How to operate
In Italy

Foreign companies have the opportunity to operate in Italy in different ways, and through different legal forms, from “lighter” to more structured ones, depending on the needs and specific requirements at the local level.


The “simplified” version of the establishment of a foreign company in Italy is a so-called “local unit”. In most cases, it is a representative office with exclusively promotional functions, mainly in the form of preparatory activities for the opening of a secondary office or a branch of the foreign company in Italy. It can also carry out advertising activities, gather information, conduct market analyses, research customers and suppliers, support the parent company’s strategic decisions and carry out other similar tasks. The representative office lacks organizational and decision-making independence, cannot conduct the business activities of the foreign parent company in Italy, nor can it legally represent it before third parties, having to limit itself to performing tasks that support the non-resident company. Otherwise, it may be at risk of being considered a “Permanent Establishment”, with the consequences that we will consider below.

A representative office does not have legal status in Italy and its establishment does not therefore require a notarial deed. There is also no need for a minimum initial share capital.

However, it is necessary to request a tax code to the competent office of the Revenue Agency, and to register in the Business Register of the local Chamber of Commerce. The parent company must identify an address in Italy and appoint a key agent of the representative office. The agent can also be a person who is not resident in Italy, but they must have an Italian Tax ID. The address of the representative office and its appointed representative are registered with the Register of Companies and with the Revenue Agency.

A representative office cannot conduct commercial or production activities – it is merely a cost centre for the foreign company. This means that it does not produce any income in Italy, and, as a result, is not subject to any taxation in the country. Likewise, it is VAT exempt. Its expenses can be deducted by the foreign parent company.

A representative office is not required to keep company books, nor to prepare and file its financial statements and tax and VAT returns.

In terms of social security, the general principle of territoriality applies, namely, the principle according to which a worker is subject to the social security system of the country in which they perform their work activities (lex loci laboris principle).

In short, the social security contributions for employees who carry out their business in Italy must be paid in Italy. To this end, the company must appoint a representative for social security purposes, by means of a power of attorney conferred by public deed. The document effectively gives a specific mandate to a person who resides in Italy, so that they can act in the name and on behalf of the foreign company, fulfilling all employment-related social security and insurance requirements. The social security representative and the foreign company are jointly and severally bound to fulfil their obligations, which must be made explicit in the public appointment deed.

The social security representative, in the name and on behalf of the foreign company, must:

  1. request from the Revenue Agency in Italy the Tax ID of the company as a non-resident subject, unless it was previously issued;

  1. establish an INAIL record (attaching a copy of the Special Power of Attorney) at the competent local INAIL office. The relevant record must be established prior to the start of work activities and entails the submission of complete personal data and the Tax IDs of the employed staff;

  1. establish an INPS social security record in the name of the foreign company (attaching a copy of the Special Power of Attorney) at the local INPS office and, if applicable, enrol the foreign company in the additional supplementary assistance and pension funds;

  1. pay the contributions and premiums to the various social security and welfare systems within the due deadlines;

  1. fulfil the following requirements: keep a Single Employment Ledger, pay contributions via the so-called “shadow payroll”, prepare and submit the consolidated certification (CU form), and submit all relevant communication to the Employment Office.

The representative office, as already discussed above, does not have tax payer status and, for this reason, any employee of the foreign company who performs their activity in Italy and resides in Italy for more than 183 days a year must file their tax returns and pay any tax amount due independently. However, pursuant to a recently introduced provision, the Revenue Agency now offers an alternative: the option for the foreign company to be considered a tax payer despite not having a permanent establishment in Italy. As a result, foreign companies can now essentially choose whether or not to have taxpayer status in Italy.

The foregoing also applies if the foreign company has no registered office in Italy, no representative office, no permanent establishment and no subsidiary; an employee who telecommutes in Italy suffices to claim the required status.


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.


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.

To establish the secondary office in Italy, the foreign company must solicit the support of a Notary, who draws up a report attesting to the filing of the Memorandum of Association relating to the branch of the foreign company. The Notary also files the report with the Register of Companies of the competent Chamber of Commerce, which must include the physical address of the secondary office and data of the appointed Manager (or representative of the foreign company in Italy), and all powers conferred upon them. The Manager can also be a person residing abroad, as long as they have an Italian tax ID. The branch must also be registered with the competent Revenue Agency, which will issue the branch’s Tax ID and VAT number.

As it pertains to taxation matters, the branch is akin to a “Permanent Establishment”, with the consequence of being fiscally liable both with regard to income taxes and to the application of VAT.

Consequently, the branch is subject to income tax in Italy, as well as in the country of the parent company. Double taxation is avoided by applying specific agreements signed by Italy and many foreign countries.

The secondary office, and, in general, the “Permanent Establishment”, is required to meet all the accounting and statutory obligations with which an Italian company is expected to comply (first and foremost, bookkeeping), as well as taxation requirements regarding VAT and income tax (settlements and payment of VAT, periodic communications, annual tax returns, IRAP and VAT filings, payment of any taxes due, etc.).

The secondary office prepares its own financial statements solely for tax purposes, since they serve as the basis to assess income taxes, pursuant to Italian tax legislation.

On an annual basis, the branch must also submit a copy of the financial statements of the parent company to the competent Companies Register.

The accounting practice of transfer pricing, namely the price at which intra-group parties make transactions with each other, is applied to the relationship between the permanent establishment and the parent company. We will discuss this topic more in detail below.

In the event that the foreign company operates in Italy through a secondary office, which, as we have seen, is a “permanent establishment”, the branch is required to register at the competent social security and welfare institutions, as well as to fill in and manage the mandatory register and pay all due social security contributions and tax withholdings, pursuant to Art. 23 of Presidential Decree no. 600/1973. The latter includes the permanent establishment as withholding agent. The foreign company will also be required to issue a CU (consolidated certification) form and submit withheld tax returns (form 770).


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).

The type of company that meets this profile is generally a corporation (Società a Responsabilità Limitata – S.R.L / Limited Liability Company, Società Per Azioni – S.P.A/ Joint Stock Company, or Società in Accomandita Per Azioni – S.A.P.A./Partnership Limited by Shares), as necessary. This legal form provides for the limitation of liability to the capital conferred by the foreign parent company, the appointment of an administrative body with managerial powers and, in certain cases, a control body.

Alternatively, it is possible to opt for other forms of partnership (Società in Nome Collettivo – SNC /General Partnership and Società in Accomandita Semplice – S.A.S. /Limited Partnership). However, these do not confer limitation of liability, leaving the party at risk of unlimited liability when it comes to the social security obligations imposed upon the partners, which is why they are rarely used in the establishment of corporate groups.

The distinctive features of the main corporate legal forms provided for by Italian law are summarized below.

The foreign subsidiary incorporated in Italy is subject to income taxes, VAT, tax and social security obligations according to the applicable provisions of the Italian law. In essence, subsidiary companies established in Italy by foreign parties are considered taxable persons, since they have their own legal independence.
The following table briefly summarizes the main accounting and tax requirements, broken down by type of legal status.

In addition to the routine requirements referred to above, the establishment of a subsidiary in Italy involves possible consequences also with regard to the applicability of the following tax provisions:

  • the Parent–Subsidiary Directive(Directive no. 2011/96/EU) applicable to corporate groups of different Member States within the EU, which, under certain conditions, allows inter-company dividends, interests and royalties to be exempt from any withholding tax;

  • tax evasion-prevention regulations related to tax inversion, whose purpose is to countervail the fictitious establishment of a company’s tax residence abroad for the sole purpose of benefiting from a more advantageous tax regime;

  • CFC (Controlled Foreign Company) anti tax-avoidance regulation aimed at hindering the creation of passive companies for the sole purpose of establishing intangible and financial assets in countries that offer particularly favourable taxation.

The accounting practice of transfer pricing, namely the price at which intra-group parties make transactions with each other, is also applied to the relations between a subsidiary and the parent company. We will discuss this topic more in detail below.

The establishment of a subsidiary is subject to the same rules applicable to a permanent establishment. A subsidiary is, for all intents and purposes, a company governed by Italian law and, therefore, fully subject to Italian legislation. As such is it required to register with its local social security and welfare institutions, as well as to fill in and manage the mandatory registers and pay all relevant social security contributions and tax withholdings. It will also be required to issue a CU (consolidated certification) form and submit withheld tax returns (form 770).