If you are not familiar with the term, a ‘shelf company’ or ‘ready made company’ is a company incorporated by a firm without a client. The company is then archived (thus “put on a shelf”) and sold only when a client has an urgent business. This type of companies are quite common in offshore countries, and like every human tool they can be used for a good purpose (i.e. store assets of the company during a merger or acquisition) or for a bad use (mostly evade taxes).
Even The Economist – the prestigious business magazine – has more than a few articles about the good use of the shelf companies (and almost the same number of articles about their bad use). So a few years ago I accepted to set up a group of shelf company for one of my clients, a big company formation agent that had proven many time to be NOT interested in tax fraud.
If you are a lawyer you probably think that company formation is not posh nor sophisticated. You are right. But company formation agent bring many clients to Italy every year and they can be very good clients.
The main reason of my decision wasn’t the articles of The Economist of course – although I am a loyal reader from more than 15 years – but the idea that nobody plan to avoid taxes through an Italian company. Italy is no fiscal heaven, on the contrary the company formation process can be slow and for some projects timing is everything. If a client need to enter the Italian market very fast, why don’t give him a shelf company with a VAT tax number and everything else in place?
I can be wrong, but I believe that I have been the first lawyer in Italy to setup a group of shelf companies in the same day. If you want to do the same, this is what I have learned from my experience:
- Shelf companies are very expensive in Italy. Forget to pay US$50 or £20. Even the incorporation of a small limited company burn around Eur 2,500 between notary and taxes. And you have to pay again when you transfer the shares of the Italian company to the new owner.
- Italy is not a fiscal heaven, so there is no risk that your client want a shelf company to evade taxes (I know, lawyers love to say ‘avoiding taxes’ not ‘evading taxes’ but – if you are a lawyer – you know that sometimes the client doesn’t tell you the whole story).
- But be careful. Each shelf company come with a VAT tax number, and this element is very appealing to any person interested in starting a VAT fraud (the so called ‘VAT carousels’). If you are not familiar with the term, I am not going to school you. You just need to know that it’s a crime and hit multiple European country every time, like a ‘federal crime’ in the United States. If you are a consultant, stay away from it.
- If you are the client, check the provider. They should be a team of lawyers, chartered accountants and chartered secretaries with a strong and very practical experience,. Without such a team, the share transfer can take more time that incorporating a new company. Make no sense to have a company if it’s not fully operational.
Is it worth to use a shelf company in Italy?
As usual, there isn’t universal answer. In my experience, a ready made company can be useful in two cases:
- if you can’t wait to enter in the market;
- if you need an aged company (this can be required to become a contractor).
If you are a consultant, it can be useful to double check your client. Said that, a shelf company is legal in Italy, but it can be very expensive.
Image source: greenmarlin at Flickr.com