Italy Should Attract The Three Million Europeans In The UK
The effects of the UK’s decision to leave the EU will take years to materialise. The rest of the European countries now have a real opportunity to set the correct policies in place to attract the three million European residents currently living in the UK, and benefit from it. Will Italy, who is never among the favourites as the new hub for financial institutions, corporates, SMEs and start-ups, be able to prevail?
Italy today has one huge advantage that no country can replicate: its location. The food, the weather and the culture make it probably the preferred country for any Londoner to move to. Who would not want to be an hour drive from Portofino or a quick trip away from the Alps? But the lack of business-friendly initiatives and reforms has never put Italy on the map for international organisations and SMEs when selecting their European hub. A few simple changes could help the country out of its recession.
Whilst a lot has been debated about the policies to attract the larger financial firms and corporate headquarters, that include a lower corporate tax, a simplified judicial and fiscal system, as well as continued improvement in the labor laws, there should be a path to attracting the European people that might make an independent decision to migrate outside the UK, given the new situation they face.
Nearly 80% of UK’s GDP is the services industry, with a 2.8% year-on-year growth recorded in January 2016. The sector is traditionally dominated by the financial services, but that has been expanding with creatives, IT and professional services, like law and management consulting, that have grown 25% since the financial crisis. These rely mostly on human capital to operate. Therefore, to attract some three million EU born citizens living in the UK — with 1.9 million of these currently employed — Italy has to implement effective reforms to start becoming more attractive.
Bringing Back The Professionals
In 2010, Italy had established a huge tax break on 70% of the employment income of Italians with a bachelor degree and management experience abroad that would come back to work in the country. Over 7,000 Italians took advantage of this new legislation and came back to work in Italy, but in 2015 the government decided to lower the benefits. With over 250,000 Italians officially resident in the UK, 40% of these with a university degree, reenacting this legislation could become a major incentive for Italians to migrate back to their home.
To attract the other EU residents, the Italian government should enact a new tax status, the resident non-domiciled (non-dom). Non-doms today in the UK, free of charge for the first seven years, are able to keep offshore income and capital gains out of the British tax net. The money is taxed only when it is brought into the UK. This tax scheme attracted millions of foreigners to live and work in London and other UK cities, given the significant tax advantage and could be easily replicated in Italy.
Simplification should be the next step to encourage the creation of self-employment and of new businesses. Opening a simplified company should cost no more than a few hundred euros, and should be done completely online, eliminating the need for a notary. This should be done for all businesses, as legislation has already passed for innovative start-ups. More complex accounting and reporting requirements should only be implemented once the business reaches a certain size.
Furthermore, the tax ID number requirement should be eliminated for all businesses or individuals that earn less than €80,000 (in the UK it is £83,000). This makes accounting simplified and straightforward, allowing for a huge number of creative and professional services individuals that can come operate in the country with no initial VAT requirements and accounting burdens when freelancing. When companies do reach the threshold, then there should be another incentive for conduction business through a digital platform, thus encouraging the growth of tech start-ups and reducing the unaccounted taxation on cash transactions.
Start-Ups Are The Stars
Lastly, investments in new businesses have to be encouraged. Half of all start-up founders in London come from outside the UK. To attract this talent, there needs to be a significant pool of investments. One third of all investments into start-ups in 2015 were in UK companies. Some of the money can be re-directed to other EU countries and especially Italy in two ways. Firstly, the European Investment Fund, the largest investor in European venture capital firms today (30–50% of capital), has invested over €650m in UK funds in 2015, money that could be redirected to the European VCs going forward. Secondly, the Seed Enterprise Investment Scheme (SEIS) that launched in the UK in 2012 with significant results should be replicated. Almost 2,000 companies received investment and £164m of funds were raised in the 2013–2014 fiscal year. The scheme offers a tax efficient benefit to private investors who can receive up to 50% tax relief in the tax year the investment is made, regardless of their marginal rate, in return for investing in small and early stage start-up businesses.
The Italian government should consider this opportunity and implement it quickly, with the mission to attract talent first of all. Focusing its policies on young entrepreneurs and small businesses, the categories on which the country has built its wealth and exports, Italy can regain its leading market position and respect in Europe and the World.
Originally published at themarketmogul.com.