Legal reserve
Compulsory up to one fifth of share capital: at least 5% of annual profit must be set aside until that threshold is reached.
Companies · Year-end close
Annual financial statements (bilancio d'esercizio) in Turin
The annual financial statements are not an April task: they are a process that starts with the January closing entries and ends with filing in May. Leave it to the last available week and you are at its mercy, and you always end up paying a bit more.
01 · The obligation
Who must prepare and file annual financial statements
Limited companies must prepare and file annual financial statements: SRL (limited liability company), simplified SRL, SPA (joint-stock company) and SAPA (partnership limited by shares). The obligation applies whatever the size and turnover.
Partnerships (SNC and SAS) do not file financial statements with the Registro Imprese (the Companies Register), but if they keep full accounts they must still prepare the annual accounts, which form the basis for working out business income.
The financial statements are drawn up by the management body, approved by the shareholders' meeting and filed with the Registro Imprese. Each of these three steps has its own deadline.
| Format | When it applies | What it includes |
|---|---|---|
| Micro-entities | Below two of the three set limits for two financial years | Balance sheet and income statement; notes not compulsory if the information is given at the foot |
| Abridged | Below two of the three higher limits, for two financial years | Simplified formats and reduced notes; no cash flow statement |
| Full | Above the limits for the abridged format | Full formats, extended notes, cash flow statement, management report |
Moving from one format to another is not immediate: you change when the limits are exceeded, or no longer exceeded, for two consecutive financial years. It is a check to make at every close, not a matter of choice.
02 · The stages
From the entries to filing
The financial statements do not come out of nowhere: they are the end point of bookkeeping kept in order during the year. When the books are out of line, the closing stage turns into a reconstruction that costs time and money.
Pre-closing
Bank reconciliations, checking customer and supplier balances, chasing missing documents, stocktaking.
Adjustments
Accruals and deferrals, depreciation, provisions, bad debt write-downs, inventories, taxes for the year.
Draft and discussion
A first draft with the estimated tax charge, discussed with the director before any resolution.
Approval and filing
Shareholders' meeting, minutes, online filing in XBRL format with the Registro Imprese.
The entries that change the result
A handful of items make the difference between a profit and a loss, and they must be decided deliberately because they have direct tax effects.
- Depreciation: rates and start date for assets acquired during the year
- Inventories: valuation method and obsolescence
- Bad debt provision: the statutory provision and the tax limit
- Accruals and deferrals: correct allocation to the right period
- TFR provision (employee severance pay): the portion accrued and revaluation
- Deferred tax liabilities and assets, where applicable
03 · Deadlines
Deadlines for approval and filing
The financial statements must be approved by the shareholders' meeting within one hundred and twenty days of the end of the financial year: for a financial year that matches the calendar year, by 29 or 30 April.
The articles of association may allow a longer period, but no more than one hundred and eighty days, when the company must prepare consolidated financial statements or when particular needs relating to the company's structure and purpose require it. In the latter case the directors must state the reasons for the delay in the management report or in the notes.
Filing with the Registro Imprese must be done within thirty days of the approval date.
- January to FebruaryClosing entries and reconciliationsThe stage that sets the quality of everything else
- MarchDraft financial statementsWith an estimate of the tax charge, to discuss with the director
- Within 120 daysOrdinary approvalShareholders' meeting, normally by the end of April
- Within 180 daysDeferred approvalOnly in the cases allowed by the articles of association, and with reasons
- 30 days laterXBRL filingOnline submission to the Registro Imprese
- JuneTax paymentsBalance and first advance of IRES (corporate income tax) and IRAP (regional business tax)
Late filing leads to an administrative penalty for each director, reduced if filing takes place within thirty days of the deadline. The penalty is per person, not per company.
04 · The file
What goes into the financial statements file
Filing is done in XBRL format, a standard that structures the data so it can be read automatically. It is not a simple conversion of the PDF: each item has to be matched correctly to the current taxonomy, which is updated periodically.
The notes are the part most often underestimated. They are not a formality: they set out the valuation criteria adopted, movements in fixed assets, debts broken down by maturity, directors' pay and dealings with related parties. It is the document banks and counterparties use to form a view of the company.
- Balance sheet in the format set for the size class
- Income statement in the matching form
- Cash flow statement, compulsory for full-format financial statements
- Notes to the financial statements (nota integrativa), with the content required by the format adopted
- Management report, unless the abridged or micro format is exempt under the conditions set by law
- Minutes of the shareholders' meeting approving them, with the allocation of the result
- Report of the board of statutory auditors or of the auditor, where appointed
- List of shareholders, where required
05 · After approval
What is decided with the financial statements
The shareholders' meeting that approves the financial statements also decides how the result for the year is allocated. This decision has direct tax effects for the shareholders and should be taken with full knowledge.
Statutory reserves
Provided for by the articles of association, with their own rules on how they are built up and used.
Retained earnings
Carrying the result forward to later years: no further tax until it is distributed.
Distribution to shareholders
Dividends subject to a 26% final withholding tax for shareholders who are individuals not acting as businesses.
Covering losses
Using available reserves before eating into share capital.
Significant losses
If the loss exceeds one third of capital, the obligations set by the Civil Code apply, with tight deadlines.
The balance between directors' pay and dividend distribution is the most effective planning lever in an SRL, and it should be set every year on the actual figures. It should be decided before the close, not after approval.
Frequently asked
The questions that keep coming up
Does a dormant SRL have to file financial statements?
Yes. The obligation to prepare, approve and file applies whether or not the company is trading: even a dormant company must file financial statements, which will show minimal or zero figures.
Failing to file exposes the directors to a penalty and, if it goes on over time, can lead to the company being struck off the Registro Imprese.
Can I approve the financial statements within 180 days?
Only if the articles of association allow it and the conditions are met: a duty to prepare consolidated financial statements, or particular needs relating to the company's structure and purpose.
The directors must state the reasons for the delay in the management report or, where none is prepared, in the notes. The longer deadline is not a free choice.
What happens if I file late?
An administrative penalty applies to each director, reduced by one third if filing takes place within thirty days of the deadline.
The penalty is per person: on a three-member board of directors it is multiplied by three. This is one of the cases where delay costs more than haste.
Does my SRL need an auditor?
Appointing a board of statutory auditors or an auditor is compulsory when the company must prepare consolidated financial statements, controls a company subject to statutory audit, or exceeds the size limits set by the Civil Code for two consecutive financial years.
The limits concern total assets, revenue and employees. The check should be made at every close, because the obligation applies automatically once the limits are exceeded.
Are filed financial statements public?
Yes. Anyone can buy a copy from the Registro Imprese or consult it through the Chamber of Commerce services. It is one of the trade-offs for limited liability.
It is also why the quality of the financial statements matters beyond compliance: banks, suppliers and potential partners read them, and the notes are the part that really shows how the company is doing.
From the blog
Articles that go deeper into this page
SRL accounting after formation: the first year
After the notary the SRL exists, but the accounting starts from zero. Books, registers, director's pay, the first financial statements and the jump in taxes in year two: what to expect in the first twelve months.
Read the article
Let's talk
The financial statements are prepared in January, not April
If you reach the draft with the reconciliations done and the documents complete, you decide how to close the year. If you get there in April, all you can do is take note.