Establishing a Representative Office of a foreign company in Italy
Italian law does not provide an official definition of “representative office”. It is therefore standard practice to refer to the OECD Model Convention to avoid double taxation and prevent tax evasion (affecting Article 162 of the Italian so-called Revenue Tax Consolidated Act, Presidential Decree no. 917/1986).
And it is always standard interpretative practice to distinguish between a “mere” representative office and a representative office that does not merely perform representation functions.
What is a “mere” representative office?
It is the fixed place of business of a foreign company in Italy engaged only and exclusively in marketing and promotional activities, or scientific or market research, or other information gathering activities. In other words, a “mere” representative office merely plays an auxiliary or preparatory role for the foreign company to enter the Italian market, and may not conduct production-related or commercial activities.
Representative offices – which are not separate legale entities nor branches of a foreign company in Italy – are characterized by two factors:
- a local presence to promote the company and its products/services and to perform other non-business operations;
- the local unit does not require a permanent representation (it does not represent the foreign company vis-a-vis third parties).
Representative offices must be registered with the Economic and Administrative Index (REA, Repertorio Economico Amministrativo) held by the Chamber of Commerce, attaching the following documents:
- if the company is incorporated in an EU country: an apostilled certificate indicating the company details and the legal representatives of the company issued by the foreign equivalent of the Register of Companies in Italy (the certificate and must be translated un Italian by a sworn translator).
- if the company is incorporated in a non-EU country: a certificate (apostilled or legalized) indicating the company details and the legal representatives of the company issued by the foreign equivalent of the Register of Companies in Italy (the certificate and must be translated un Italian by a sworn translator).
As such, for tax purposes, a “mere” representative office is not considered a “permanent establishment” of the foreign company and is therefore not subject to taxation. Accordingly, such an office is not required to keep books, publish financial statements or file income tax or VAT returns. It is, however, required to maintain ordinary accounts in order to document expenses (e.g. personnel costs, office equipment, etc.) to be covered by the foreign company’s head office.
The establishment of a “mere” representative office shall be simply reported to the relevant REA based on the location where the concerned office is to be started. The filing shall be carried out by the legal representative of the foreign company, endowed with an Italian Fiscal Code (or by an attorney-in-fact with special power of attorney and Italian Fiscal Code), through Single Notification. Upon receipt by REA, the Revenue Agency will provide the “mere” representative office with ad-hoc Fiscal Code.
Differences with a “representative office that does not merely perform representation functions”?
First, while such an office may not engage in production-related or commercial activities, it, unlike a mere representative office, may provide third parties with non-commercial or preparatory services to the company’s business (i.e. display, purchasing and storing goods,gathering information, advertising, research, and other ancillary or preparatory activities). Of course, governance of the relationship between this kind of representative office and third parties shall be agreed between the third party and the foreign company establishing the office.
Consequently, it is standard interpretative practice to consider such a non-mere representative office as a permanent establishment and thus subject to taxation. As such, in addition to being registered with the competent REA and possessing a Fiscal Code, the office shall also obtain a VAT number from the competent Revenue Agency office. The filing shall be carried out by the legal representative of the foreign company endowed with an Italian Fiscal Code (or by an attorney-in-fact with special power of attorney and Italian Fiscal Code) through Single Notification. Upon receipt by REA, the Revenue Agency will provide the “non-mere” representative office with ad-hoc Fiscal Code.
Unlike a “mere” representative office, it shall also keep separate books, file VAT and income tax returns each year and file the foreign company annual report with the relevant Chamber of Commerce.