In order to carry out a business activity in Italy is it necessary to incorporate a company or is it possible to act by means of a branch?

In order to perform a business activity in Italy, according to the Italian Civil Code, foreign companies may start a business activity in Italy through

  1. the incorporation of a new company
  2. the establishment of a branch.

Under the Italian Civil Code, a company is an independent entity with respect to the foreign company, which may have limited liability or may be a partnership.

In the first case, the liability of the shareholders is limited to the amount of the share subscription while partnerships do not have a limited liability status and the partners are liable for all the debts and obligations of the company.

Under a legal and a statutory point of view, the incorporation and management of a limited liability company implies greater commitments and fixed costs than those imposed for a branch such as, for example, the approval and yearly registration of the statutory financial statements, the obligation to keep statutory books, the appointment of the statutory auditors, in the event that certain thresholds are exceeded, etc.

Under a legal point of view, a branch is not a separate legal entity with respect to the parent company and its establishment in Italy must be registered with the Register of Companies. A branch is subject to less statutory obligations with respect to a company's requirements.

From a tax point of view, a branch is deemed a permanent establishment of the foreign company and it is treated as an independent entity.

In general, a branch is subject to the same tax treatment of an Italian company as it is subject to corporate taxes for the profits produced in Italy (for this purpose, the branch must draw up yearly financial registers) and it is subject to the same tax commitments as Italian companies such as, for example, the keeping of official registers and the obligation to submit corporate taxes as well as file VAT returns.


  1. All resident companies are subject to corporate income tax (IRES or Imposta sul Reddito delle Società ) on income from any source, whether earned in Italy or abroad. The tax base of IRES is determined in accordance with the "world-wide taxation principle": income generated by an Italian tax resident entity must be taxed in Italy, regardless of the jurisdiction where the income is yielded.
  2. Both resident and non-resident companies are subject to regional income tax (IRAP or Imposta regionale sulle attività produttive) which, conversely, is determined on income earned in the Italian territory only.
  3. Non-resident companies are subject to IRES only on income earned in Italy. As a consequence, income realised by a foreign permanent establishment of an Italian company is subject to IRES, but not to IRAP, whereas an Italian permanent establishment of a foreign corporation is subject to both IRES and IRAP for Italian source income.
  4. As of 2015, the rates are the following:IRES: 27.5%;IRAP: 3.9%.
  5. Capital gains realised by a company are generally taxable as normal business income subject to IRES and IRAP, albeit certain relieves may apply
  6. Italian tax law includes a comprehensive set of rules on controlled foreign companies (CFC).
  7. VAT is levied on transfers of goods and services by enterprises, in the course of their business or professions within Italy, and on all imports into Italy.
  8. Foreign taxes may generally be credited against the Italian IRES tax liability, provided an equivalent clause exists in the territory from which the income derives.
  9. Transactions with foreign affiliated companies are closely scrutinised in order to determine whether transfer prices are at arm's length.
  10. Domestic companies making certain types of payments (e.g. interest, royalties, professional fees etc.) are required to withhold taxes at various rates.

Tax exempt status of a foreign business undertaking

In general terms, a foreign company will not be deemed to have a "permanent establishment" in Italy, if it carries out solely a preparatory or auxiliary activity, even if this activity is carried out in a fixed place of business (premises and/or personnel). In this case, the foreign company will not be subject to taxation in Italy.

It is highly advisable to seek advice as the exempt status of a foreign business undertaking must be referenced with the Italian Income Tax Code (TUIR - Testo Unico delle Imposte sui Redditi).

In particular, art. 162 of the TUIR define the "permanent establishment" as a fixed place of business through which the business activity of a non-resident enterprise is wholly or partly carried out, with the limitation that the definition of permanent establishment set in the international bilateral tax treaties prevails over the domestic definition.

Non-resident companies may obtain a preliminary ruling by the Italian Tax Authorities to ensure that the activities to be performed in Italy will not be considered as leading up to a permanent establishment

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.