A foreign company may perform any business activity in Italy through a subsidiary (company) or a branch (permanent establishment).

To set up a corporation in Italy it is necessary to go before a Notary Public. To set up a branch in Italy it is necessary to file the relevant documents with a Notary Public.

The taxation of an Italian branch is the same as the taxation of an Italian corporation.

In the case of a branch, the parent company is directly responsible for all the debts of the Italian branch. However, in the case of a subsidiary, the company is only answerable with its assets for the obligations of the company. The liability of the Stockholders is limited to the amount of the participation subscribed by each of them.

The procedure for the setting up of a subsidiary is simpler than the one necessary for the setting up of a branch, and both from an administrative and fiscal perspective, are equally difficult to manage.

The Italian branch must file its parent company balance sheet with the Registrar of Companies. Of course, the balance sheet of the parent company must be translated into Italian. This is not true for an Italian subsidiary.

The transfer of the profits from the Italian branch to the Parent company is not subject to any withholding tax. However, the payment of dividends from the Italian subsidiary to the Parent company may be subject to a withholding tax (see Payment of Dividends, Interest and Royalties – Withholding Taxes on Dividends).