How to operate
In Italy
REPRESENTATIVE OFFICE
OTHER TYPES OF LOCAL UNITS: CONSTRUCTION SITE AND WAREHOUSE
In addition to the representative office, construction sites or warehouses can also be considered local unit types.
In this case too, these are entities without organizational and decision-making independence, having to limit themselves to performing support activities for the benefit of the non-resident company.
The installation of a construction site in Italy by a foreign company must be also considered, among other things, in light of Art. 5 of the OECD Agreement to safeguard against double taxation, The article states that a construction, assembly or installation site is akin to a “Permanent Establishment”, provided that the site remains in place for more than 12 months, with consequences that will be discussed below in the Secondary Office section. The Italian legislation, however, is more restrictive; indeed Art. 162 of the TUIR (Consolidated Tax Act) states that a construction site is considered a “Permanent Establishment” if it is operational for more than 3 months. Each construction site of the foreign company has its own independent duration; therefore, the different durations of each individual construction sites are not cumulated, unless they constitute a single unitary complex. In the event that the foreign company also relies on the work of subcontractors, the duration of the construction site must also include the period of activity of the latter.
When these time limits are exceeded, therefore, the above-mentioned rules applied to “local units” are no longer applicable; on the contrary, the status is now akin to a “Permanent Establishment”, whose practical implications will be discussed below.
Construction sites in Italy that are staffed by employees sent by the foreign company from abroad, are subject to the legislation on transnational posting of workers, as well as to the appointment of a dedicated point of contact (POC) and to compliance with all workers’ health and safety requirements.
As it pertains to a depot or a warehouse in Italy used for the storage of goods belonging to a foreign company, the aforementioned Art. 5 of the OECD Convention on double taxation and Art. 162 of the TUIR provide that the availability of goods or merchandise belonging to a foreign company stored in Italy for the sole purpose of storage, display or delivery does not constitute a “Permanent Establishment”. It is possible to posit that for a warehouse to be a “local unit”, and, therefore, subject to the same rules discussed above for the representative office, it must engender “a cost” for the foreign company, rather than being just a source direct income for it. Therefore, any additional activity performed in Italy can lead to the presumption of the existence of a “Permanent Establishment”, with consequences that, as mentioned, will be examined later.
BRANCH
The foreign company may decide to establish its own secondary office, or branch, in Italy. A branch constitutes a territorial extension of the parent company, without being a legally independent subject thereof, both at the decision-making and at the organizational level. A branch allows entering into trade agreements and, for all intents and purposes, conducting regular business and production activities, as well as delivering services, in the interest and in the name of the foreign parent company. The distinguishing elements of a secondary office are a stable physical establishment and representation in Italy.
ESTABLISHMENT OF A SUBSIDIARY COMPANY IN ITALY
A foreign company that intends to establish a more structured presence in Italy, which is granted decision-making, asset-relevant and legal independence (always within the parameters set by the corporate mission and coordination activities of the parent company) may decide to establish a company under Italian law, which is an investee of or controlled by the foreign parent company (Subsidiary).