdrawal from the company; and
2. The company or the other shareholders may be bound to purchase the shares.

The bylaws of an S.r.l. may provide for a term of up to two years from the incorporation of the company or subscription of the quota, before which the right of withdrawal may not be exercised.

The bylaws of S.p.A.s and S.r.l.s may also provide for pre-emption or first refusal rights, requiring a shareholder that intends to transfer its shares to first offer them pro rata to the other shareholders.

Other examples of restrictions on share transfers in the company bylaws (subject to relevant limitations and specific provisions) may include lock-up provisions, as well as tag-along and drag-along rights.

1. Signing in a share deal

   At signing, the seller(s) and the buyer(s) execute the acquisition agreement with its annexes and schedules. There are no specific formalities under Italian law for the execution of the relevant share (or quota) sale and purchase agreements, which do not need to be signed before a notary public. Share (or quota) sale and purchase agreements in Italy are usually signed by “exchange of correspondence”, whereby one of the parties executes the proposal to enter into the relevant agreement and the other executes the relevant acceptance.

2. Closing in a share deal

   For an S.p.A. company, the participation is usually transferred by endorsing the share certificate(s) in favor of the buyer before a notary public and subsequently recording the transfer in the shareholders' ledger (libro soci), including the buyer's details as a new shareholder of the company. A possible alternative – less frequent and usually implemented when no share certificates exist (e.g., in the case of “dematerialized shares”) – is to execute a notarial deed of transfer from seller to buyer and subsequently record the transfer in the share certificate(s) (if existing) and in the shareholders' ledger (libro soci).

   For an S.r.l. company, the participation is transferred by executing a final quota transfer agreement before a notary public — either as a public deed or as a private agreement with notarized signatures. Such transfer agreement must then be registered by the notary public with the local Registry of Enterprises within 30 days of execution to give public evidence of the transfer.

In most cases, signing and closing do not occur simultaneously, with the parties usually agreeing to conditions precedent to closing. Specific conditions precedent vary from deal to deal, also depending on the results of the due diligence process. The most frequent conditions precedent include the obtainment of any clearance from competition or foreign investment authorities that may be required to complete the transaction and/or the obtainment of consents from third-party contractors of the company to the change of control).

B. Asset deals

The acquisition of the assets of an Italian company may be achieved through a sale or contribution of either the entire target's business (azienda) or of a line of the business (ramo d'azienda), commonly referred to as “business as a going concern”.

The purchase of a business as a going concern gives the buyer a higher degree of protection from the overall liabilities of the seller. However, the buyer and the seller remain jointly liable vis‑à‑vis the seller's creditors in respect of the seller's liabilities. The relevant unsatisfied creditors of the seller could therefore later also raise their claims against the buyer of the business; however, the buyer’s joint liability is limited to liabilities specifically reflected in the seller's accounting books (which the buyer should thoroughly inspect during the due diligence process, before entering into the acquisition agreement). Such joint liability can be further limited between the buyer and the seller through specific provisions in the transaction documents.

In terms of liability, specific rules are provided with respect to labor and tax liabilities. The buyer shall be liable, jointly with the seller:

1. Vis-à-vis the employees, for the payment of severance (“TFR”) and any other payments or obligations connected to the employment relationships that were accrued at the time of the transfer;
2. Vis-à-vis the tax authorities, for the seller's tax liabilities (including unpaid taxes and sanctions due for any noncompliance with tax laws) of the transferred business related to the year in which the closing occurred and the two prior years (and for any tax assessments by the tax authority in the same period), regardless of whether they were reflected in the seller's accounting books. In relation to this latter matter, it is important to note that, before completion of the transfer, the seller, upon request of the buyer, can apply for a certificate relating to the transferred company, to be issued by the tax authorities, stating whether there are any outstanding liabilities as at the transfer date. If the certificate shows there are no such liabilities, or the authority does not issue a certificate within 40 days, then the buyer is exempt from the joint liability for pre-transfer taxes. If the issued certificate shows pre-transfer taxes, then the buyer's liability is limited to those indicated in the certificate and the allocation of such liability becomes a matter of negotiation between the parties.

In the event the acquisition concerns a line of business only, it is essential for the buyer to identify the perimeter of the business (including assets, contractual relationships, employees and liabilities) to be acquired, to ensure that the buyer acquires all assets required and/or appropriate to operate the business after completion, addressing any separation issues that may prevent or hinder the operations of the acquired business from day one. Failing to identify all the assets (including contractual relationships and employees) as part of the business to be acquired might adversely affect their assignment to the buyer; to mitigate such risk, the acquisition agreement generally provides for wrong-pocket provisions.

1. Signing in an asset deal

   There are no major differences compared to the signing in a share deal.

2. Closing in an asset deal

Each asset must be transferred according to the transfer formalities that apply to that type of asset. The transfer of a business as a going concern must be perfected by a business transfer agreement signed before a notary public. Such transfer agreement shall then be registered by the notary public with the local Registry of Enterprises within 30 days of execution to give public evidence of the transfer. Filings with other local registers may be required, depending on the nature of the assets transferred; if, for instance, real estate assets were to be transferred, the change of ownership of such real estate properties would need to be recorded also with the local real estate/land registry.

Foreign investment restrictions

Italy has a mandatory and suspensory foreign investment screening procedure, which means that transactions that meet the relevant criteria need to be notified to the government and cleared before they can be completed.

The foreign investment review (FIR) regime is limited to certain sectors. For further information, see the more detailed section on "Foreign investment restrictions".

Antitrust/merger control

Italy has a mandatory merger control filing requirement, meaning that parties must notify the competition authority if the relevant thresholds are met. However, there is no suspensory effect or standstill obligation; approval does not need to be obtained prior to closing.

It is also necessary to consider EU merger control rules. Mergers involving companies active in several Member States and reaching certain turnover thresholds are examined at the European level by the European Commission. This allows companies trading in different EU Member States to obtain clearance for their mergers in one go. For further information, see the more detailed section on "Antitrust/merger control".

EU Foreign Subsidies Regulation

The EU Foreign Subsidies Regulation (FSR) requires qualifying transactions and bids in response to certain large public tenders in the EU, to be notified for upfront clearance by the European Commission where the companies involved have benefited from foreign financial contributions that exceed certain (low) thresholds.

The notion of a foreign subsidy is defined broadly as a financial contribution provided directly or indirectly by a third country through public or private entities that confers a benefit on specific undertakings or industries.

A transaction is relevant under the FSR where a change of control on a lasting basis results from: (a) the merger of two or more independent undertakings; (b) the acquisition of direct/indirect control of one or more other undertaking(s) or (c) the creation of a joint venture performing on a lasting basis all the functions of an autonomous economic entity.

The proposed concentration must be prior notified if:

1. at least one of the merging undertakings, the acquired undertaking or the joint venture is established in the Union and generates an aggregate turnover in the Union of at least EUR 500 million; and
2. the aggregate of all third-country financial contributions received by the companies/groups involved in the previous 3 financial years exceeds EUR 50 million.

The European Commission has broad powers and can start investigations on its own initiative (call-in) if information indicates the possibility that a foreign subsidy distorting the internal market exists (even in cases of transactions that fall below the relevant thresholds).

The European Commission can apply significant fines: (i) up to 10% of global annual revenue for substantive infringements such as failure to notify/circumvention; and (ii) up to 1% of global revenue for procedural infringements.

The European Commission recently published Guidelines covering: (i) the criteria for assessing the distortion of competition; (ii) the test to balance the positive and negative effects on competition caused by a foreign subsidy and (iii) the Commission’s call-in powers.

For the sake of completeness, it should be noted that the FSR also establishes specific thresholds and criteria for public procurement. For example, a notification is required if the public contract value exceeds EUR 250 million and the bidder received financial contributions of more than EUR 4 million from a single third country during the previous three years.

Other regulatory or governmental approvals

Other regulatory or governmental approvals or filings must be evaluated on a case-by-case basis, depending on the relevant industry, deal structure and actual circumstances (e.g., assignment of public contracts in an extraordinary transaction, transfer of operational permits and renewal of anti-mafia affidavits).

Acquisition of shares

An acquisition of shares is not considered a transfer of a business as a going concern (or part thereof), for employment law purposes. Therefore, it will not involve the transfer of employees or a change in the employer’s legal entity, but rather a change in the ownership of the employer. As such, the buyer inherits all the employees' rights, duties and liabilities as the new owner of the target company. However, some national labor collective agreements (NLCAs) provide that directors or managers are allowed to resign and receive certain payments in the event of a change of control of the employer. In share acquisitions, there is no requirement to inform or consult trade unions/works councils unless otherwise provided under the applicable NCLA or shop‑level collective bargaining agreements.

Acquisition of assets

The transfer of a business as a going concern (or part thereof) is regulated by Article 2112 of the Italian Civil Code, which implemented the EU Acquired Rights Directive. In an acquisition of assets, the Transfer of Undertakings Protection of Employment (TUPE) principle of continuing the employment relationship and safeguarding employees' acquired rights applies. Mergers, demergers, usufructs or leases of businesses are treated in the same way as an acquisition of assets.

When there is a transfer of a business as a going concern (or part thereof), the employment agreements with the transferor automatically continue with the transferee. Transferred employees maintain their seniority-based rights together with their existing terms and conditions of employment, except for any change in the applicable NLCA or shop-level collective agreements (if any). The transferee is jointly liable with the transferor for all the entitlements and claims of the employees at the time of the transfer. However, the employee may release the transferee from its obligations by signing a release or a waiver before a competent labor office or before trade unions.

The transfer of a business, in itself, is not a valid cause of dismissal. Employees whose terms and conditions of employment are materially affected during the three months following the transfer may resign for just cause and claim payment of an indemnity in lieu of notice and, where applicable, damages.

By operation of law, a specific mandatory information and consultation procedure with the unions and works councils (if any) has to be carried out before the transfer if the transferor employs more than 15 employees overall. The unions and works councils must be notified of the intention to transfer the employees by written notice, including certain information (i.e., the date, or envisaged date, of the transfer; the reasons for the envisaged transfer; the legal, economic and social consequences for the employees, if any; any measures envisaged in respect of the employees), at least 25 days before the transferor and the transferee must execute a binding agreement (i.e., a notarial deed to be executed before an Italian notary public). Within seven days of receipt of a request from the unions and/or works councils, the transferor and transferee must start and take part in negotiations. The information and consultation obligations upon the transferor and the transferee arise even if the decision regarding the transfer has been taken by another parent company. The parent company's failure to provide the necessary information does not justify non-compliance with the aforementioned obligations. The negotiations are considered concluded (and the planned transaction can take place) if no agreement is reached within 10 days from the start of the consultation procedure.

Failure to comply with the consultation procedure may constitute anti-union behavior, which the unions may challenge before court. In any event, the unions and works councils have no right to veto or delay the consultation and/or transaction, provided that the procedure is properly carried out.

Acquisition of shares

Capital gains triggered by a share deal will be subject to corporate income tax (CIT) at the standard rate of 24%.

However, the capital gain could benefit from an exemption from CIT up to 95% of its amount, provided that the following conditions for benefiting from the participation exemption (PEX) regime are met:

• The participation must be held uninterruptedly from the beginning of the 12 months preceding the transfer.
• The participation must have been accounted for as a long-term investment (fixed asset) in the first balance sheet of the holding period.
• The target company must be a resident of a state or territory other than those having a privileged tax regime, unless a ruling has been obtained that the holding of the participation does not result in localizing the income in a "blacklist" country.
• The target company must carry out a real business activity.
• The participation must represent at least 5% of the share capital of the target, or alternatively, must have a tax basis equal to or exceeding EUR 500,000.

The transfer of title to shares by way of endorsement of share certificates is subject to the Tobin Tax. The Tobin Tax is levied on any transfer of title to shares in an S.p.A. as well as in joint-stock companies with registered offices in Italy, even if the transaction is executed between individuals/entities that are not resident in Italy. Buyers of shares pay the tax on the sum paid for shares. For shares of listed companies, the Tobin Tax applies at a tax rate of 0.1% (with an exemption for companies whose average market capitalization in November of the year prior to the year the transaction was entered into is lower than EUR 500 million). For non-listed companies, the rate is 0.2%. The Tobin Tax applies to the value of the transaction (the value of the transaction is deemed to be the net balance of the transactions executed and settled on the same financial instruments by the same subject on the same day or at the paid price). The quota transfer agreement (in an S.r.l.) is subject to a fixed registration tax equal to EUR 200. However, if a third party (e.g., the parent company of a party) is acting as guarantor to the agreement, the guarantees are subject to tax at 0.5%, applicable to the total guaranteed amount. The seller and the buyer are jointly liable for the payment of the registration tax.

Acquisition of assets

The capital gain deriving from an asset deal operation is subject to CIT at the standard rate of 24%. The tax basis is equal to the difference between the sale price and the non-amortized cost.

The transfer of a business as a going concern is subject to a 3% registration tax levied on the fair market value of the business transferred, i.e., the value of the assets, including goodwill at its fair market value, less the amount of any liabilities. If there is real property among the assets transferred, the net value of the real property is generally taxed at 9% (15% for farmland; and EUR 50 each for mortgage and cadastral taxes (total EUR 100) apply as well to both transfers of real property and of farmland); however, the applicable registration, mortgage and cadastral taxes may vary depending on the nature of the real property. If there are finance leasing agreements related to commercial real property, the transfer of these agreements within the context of the transfer of a business as a going concern is taxed at 4%. Registration tax is calculated as the sum of the following:

• The portion of the purchase price referring to the leasing agreements; plus
• The principal amount incorporated in the instalments still to be paid; plus
• The leasing redemption price

If there are receivables among the assets transferred, these will be subject to a 0.5% registration tax rate, as opposed to the ordinary 3% rate, if the value/consideration paid in lieu of receivables is clearly identified in the agreement. The seller and the buyer are jointly liable for the payment of registration tax applicable to the transfer of a business as a going concern. Cars and other registered movable goods are subject to minor fixed registration taxes.

Others

Merger: Mergers are subject to a fixed registration tax equal to EUR 200. Generally, mergers are tax neutral in Italy.

Value added tax (VAT): No VAT is due with respect to either an acquisition of shares or an acquisition of a business as a going concern.

OECD's Pillar Two Solution

Legislative Decree No. 209/2023 transposed EU Directive 2022/2523 on the Global Minimum Tax into the Italian legal system, thus implementing the OECD/G20 Pillar Two model designed to ensure a 15% jurisdiction‑by‑jurisdiction minimum effective tax rate (ETR). Subsequent ministerial decrees implementing the operational and compliance framework were also issued.

Such legislation applies from 1 January 2024, except for the Undertaxed Payments Rule (UTPR), which applies from 1 January 2025. Italy has introduced the full suite of GloBE rules: the Income Inclusion Rule (IIR), the UTPR and a Qualified Domestic Minimum Top‑Up Tax (QDMTT). The QDMTT ensures that any top‑up tax relating to Italian‑source income is collected at the Italian level.

In line with the OECD standards, Italy also introduced two safe harbours. First, the QDMTT safe harbour applies when the Italian domestic minimum tax meets the OECD qualification requirements. This means that other jurisdictions cannot apply their own IIR or UTPR to Italian constituent entities and the Italian QDMTT effectively shields the group from foreign top‑up tax on Italian profits. In addition, Italy has adopted the OECD’s transitional safe harbour, which allows the use of simplified calculations based on CbCR data where the relevant tests (i.e., de minimis, simplified effective tax rate or routine profit test) are met. These transitional measures apply to Italian tax periods through 2026 and are intended to reduce compliance burdens during the initial implementation period.

From a compliance perspective, Italian constituent entities falling within the scope of the GloBE rules are generally required to file the GloBE Information Return (GIR) with the Italian tax authorities. However, where the ultimate parent entity (UPE) or a designated filing entity located in a jurisdiction with a Qualifying Competent Authority Agreement (QCAA) in force with Italy files the GIR abroad, Italian entities are exempt from filing the GIR domestically and must instead submit a notification form identifying the filing entity and confirming the foreign filing.

It is worth noting that, in determining the QDMTT‑relevant income, Italy excludes from the QDMTT tax base any components of income connected with transfers of assets and liabilities that fall within the tax‑neutral reorganisation regime under Article 42 of Legislative Decree No. 209/2023. This ensures that reorganisations benefiting from neutrality for domestic tax purposes do not distort the computation of the jurisdictional effective tax rate for QDMTT purposes.

These developments may have implications for M&A transactions involving Italian entities, depending on whether the parties fall within the scope of Pillar Two rules. At the pre‑transaction stage, Pillar Two may inform structuring, valuation and modelling of jurisdictional effective tax rates and potential top‑up taxes. Moreover, due diligence activities may include testing the target’s GloBE readiness, its ability to produce data for QDMTT and IIR computations and its eligibility for transitional safe harbours. During negotiations, the documentation may allocate Pillar Two risks and responsibilities – covering potential liabilities under IIR, UTPR and QDMTT and any GIR and filings – which may affect pricing, timing and structure. Post‑closing, acquirers may need to integrate the target into GloBE governance, align accounting and reporting, manage any Italian GIR‑notification process, while monitoring ETRs as transitional safe harbours expire and as Italian QDMTT interacts with group‑level structures.

For information on post-acquisition integration matters, please see our Post-acquisition Integration Handbook.