5 октября, 2017

Branch or Subsidiary? Main differences

To carry out its business in Italy, a foreign company may choose between a branch or a subsidiary (i.e. an Italian limited liability company entirely owned by the foreign company).

So, what is the difference between the two?

A branch is not a separate legal entity; it is an Italian unit of the foreign company. Therefore, the foreign company is liable for all the debts of the Italian branch. This might represent a risk for the foreign company in case of financial difficulties of the Italian branch.

On the other hand, a branch allows a foreign company to carry out its activities through an organisational structure cheaper and more flexible than the one required for a subsidiary. The simplified organisational structure of a branch will enable the foreign company to save costs related to its Italian investment.

A subsidiary, instead, is an Italian independent legal entity, owned by the parent company. This legal entity can be incorporated in different legal forms (among which S.r.l., S.r.l.s., S.p.A.). A subsidiary carries out its business activity directly, and it is liable for all its debts. Nobody can sue the parent company for the debts of its subsidiary.

Taxation

Finally, there is no distinction regarding tax treatment between a branch and a subsidiary (from a corporate tax point of view). A branch, though, may transfer its profits to the parent company free of withholding tax, since it is not an independent entity.

Contact us for more info on setting up a branch or a subsidiary in Italy.