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).


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 warranted. 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), which, however, do not enjoy the limitation of liability to the capital conferred, providing instead unlimited liability when it comes to the social security obligations imposed upon the partners, which is why they are rarely used in the assembly of corporate groups.

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

Taxation matters

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 exempting inter-company dividends, interests and royalties from any withholding tax;
  • tax evasion-prevention regulations related to tax inversion, whose purpose is to countervail the fictitious establishment of the tax residence abroad of companies 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 favorable taxation.

The accounting practice of transfer pricing, namely the price at which intra-group parties transact 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.

Social Security and Welfare matters

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 at the competent social security and welfare institutions, as well as to fill in and manage the mandatory registers and pay all due 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.