How to establish a representative office 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) according to which a representative office is a 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.
As opposed to the establishment of an Italian company (subsidiary) or of an Italian branch, a representative office is 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).
A representative office must be registered with the Economic and Administrative Index (REA, Repertorio Economico Amministrativo) of the Italian Registrar of Companies.
What are the requirements to establish a representative office in Italy?
The establishment of a representative office shall be authorized by a special resolution of the company’s corporate body that is competent pursuant to the law of the place of incorporation.
- The company shall appoint a representative of the representative office whose name will be entered in the Italian Companies’ Registry (this can be the same director of the foreign company and does not need to be an Italian resident);
- The company shall have an address in Italy (if you don’t have an office in Italy, we can provide a virtual address);
- The company and the representative of the representative office shall obtain a tax identification number (codice fiscale) with the Italian Inland Revenue.
What are the documents required to establish a representative office?
To establish a branch in Italy, you shall provide us with the following documents:
- a detailed description of the activity of the company in its home jurisdiction on the company’s letterhead;
- a certificate of incorporation (or similar document) of the company that intends to establish a representative office in Italy, that includes the company’s bylaws and the name(s) of its shareholder(s) and director(s);
- a special resolution of the board of directors (or sole director) that shall (a) authorizes the establishment of a representative office in Italy and indicates the address of the Representative office and (b) appoints a representative;
- a copy of the passport of the representative person of the Italian representative office.
All the above documents shall be notarized and apostilled (or notarized and legalized with your local Italian Embassy or Consulate if your home country is not a member of the apostille convention – a list of the members can be found here https://en.wikipedia.org/wiki/Apostille_Convention). All the above documents (including the company’s bylaws) shall be translated in Italian and the translation shall be sworn by us (or by a certified translator).
Is a representative office subject to corporate tax in Italy?
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 any taxation in Italy. Accordingly, representative offices are not required to keep books, publish financial statements or file income tax or VAT returns. They are, 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.
What is difference between a “mere representative office” and 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.
Contact us for more information about the establishment of a representative office in Italy.