As we close out our week about Italy, one more thought about dealing with regulations.

Step #8: Consider working with an external accounting specialist firm. Compliance with Italian regulations can be complicated. Companies can be fined for mere formalities in their reports. Spot checks can be carried out by the Guardia di Finanza (the “fiscal” police force who wear light grey uniforms and even carry guns, who operate under the authority of the Minister of Economy and Finance). Responsible for dealing with financial crimes, the Guardia di Finanza seems to place more emphasis on printed material than the data held in a computer system. It is advisable, if not essential, to work with an external specialist accounting firm that can follow all statutory and fiscal reporting for you.

That wraps up our overview on doing business in Italy. As with France, the Czech Republic, and Hungary, some of the tips can be applied to any EU country.

For some other tips on operating inside the EU, such as dealing with US GAAP and IFRS (International Financial Reporting Standards), check out our other blog entries on Czech Republic, Hungary, and France.

For an EU country, Italy actually handles some accounting issues very differently from its neighbors. Today we’ll look at one more area.

Step #7: Make sure your accounting software can handle “registration date.” It may not seem significant, but one of the biggest differences about Italian accounting is the emphasis on the “registration date.” This can be thought of as a fine-grained accounting period. Whereas other countries’ accounting periods are based on a longer period, such as a month or a number of weeks, in Italy it’s just one day: the “date of registration.” Unlike the normal accounting period, though, this value has to be modifiable. The month of the registration still normally coincides with the accounting period itself. Look for a solution that offers a specific date field to contain the registration date – and is the basis for all Italian statutory and fiscal reporting.

We’ll wrap up tomorrow.

Today, we’re tackling two aspects that are specific to Italy: Spesometro or “cost meter,” which is a way to track legit customers and suppliers, and Italy’s VAT implementation.

As background, Spesometro is the latest version of the requirement to reduce the black market by requiring organizations to report their customers and suppliers. When first initiated 17 years ago, this regulation was known as the customer/supplier list (Elenco client/fornitori).

Step #5: Make sure your accounting package can handle the evolving demands of Spesometro. Under current law regarding Spesometro, every Italian company must send a list of their invoices via the Internet to a main server in Rome. That’s a lot of data.

As if just staying in compliance with Spesometro wasn’t enough, Spesometro regulations may be changing. In late Feb. 2012, the Italian daily newspaper, Repubblica, reported that as part of an effort to confront the economic crisis, the Italian government is considering wide ranging changes that may include replacing Spesometro with the old Customer/Supplier list requirement.

Even before this latest change, Spesometro has kept Italian companies on their toes. For example, the deadline for submitting 2010 data was initially April 2011, which then delayed to Oct. 2011 and then postponed to Dec. 2011. The final extension was Jan. 31, 2012.

When it comes to Spesometro or Elenco client/fornitori, companies need to make sure their accounting systems can address not only changing deadlines but also changing requirements.

Step #6: Understand that EU countries may handle VAT differently from each other. For example, while all EU countries use VAT, each country has some flexibility in how they implement VAT, including the rates charged. The minimum VAT rate is 15%, but each country can lower the VAT rate for various items or transactions though no lower than 5%. In Italy, VAT imposed on business transactions and purchases is 20% while VAT charged on basic products can be either 4% or 10%. There is also an exempt rate which still needs to be accounted for, with a zero Euro value document line. Unlike some EU nations, Italy also applies VAT on services, imports and assets. VAT returns must be submitted either monthly or quarterly. And at the end of the fiscal year, organizations must submit annual VAT returns by March 15^th. Therefore, make sure the accounting solutions you’re considering have a clear way of tracking the VAT you owe, and can easily generate monthly and quarterly reports.

Today’s steps focus on helping U.S. companies understand some technical issues of operating in a different country.

Step #2: Understand the localized approach to accounting and business issues. Focus on accounting in Italy dates back to Luca Pacioli, a 15^th century Venetian, who was the first person to document the double-entry accounting system; the system he published included most of the accounting cycle still in use today. Perhaps that is why, despite a sizable black market, the country’s accounting practices are among the strictest in the world. This is particularly true concerning VAT input; management and reporting; registration date management; protocol numbering; withholding tax input, management and reporting; various other reporting modules; interface for Italian bank files (common to all Italian banks).

Step #3: Find an accounting software company that can partner with you in Italy, offering insights and best practices. Some companies are focused so broadly that they have little to provide in terms of accounting-specific insights and best practices. Ask potential suppliers what sort of accounting best practices they can share, critical to successful implementation – especially with multinational companies. This is important in providing you with confidence as you work with localized solutions and deal with the often complex Italian regulatory requirements.

Step #4: Find an accounting package that allows you to keep Italian data together with your International group’s data – with no redundancy. Some solutions work well in Italy but don’t cooperate when reporting to an international parent company. But it’s not enough to keep Italian data along with the parent company’s data – you also need a system that eliminates redundancy. Look for a solution that can produce statutory reports for an Italian subsidiary based on exactly the same data that the group’s controllers see from another country. The package should operate with open API’s, particularly XMLi, to rapidly introduce new functionality to the localization layer, without any risk of compromising the underlying data. (In the case of Coda Financials, the Coda engine will refuse any data that doesn’t comply with the accounting rules chosen by the customer.)