Dealing in gold is a growing business worldwide and Italy is no exception. We are speaking about shops and franchisees buying second hand gold and scrap gold from ordinary citizens, and whole sell the harvest to big smelters. We have notice an exceptional increase of interest in the last five years, from small shops to international franchisee.

Do you need a license to buy gold in Italy or not?

Today – 28 May 2010 – the Italian Central Bank has expressly stated that you do NOT need a license to start a gold buyer company. The memo comes straight from Mario Draghi, Governor of the Central Bank, and this is probably the reason why is short, clear and to the point, three characteristics not always common in the Italian public documents. (Update 01-November-2011 : Today Mario Draghi has been appointed President of the European Central Bank and has resigned from the role of Governor of the Italian Central Bank. Congrats Mario!)

Before the Memo we were used to get a license for every company dealing in gold. The memo states that the license is still required for companies “investing” in gold (i.e. buying and selling gold in the stock market) but not for companies buying gold. The difference between “investing in gold” and “buying gold” is sophisticated, however to make it short:

1. companies that do NOT work with “real gold” NEED the license (i.e. in order to operate in the stock market, you don’t need to touch the gold, thus you need a licence);
2. companies that DO work with “real gold” do NOT need a license (i.e. your shop collect physical gold, thus you don’t need a licence).

My former professor would probably be not excited by this simple explanation, so consider it as a plain overview, and if you want to move into this business remember to appoint an Italian lawyer (lawyers have to make a living nevertheless).

You don’t need a licence but …

Doing business in Italy doesn’t require only an economic background, sometime you need to be a good philosopher. When you catch a rule, remember to check the exceptions, most of the time a “but” is there waiting for you. See below.

VAT tax on Gold Buyers

The common VAT tax in Italy is 20% (Note 16-Sep-2011: starting today the VAT tax has been increased to 21%).

On the contrary Gold Buyer are VAT exempt. My clients say that their VAT is zero%, and although technically it’s more complex than that, in practice they are right. The reason is simple. In Italy the VAT tax 20% is charged on trading activities (buying or producing a product in order to sell it). Gold Buyer don’t buy the product (gold jewels) to sell it but to melt it. The result is a different product (gold bar) thus the traditional trading VAT tax is not applied.

Gold Buyer collect gold from ordinary citizen paying without VAT and re-sell the gold to smelters without VAT.

However, some officer of the Italian Tax Agency has a different point of view. Until the Gold Buyer melt the collected jewels, he can still resell the goods as used jewels, such as a pawn shop. This is quite improbable, if not impossible. A Gold Buyer is a far better business than a pawn shop. Still this is possible in theory.

These officers will ask you to buy with VAT 20% and sell to the smelters at VAT zero%, in effect losing 20% from your mark up. They argue that you can always ask the VAT back later, when you can prove that you have melted the jewels and they can’t be sold as second hand gold anymore. This is not good for your business, VAT reimburses in Italy are never a simple and fast affair.

In the years, we have developed a series of suggestion for our clients in order to avoid to be charged of this 20% extra tax, some quite bizarre, such has having the employee hammering the gold on a regular basis (if a jewel is broken you can prove that you can’t sell it). The licence from the Central Banks is one of this suggestion. It’s not mandatory, but if could be used to prove that your business is really “just” buying gold to melt it, not to resell the used jewels.

So, do you need a licence to deal with gold in Italy? Not but we advise to take it.

Holding period for the gold

As a Gold Buyer you don’t have any specific holding period. You can even move the gold outside your shops every day in order to stock it in a safe warehouse. This is what the largest part of our clients do. Especially the companies using stand in malls and supermarkets, they don’t want to live all this valuable out there.

But (there is always a “but” in Italy, as you now know) our Civil Code impose a 10 days ban of selling second hand valuables. The reason behind the law is to give enough time to the police to investigate petty crimes and burglaries. So you don’t need to “hold” the gold in your shop, but you can’t sell it.

It works. I can’t speak for every small shop out there, but every client we have supported, big or small, has not interest in taking stolen gold. It’s simply to risky and little rewarding. Gold buyers are still seen with suspicious by some politicians, but they will eventually understand that the days of dubious pawn shops are gone. A gold buyer record the exact weight of any collected jewel, usually scan or photocopy it, and wait 10 days to ship the very same weight to the smelters.

Any discrepancy in quantity and quality could results in a criminal investigation on the shop, the managers and the director of the company.

Shipping the gold to be smelted

There is no limit to shipping the gold nor to shipping the gold outside Italy. In our line of work, it’s common to close agreements with the big Italian smelters, however we have seen an equal popularity of Switzerland, Germany or other Europan countries.

This is just a short overview of this specific case study. You can find more information about Italy in our blog Business in Italy made simple.com.